IBM Cuts PC Prices for Business Buyers

International Business Machines’ most recent personal computer price cuts pass along to its direct corporate buyers the price advantages that consumers have been enjoying since low-priced compatible machines have been forcing a more competitive market.

The price cuts, which range from 16% to 22%, affect only IBM’s low-end PC models and will produce savings averaging about $400 per machine for customers who buy from IBM’s direct-sales force.

These reductions, which took effect Aug. 1, bring IBM’s prices in line with the prices its franchised retail dealers have been charging in recent months, and most dealers say they are not worried.

“We’ve had five price cuts in the past six months” on the various models of the IBM Personal Computer, said a salesman at a local ComputerLand store. “They can’t hurt us.”

IBM’s sales force, which deals primarily with large business customers, will be able to sell the basic model PC with 256 kilobytes of memory and two floppy disk drives at $1,595, down from $1,995. Other machines, with different features that add to the price, were similarly discounted.

The price cuts do not apply to the more powerful PC-XT and PC-AT models, said an IBM spokeswoman. In recent months, IBM has cut its prices to dealers on those models as well.

“All we’ve done is make our own sales force competitive with the dealers,” said Marilyn Mobley of IBM’s Personal Computer division.

On the other hand, analysts said, dropping the list price on the PC will force some dealers who typically offer a 10% discount to cut further into their profit margins in order to compete for sales. Although such discounts are typically aimed at large corporate customers, the savings sometimes filter down to consumers.

Currently, prices for the basic PC model at local IBM retailers, such as ComputerLand and Businessland, start at $1,595 but range as low as $1,400.

Competitive Market

The dealers, by substituting non-IBM parts, such as different monitors, can cut the prices even further while continuing to make a profit. The same PC model sells for $1,295 at 47 St. Photo, a New York-based discount electronics store and mail-order chain that typically is among the lowest-price computer retailers.

The ongoing price cuts are a reflection of the increasingly competitive market for personal computers. Numerous PC-compatible machines are on store shelves or are sold through the mail, many at lower prices or at comparable prices but with higher performance and memory levels than IBM’s models. The XT and its compatibles are beginning to replace the PC as the best-selling microcomputers, dealers say.

Additionally, analysts believe that the company is attempting to reduce its inventory of the PC and may even make further price cuts in time for the pre-Christmas selling period. It is widely speculated that IBM will introduce a new version of the 5-year-old PC later this year or early next year, which would make the current PC model obsolete.

“The old PC is really not a machine you can build on for the future, and I advise our clients not to buy the PC at all,” said Aaron Goldberg, vice president of International Data Corp., a market research firm in Framingham, Mass. “It’s a dead-end machine.” Instead, he recommends the higher-end AT or, at the least, the mid-range XT.

Goldberg, like other analysts, believes that IBM has lost control of the pricing standard on personal computers and must be more responsive to general market conditions. He said IBM sells about 60% of its microcomputers through dealers, according to IDC figures. About 30% of the sales are through its own direct-sales force, with the remaining 10% going through value-added retailers. (VARs are dealers who package computer components into a system that might include, for instance, a high-speed plotter from one firm, a computer from another and software from yet a third maker.)

HOW PCs COMPARE

Based on computers equipped with 256K of RAM, two 360K floppy disk drives, manufacturer’s monochrome display adapter with printer port and manufacturer’s monochrome monitor.

Typical List Purchase Model Price Price IBM PC 176 $2,120 $1,423-$1,650 Compaq Deskpro Model 2 (1) 2,649 2,075-2,100 AT&T; 6300 (2) 2,745 1,900-2,010 Tandy 1200 1,468 1,468- Leading Edge 1,295 1,148-1,250 Model D (3) 1,295 1,148-1,250

(1) Also includes dual-mode graphics capability with connector for color monitor.

(2) Also includes monochrome graphics capability, built-in battery-powered clock/calendar and communications port.

(3) Also includes 512K of RAM, Hercules-compatible monochrome graphics capability plus connector for color monitor, built-in battery-powered clock/calendar and communications port, word-processing software.