Component costs haunt dispirited PC market

Devil and deep blue sea

PC vendors were sat between the devil and the deep blue sea last week, as rising component costs force them to consider raising prices even as their market stubbornly refuses to pickup,

Joe Fay writes

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Vendors are being forced to swallow rising prices for memory and to a lesser extent LCD panels. Supplies may be further disrupted in the short term by the recent earthquake in Taiwan.

Something has to give, and Sony last week said it was bringing in price rises on certain Vaio models of $100 to $150. The move comes just weeks after Apple raised prices by $100 on its iMac range. Other vendors have either subtly increased prices, or are contemplating prices rises.

Martin Reynolds, research fellow at Gartner, said rising memory prices were the major headache for vendors at the moment, although TFT pricing was also a problem. Even as memory demands increased, in part because of the needs of Windows XP, the DRAM manufacturing sector is consolidating, meaning the glut that has driven prices to suicidal levels over the last couple of years is now drying up. In response, he said, vendors are either cutting installed memory, or raising prices, he said.

"It's not driven by the PC manufacturers. They simply don't have the room to absorb this," he said.

However, Reynolds said that price rises are unlikely to have a catastrophic effect on the PC market, if only because it is "flat and ugly" already. The research firm still expects a pickup in the latter part of this year, which will pickup strength next year. This will be driven by corporates' need to update fleets of PCs that have been in place since 2001, said Reynolds.

A Sony spokeswoman confirmed that the company had raised some prices, and said components costs are a problem for the entire industry. She said that reining back specs was the only alternative, but this was difficult to do while still remaining competitive.

A spokesman for Compaq Computer Corp said that "for the most part" the company had not had any price changes. He said the company was looking at pricing, and there may be "minor price adjustments" down the line. However, he added, the company believed memory price pressure could be offset by lower CPU prices.

Price rises are virtually unheard of in the PC industry, which has consistently driven down unit prices down by ruthless competition. However, this would be just the latest inversion of history to hit the sector in recent times - before 2001, the industry had never seen sales drop year on year either.

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