Compaq launches fierce new computer wars with 23% cuts

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The Independent Online
Wall Street was bracing itself for even bloodier computer price wars in the months ahead following Compaq's move yesterday to cut prices by 23 per cent on existing computers and to introduce a new line of products as much as 16 per cent cheaper than its competition.

The latest onslaught by Compaq, the world's leading personal computer maker, has sent shock waves through an already battle-scarred industry.

Martin Reynolds, a senior analyst at research firm Dataquest, said the introductions "are as significant as the pricing structure changes that Compaq executed in 1992 and portend further shifts in the structure of the PC industry".

US stock markets plummeted again yesterday, with the Dow Jones Industrial Average off 35 at 5,390 by the close and technology stocks taking another hammering.

The increasing number of casualties in the computer industry - including news from giants such as Hewlett Packard and Motorola that sales slowed in the second quarter - has in the past fortnight triggered Wall Street's sharpest correction in its six-year-long bull run.

Compaq's move is among the worst blows yet to its competitors because its superior cost structure has enabled it to reduce costs far more than others can afford.

"It's now a case of the strongest survive," an analyst at one of the largest brokerage firms on Wall Street said. "Those that have the lowest cost structure can afford to reduce prices to a level where their competitors start bleeding. Compaq has been renowned in the last 12 months for having such a phenomenal cost structure it can reduce its computers to a level at which competitors cannot compete."

The new Deskpro line of computers launched by Compaq yesterday is the first to benefit from the company's overhaul of its cost base, and represents a complete re-design of its commercial desktop PC line for individuals, small and medium-size businesses.

"The design reflects fine-honed value engineering, allowing the buyer to pick and pay for just the features needed," Mr Reynolds said.

Its most basic model, which features a Pentium 100mhz microprocessor, will cost just $1,000, which Compaq said is 16 per cent lower than its lowest point of entry for competitors.

Its top model in the new range, featuring a Pentium Pro 200mhz chip, will retail at around $4,800.

Compaq will lower the price of existing Pentium Pro processor-based desktops by up to 23 per cent.

It is not so much that the technology boom is ending, but more a case of computer companies having misjudged the sustained rate of demand growth in the $120bn global personal computer market.

"Everyone was anticipating such huge growth in PC demand that a lot of chip and PC manufacturers ramped up capacity," one analyst said.