IBM to spark price war: Budget range of personal computers threatens to renew pressure on competitors

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The Independent Online
IBM, the world's largest computer company, is set to spark a fierce price war in the personal computer market by launching a new budget range of machines from less than pounds 1,000.

The plan is to put renewed pressure on competitors through aggressive pricing and new products. The changes should accelerate the expected shake-out of weaker players in the industry.

The normally aloof group, whose share of the PC market has slipped from 80 per cent to under 20 per cent over the last decade, has told employees to go for market share at all costs.

The start of the sea-change will be the launch on Tuesday of low-cost machines based on an industry standard architecture - the system defining the way a computer works. Models in the range, called Valuepoint, will target small and medium-sized businesses as well as home users.

IBM's decision marks a move away from Microchannel, the proprietary technology introduced by the group in a splurge of publicity in 1987.

It is also an admission by IBM that its strategy to kill the mushrooming IBM PC clone market has all but failed.

The Valuepoint range is based on the group's first PC, introduced in 1982. This was quickly copied by other manufacturers.

IBM's introduction of Microchannel, in a PC range called PS/2, was supposed to see off the opposition. However, other companies, including Compaq and Olivetti, stayed with the original design and continued selling well. Although IBM sold PS/2 to big corporations, it largely lost out on the small-to-medium business sector, where growth has been most dynamic.

The group will remain committed to PS/2 in its more powerful machines, but the new system is supposed to bring back market dominance.

In another break from tradition, IBM is also expected to sell the new range direct to customers rather than using dealers. This approach was pioneered by Dell Computer and has made the US company a substantial player in the global PC market.

IBM's move comes at a critical time in the cut-throat computer industry.

Over the last two years, the prices of PCs have been slashed by up to two thirds in some cases. In recent months, even top-end players such as IBM and Compaq have entered the fray.

Recently, IBM set out its stall for a shake-up by announcing that it would hive off its PC operations into a separate organisation dubbed Baby Blue. This week's announcement will be seen as the strongest sign yet that IBM is not prepared to give up on the market it began.

The parlous state of the PC market was highlighted on Friday, when Amstrad made its first pre-tax loss - around pounds 71m, compared with a pounds 20m profit a year earlier. Amstrad blamed the deep recession in its main European markets rather than loss of market share.