Computer prices reverse course, start to rise

By Dow Jones Newswires-Wall Street Journal
Posted Dec. 14, 2010 at 1:59 p.m.

For the first time in several years, people shopping for personal computers are doing something new: paying more.

In November, the average retail price of a PC sold in the U.S. was $615, up 6 percent from last year’s $580, which marked a record low, according to research firm NPD Group. Average PC prices have now increased in six of the past eight months compared with 2009 levels, according to NPD data.

Computer prices are rising even as the prices of other consumer electronics such as high-definition televisions and digital cameras plunge this holiday season.

The rising prices for PCs — including desktops, laptops and low-cost netbooks but not tablets — is a stark turnabout for the $250 billion global PC industry, which for years has coped with sharp price declines even as machines became more powerful.

The cut-throat pricing of recent years has rippled through the industry, squeezing profit margins for big PC makers such as Hewlett-Packard Co. and Dell Inc. Now those firms are focusing on premium machines and seeing profit margins expand.

The higher-end PC models are “flying off the shelves,” said PaulHenri Ferrand, chief marketing officer for Dell’s consumer unit.

H-P is this holiday season pushing desktops with touch screens that can serve as a family’s media hub and generally cost upwards of $1,000. Its “Envy” laptops, which feature a backlit keyboard and high-end audio, start at $999. In contrast, H-P last year marketed steep discounts to shoppers who bought multiple H-P computers, among other things.

“People recognize that if they want a level of performance and graphics they probably aren’t going to get that for $299,” said Wayne Surdam, an H-P vice president. “We’re creating a willingness for our customers to pay a bit more.”

Shoppers’ willingness to spend more on PCs stands out against the falling prices of other electronics. Last month, the average selling price of a Blu-ray disc player dropped 21 percent to $123 from a year earlier, while the average price of a flat-panel TV declined 9 percent to $550, according to NPD.

But now with PCs, “there isn’t anywhere lower to go” in price, said Stephen Baker, an NPD analyst. These days, low-end machines tend to sell for close to what it takes to make them, giving manufacturers little room to squeeze out costs, he noted.

The PC price reversal is also driven by a rise in the average prices of laptops, which dominate the mix of computers sold today. Selling prices for laptops running Microsoft Corp. Windows software jumped 2 percent year-over-year in October, the first such jump since at least 2004, according to NPD. The average Windows laptop price was essentially flat in November from a year ago at $453, while Windows desktops had an average selling price of $508 up from $477 a year ago.

Still, the rising prices have some executives suggesting the PC industry has finally matured to the point that regular price declines are coming to an end. Paul Otellini, chief executive of chip giant Intel Corp., made that point in an investor meeting last week.

Average selling price for his company’s microprocessor chips — the electronic brains in PCs — have long mirrored the declines in PC prices. But Intel has reported four straight quarters of increased or flat microprocessor pricing.

Otellini attributed the improvement in part to the company’s success in helping to persuade consumers to buy more powerful PCs. But also argued that laptop computers simply can’t fall much below their starting prices of around $299.

“They aren’t going to fall to $99,” Otellini said at the meeting. The aggregate price of all the components in a laptop “won’t get them there,” he added.

Despite the recent gains, prices remain below where they were two years ago. Still, the rising prices are already having an effect on PC makers’ profit margins. In the quarter ended in October, H-P’s average PC selling price increased 3 percent year-over-year, and the PC group’s operating margin jumped to 5.5 percent from 4.7 percent a year earlier.

Dell declined to disclose its average selling price and profit margins, but the company’s overall operating margin increased to 6.7 percent in the October-ended quarter, up from 4.8 percent a year earlier.

Part of the price gains come from sales to businesses, which are starting to buy new systems for employees after holding off on upgrades during the recession.

But the prices that consumers pay are going up as well. Excluding Apple Inc.’s Macintosh line, which tend to cost more, prices for all computers running Windows have climbed year-over-year for four straight months, according to NPD.

Helping to spur the shift to feature-rich computers is also a change in the typical computer buyer. First-time computer buyers tend to pick the cheapest machine that will allow them to access email, surf the Web and perform other basic tasks, said Jeff Barney, a vice president at Toshiba Corp.’s U.S. unit.

But repeat buyers want more features-such as the ability to share and consume movies and music — and are willing to pay for them.

Shyann Jones, a 19-year-old student at Foothill College in Los Altos Hills, Calif., recently was shopping at a Best Buy Co. store for a new laptop to replace a $359 machine she bought earlier this year.

“I want one with a camera,” she said as she looked at several more expensive H-P models, adding that she intended to use the PC for entertainment and school work.

Overall, PC sales are still growing, but the rate of growth is declining, according to Gartner Inc. Last month, the research firm revised down its projection for 2010 PC unit shipment growth to 14.3 percent from 17.9 percent.

Without the usual price drops, it’s the people looking to buy cheap computers that are holding back. “What we saw for back-to-school is that the deals weren’t as good so some of the bargain hunters didn’t show up,” said Toshiba’s Mr. Barney. “But the people with disposable income did.”

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  1. Liz Dec. 14, 2010 at 2:23 pm

    I found you get what you pay for. After years of buying a new PC a couple of years ago, I decided to upgrade to a Mac. They cost a bit more, but holy cow, what a difference. It runs as well now as the day a bought it and I cannot say this about any of the PCs I used to own. My husband has a new PC with Windows 7, and it is a little better than older versions, but he feels like it is a cheap imitation of my Mac. I will never go back to a PC. I know some people must use them, but paying more for quality has certainly been worth it for me.

  2. Jeeper Dec. 14, 2010 at 2:40 pm

    Windows PCs are loaded with Anti-Spam and Anti-Virus software degrading the systems’s performance. Why don’t Macs have this problem? Because there aren’t enough malicious people out there on Macs…

  3. Mark Dec. 14, 2010 at 2:43 pm

    The $299 laptop special at Microcenter running Windows 7 will satisfy the computing requirements of 95% of the general public. I do everything with mine including Photoshop and some simple video editing. Most people just surf the net and do Facebook and simple word processing which takes practically no computing power to accomplish with even the most rudimentary modern microprocessor. My first computer was a TRS-80 BTW LOL.

    People who pay double or triple to buy a Mac buy it for prestige much like women buy Coach handbags. If you view a PC as a tool to get something done, save your money. I was able to buy a professional DSLR with some lenses with the money I saved by not caring that I have a fancy lighted apple logo that everyone can see at the coffee shop.

  4. @mark Dec. 14, 2010 at 3:34 pm


    If one going to spend ~$1k for a computer, IMO, paying a 20% or so premium for a Mac is well worth it. One can reduce that premium by buying from Apple Refurbished which bring Macs closer in price to PCs while still providing the standard warranty. I only buy refurbished Macs as in most cases it’s a HD, SDRAM DIMM or some simple component that is replaced or even just a return of a perfectly good machine.

    Your generalization about Mac users is wrong and off-base. However, you are correct in that some people spend more money on computers than they need to. But this affects both PC and Mac buyers and is not unique to those that purchase Macs.

    As a long time user of both PCs (all OS from the early DOS, to the original Win 1.0 through Win 7) and Macs (OS X 4 through OS X 6) I can state unequivocally Macs and popular OS X software are substantially easier and more intuitive to use than similar PC software. iMovie, iPhoto, Aperture, Pages for word processing and Numbers for spreadsheets are all much easier to be productive in, quickly, then PC equivalents.

    Additionally, Mac OS X applications integrate wonderfully with each other so one can easily cut and paste and share info between them. And they all have a common UI so once a user is familiar with using a feature in one application, if the feature is available in another application, it is invoked and used in the same way.

    That cannot be said of disparate PC applications. And w.r.t. to Photoshop, no general PC user is going to BUY Photoshop (which costs more than a $299 machine) and figure out how to use it. It’s way too complicated. Aperture, iPhoto – elegantly simple to use.

    iMovie is another simple, simple app that inexperienced computer users can quickly become productive in.

    There are no equivalents IMO on Win machines.

    So, I completely disagree with your assessment about Macs. I use both Win 7 and Mac OS X 10.6 machines now for different purposes and I prefer to do everything – both simple and complicated – on the Macs – iMovie, iPhoto, Photoshop, Final Cut, WP, spreadsheet, Dreamweaver, Flash Development – you name it.

    Finally, I have to restart my Macs (Mac Pro, MacBook Pro, iMac) much, much less often than Windows machines. Win 7 is the best Windows OS I’ve used and it still needs to be restarted once every couple of weeks (a vast improvement of days from earlier Windows OS).

    I work on a Win 7 machine because I have to, not because I want to.

  5. @mark Dec. 14, 2010 at 3:41 pm

    Oh, and my first computer was a TI-99/4A. I used TRS-80s in school.

    I will say that Windows 7 is very nice – I like it a lot. It’s not as nice as OS X 10.6.x IMO, but it is a vast improvement on previous Win machines. But now I don’t mind working on Win machines as much when it’s Win 7.

  6. SRQ Mick Dec. 14, 2010 at 4:08 pm

    Here is a simple article about the prices of PC’s bottoming out and rising. Most of the comments turn out to be a religious/tribal argument between those who prefer MAC’s over PC’s and vice versa. Who cares about what you all prefer. “My daddy makes more than your daddy” Do your homework and buy what suits you. Think! This is America. We can buy whatever we want as long as we can pay for it.

  7. STeveB Dec. 14, 2010 at 4:27 pm

    I’ve been looking at the Macs myself for awhile and I am tempted to switch. My university photography courses require Macs anyway and I don’t hear of problems with Mac virus PCs. I’ll have to research the Macs a bit yet before I decide.

  8. Observer Dec. 14, 2010 at 4:43 pm

    As someone who grew up with mainframes/punched tape-cards/Apple ][’s/DOS/Windows and MAC’s I can honestly say that MAC’s are overpriced boutique purchases. If all you want is to surf and email without apps’s then you are truly buying a MAC for show. You could save a bundle and purchase a decent PC laptop and get it done quite nicely. On the other hand if you work with graphics/photo’s/video all day long then a MAC MIGHT make some sense. It’s laughable that you start talking about restarting once every couple of weeks! Is that any kind of reason to spend $2200 on a laptop you could get for $1000. Just absurd. Even mainframes need to be restarted now and again. It’s false idea’s like yours that Apple counts on. Asking someone to buy a refurbished product is not a good idea in the business world. Let’s dissect: refurbished means outdated models (generally) replaced mobo’s/RAM/Video card/screen/KB/trackpad/whatever. Asking a business owner/professional to hinge their very livelihood on a refurbished model is reckless. I suppose it’s okay if all you want to do is surf and show off your luminescent logo. Call it what it is: a boutique/ego/”I’ve got one too” purchase. And I’ve owned MAC’s since 1985 and PC’s since 1981 and have had access to mainframes since 1975. Be honest!

  9. Terry Maraccini Dec. 14, 2010 at 4:44 pm

    I’m a Mac user and as such have always paid more for my hardware. There are some definite advantages to owning a Mac. But, as per this article, the rise in PC prices simply had to happen. The race to the bottom pricing strategy is not sustainable.

  10. Getalife Dec. 15, 2010 at 10:55 a.m.

    Other then for some jobs and the declining PC gaming market, 99 percent of the computer buyers do not need these over priced and over powered computers. Paying over 600-700 bucks for a laptop is nothing more then a status thing.

  11. Getalife Dec. 15, 2010 at 10:59 a.m.

    If you don’t want viruses don’t surf porn… pretty simple concept, and if you must have your porn install the free Windows Security Essentials.

  12. Tom Dec. 15, 2010 at 1:15 pm

    PC prices going up? For what??? I am a PC user at work (wish I could upgrade to a Mac, but our company is stuck with PCs and so I am, except for the execs who all have Macbook Pros), and I see little improvement in the Windows 7 operating system over XP (Vista was a disaster that should have put Microsoft out of business). I have a Mac at home and it is like a Ferrari compared to the Windows 7 clunker at work (like a Yugo). I do not understand why PCs are MORE expensive; I would think cutting the price on this mediocre junk. I know all of you programmers out there love PCs because all of the issues they cause provide your paycheck (much like lousy highways that need to be surfaced every summer keep labor force employed), but for those who have used both, the term “PC” means something different than “personal computer” (think “piece of cr….”), No wonder the world has so many problems……