Apple Computer Inc. has cut prices on its high-end computers in an effort to shed excess inventory, and other PC makers might soon follow suit.
The price cuts–as steep as $1,000– began last week and affect Apple’s G4 desktops and G3 PowerBook laptops. Those models tend to be purchased by businesses and professional users.
Cupertino, Calif.-based Apple had offered rebates of $300 or more on several items this holiday season, but those efforts failed to clear store shelves. According to market research firm PC Data, Apple sales slowed 40 percent during the holidays while overall PC sales were off 25 percent. PC Data does not track purchases from online retailers like the Apple store, but Apple sells most of its products through traditional retail channels.
Apple limited price cuts to its high-end models.
“I think it’s interesting that they didn’t cut any prices on the iMac line,” said PC Data analyst Stephen Baker, referring to the colorful computer that was once a hit with consumers.
“Going from rebating to making the rebate a permanent part of the price is a normal merchandising activity. The PC guys do rebating like you and I have dinner. Every day there’s a rebate.”
Manufacturers generally favor rebates rather than price cuts because when base prices drop, customers expect them to stay down. Rebates can be more flexibly applied.
Apple might just be the beginning. Hewlett-Packard will announce PC price cuts as well as new products at the Consumer Electronics Show in Las Vegas this week, an HP spokesperson said. And when HP cuts prices, that often provokes a response from its competitors in the PC world.
“I absolutely believe you’re going to see a significant number of percentage cuts and rebates starting probably this weekend from the other big players, as they understand their inventory issues and move to correct them,” said Tim Bajarin, president of consulting firm Creative Strategies. “If they have inventory over six weeks, they have to respond quickly.”
Analysts estimate that after the holiday season, Apple has between seven and 11 weeks of inventory. The company had no comment on its price cuts.
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The Apple inventory problems happened something like a multicar highway pileup. First, Apple expected its new, high-priced G4 Cube computer to be more popular than it has been. Second, Apple fired its third-party education sales force just before the big education buying season, and schools did not buy as many Apple computers. Third, consumers slowed their spending on big-ticket items like computers this holiday season, turning instead to gadgets like digital cameras, digital audio players and hand-held computers.
As a result, Apple warned last month that it will book a $250 million loss for the quarter that ended Dec. 30. Apple reports earnings on Jan. 17.
Apple Chief Executive Steve Jobs has said he thinks part of the problem is consumer anticipation of Apple’s next-generation operating system, OS X, due out early this year. He said he thinks prospective buyers are holding off on hardware purchases.
If Jobs is right, hardware sales could remain sluggish until OS X hits store shelves, which Apple community insiders predict will be late February at the soonest.