Pc Price Wars Heat Up For Christmas Intense Competition Puts The Squeeze On Smaller Companies

There may have never been a better Christmas to buy a computer. There may have never been a Christmas when it was such a bruising battle to sell one.

Seductive prices and consumers’ eagerness to be on the Internet have set off a stronger-than-expected start for home PC sales this holiday season. But the intense competition among computer makers is putting the squeeze on smaller companies like Packard Bell Electronics, which is fighting to maintain its lead.

Companies with better-known names and deeper pockets, like Compaq Computer and Hewlett-Packard, are offering machines comparable to Packard Bell’s, at only slightly higher prices.

And on Dec. 1, there was a new round of price-cutting by Apple Computer, whose machines once cost much more than other brands, but can now compete head-on in the home PC market.

“People typically spend about $2,000 on a home PC, and it’s been that way a few years,” said Larry Mondry, executive vice president of merchandising for Comp- USAInc., the nation’s largest computer retailer. “What’s changed this year is how much you get for your money.”

Last year Packard Bell dominated the home market because of its low prices and because it was one of few retail providers of PCs using Intel’s Pentium chips. A top-of-the-line Packard Bell home PC sold for about $2,500 and contained a 90-megahertz chip, 8 megabytes of random-access memory and a hard drive with a storage capacity of 540 megabytes.

This year, Mondry said, a comparable Packard Bell model sells for $1,600. And that buys a 100-megahertz Pentium chip, which means faster processing time, the same 8 megabytes of RAM, and a full 850 megabytes of hard-drive capacity.

Much of this price trend is simply in keeping with the traditional movement of the silicon economy, where technology’s costs fall while performance soars. But this season, more companies are competing in the home PC arena, a fast-growing segment - although that growth has cooled to about 25 percent, compared with last year’s 50 percent rate.

When the final 1995 sales figures are available, experts expect that sales of PCs to homes in the United States will approach the 10 million mark - with half of those sold in the last three months of the year.

There were no firm sales figures yet for the season, but the anecdotal evidence indicated that consumers were not hesitating to open their wallets. A survey of stores conducted in early December by the trade magazine Computer Retail Week found that 76 percent said that business was better than anticipated.

Last holiday season, a flood of new multimedia software titles helped propel the sale of PCs equipped with CD-ROM drives. Multimedia capabilities are still in demand, but this season everyone is intent on exploring the Internet and its World Wide Web, so the modem - crucial for electronic communication - has emerged as a standard component of virtually all new home PCs.

“Anything that has to do with the Internet is selling,” said Abe Brown, spokesman for J&R Computer World, of New York, one the largest independent computer superstores in the nation. “More and more people are flocking to buy computers to get on it.”

In addition to wanting to use the Internet, home PC buyers are buying high-performance systems to run Microsoft’s new Windows 95 software, as well as games and entertainment software.

And consumers are demanding that these systems last. Unlike business buyers, who replace their computer systems every few years, consumers expect to own the same machine five years or longer, and so tend to buy machines with high-performance microprocessors that can accommodate future advances in software.

“Customers seem to be saying, ‘Whatever you buy is obsolete the minute you buy it, so why not get as much bang as you can for your buck?’ ” said Andrew Neff, an analyst for Bear Stearns Inc., in New York, who said that the weekend after Thanksgiving he saw people buying computers “like groceries” at the CompUSA store in White Plains, N.Y.

Another factor in the surge in sales of powerful PCs is the fact that many customers are already buying their second or third home PC, according to research firm IDC/ Link Resources.

In the past, computer makers and sellers underestimated consumers’ demand for powerful machines. In 1994, supplies of the Pentium-powered models tended to sell out early.

“Everybody was scared to death by what happened last year,” said Larry Sennet, a spokesman for Hewlett-Packard, which began selling PCs to the home market this year. “We see no indications there are going to be huge shortages.”

Mondry of CompUSA agreed. “This is the most plentiful Christmas season on record,” he said. Still, if purchases accelerate this month, supplies of the most popular equipment could run low, analysts said, and regional independent stores could find themselves unable to restock as easily as big chains like CompUSA that have more clout with manufacturers.

The few spot shortages so far have tended to be of the higher-performance models - Pentium machines or Apple Macintosh’s with PowerPC chips.

Analysts said last week that Packard Bell had built more of the less powerful 75-megahertz Intel computers than consumers were buying. And several analysts said that Packard Bell’s financial problems had forced it to fall into arrears with Intel - to the tune of $470 million.

Packard Bell finally issued a statement last Thursday saying that it was having “a great year” and denying that it had an oversupply of 75-megahertz machines - but skirting the Intel question.