Personal Computer Prices Are Plummeting And Costs Should Keep Going Lower As More Competitors Enter Crowded Market

Personal computer prices are in a free fall.

Within the last six months some PC prices have dropped as much as 40 percent, primarily because of a sharp decline in prices for some key components inside computers - especially so-called “memory chips” that are used to store data and programs while the computer is turned on.

And as more competitors enter the already crowded PC industry, analysts say, the decline could continue. Even in a world where a model introduced six months ago is already out-of-date, the roll-out time of newer and faster computers into stores is setting speed records.

Patient consumers who wait a few months might get more powerful computers with faster and sexier systems for the same price. And unlike in the past, there are signs this time that consumers might get more powerful computers for less money than they would currently pay.

“Market forces are driving prices down,” said Seymour Merrin, president of Merrin Information Services. “It’s a consumer’s market right now.”

One of the driving factors behind the drop in PC prices is the decline in prices for dynamic random access memory chips.

In less than a year, the price of DRAM which accounts for roughly 20 percent of a computer’s price - has declined by as much as 48 percent, analysts say.

But DRAM prices are stabilizing, so consumers can buy more memory to upgrade their PCs without fear that prices will plummet only a few weeks later. The drop in DRAM prices, coupled with more affordable microprocessors, is making computers accessible at every price level.

For years, memory chip prices were one of the main obstacles to cheaper and more powerful PCs. While other components, like the microprocessor - the brains of the computer - fell rapidly in price, DRAM prices barely budged. The reason for the recent fall is that many chip manufacturers overestimated demand for PCs and made too many chips. Now, those companies have had to dump their inventories.

When Microsoft released its Windows 95 operating system last summer, DRAM manufacturers also cranked up production of chips because both Windows 95 and its high-end cousin, Windows NT, run most efficiently on at least 16 megabytes of memory. But the promise of Windows wasn’t fulfilled and businesses didn’t convert en masse to the new operating system, leaving lots of chips on the shelf.

Nonetheless, as businesses and individuals convert to Microsoft’s two new operating systems, they are discovering they need more powerful computers. That has led to a new “standard” in the industry, in which many manufacturers are shipping PCs with 16 megabytes of RAM rather than the 8-megabyte machines of only a year ago.

Users frustrated with 8-megabyte systems are finding they need to upgrade to take advantage of the new technology. Of 93 models produced last year by 10 name-brand manufacturers, including Apple Computer Inc., Hewlett Packard Co. and Compaq Computer Corp., only nine models were fitted with 16 megabytes of memory. The same companies now have 44 models that house at least 16 megabytes of memory.