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. Last Updated: 07/27/2016

IBM Slashes PC Prices, Sparking Industry War

NEW YORK -- IBM Corp. has slashed prices on selected models of its personal computers by up to 27 percent, setting the stage for a much-anticipated price war with its rivals.

The leading U.S. maker of mainframe and personal computers said this week it would cut prices on its PS/2, ValuePoint, ThinkPad and PC Server lines, confirming a move that had been widely reported.

IBM is the first major PC vendor to reduce prices in response to a move by Compaq Computer Corp. last week, when the Houston-based PC maker reduced several products.

Compaq's price cuts ranged from 11 percent to 22 percent.

"Today's actions clearly demonstrate IBM's continuing commitment to respond quickly in resetting prices to meet changing market conditions," said Bill McCracken, a general manager of the IBM PC Co.

IBM's stock declined 37.5 cents to close at $67.375 in heavy trade on the New York Stock Exchange.

PC makers are beginning to feel pressure to cut prices on systems based on Intel's 486 chip as the prices for PCs designed around Intel's next-generation chip, the Pentium, are declining as users move to Pentium-based machines.

On Monday, Dell Computer Corp. introduced a fully configured Pentium-based PC family starting at less than $3,000. Dell also was the first PC maker to introduce a Pentium-based PC for under $2,000 earlier this summer.

Among IBM's price cuts, a Server 95 566 running on an Intel Pentium 66MHz processor with 1 gigabyte hard drive was $9,802 and now lists for $8,647.

Analysts have said price cuts by Armonk, the New York-based IBM, would not only be a reaction to Compaq's aggressive pricing stance but also clear the way for new PC products this fall.

Compaq and other PC makers also will be introducing more Pentium-based PCs, servers and notebooks this fall.

A Hewlett-Packard Co. spokes-man said the price cuts are "evolutionary" and had been expected by the industry.

"Component suppliers have been reducing costs, and if there is a way to pass that on to the consumer, most vendors are inclined to do that," he said.

IBM also is expected to announce a new branding strategy for its entire PC family in either September or October, part of a revamping of the IBM PC Co., and to pare down its hundreds of PC models to three main lines.

"There will be a consumer line, and there will be two lines" for corporate customers, "but that has yet to unfold," said Gary Helmig of SoundView Financial.

Analysts believe IBM's PC business is still profitable, but its margins are much lower than Compaq, which has the highest margins in the PC industry. Price cuts will add to its margin erosion.