Notebook vendors bracing for fourth-quarter price competition

Steep production ramp-ups by leading notebook vendors and an influx of new players will likely end current shortages in notebook PCs and by year's end bring stiff price competition.

Steep production ramp-ups by leading notebook vendors and an influx of new players will likely end current shortages in notebook PCs and by year-end bring stiff price competition that could be a boon for users, say vendors and analysts.

In interviews at last week's PC Expo, officials from top portables vendors including Compaq, IBM and Toshiba disclosed that to alleviate shortages of notebooks they are in the midst of unprecedented manufacturing expansion. Due primarily to shortages in key components, demand for many notebooks has outstripped supply since earlier this year.

Meanwhile, a raft of newcomers, notably Japanese vendors Hitachi and Fujitsu, are pushing into the US market for the first time in addition to redoubling their efforts abroad.

The upshot, analysts say, will be felt as early as the third quarter of this year when supply constraints begin easing. As production volumes grow the fourth quarter will likely bring severe pricing and marketing battles, analysts say.

"It's going to be a bloody third and fourth quarter," says Mike McGuire, senior industry analyst at San Jose-based market research Dataquest.

In expectation of the fray, vendors say they are buckling down.

"I think there is good potential for aggressive pricing by the fourth quarter so I'm planning for such a contingency," says Jeffrey Friederichs, vice-president, worldwide marketing at Toshiba's computer systems group.

"This year I think it's very much about establishing who will be in for the long term. I think someone will get knocked out in the next twelve months," Friederichs says.

Analysts agree that second- and third-tier vendors, many of which have been plagued by component shortages, will likely be hit hard by heated competition but "everyone will get pounded -- nobody gets a rest; no one will get to sit out", says Bruce Stephen, vice-president of worldwide PC research at International Data.

IBM and Compaq, both with revamped product lines, are aiming at Toshiba which to date has been largely unchallenged in notebooks.

IBM has lost customers in the past because it could never meet the demand for its notebooks, says Anthony Santelli, general manager for product brand management at the IBM PC company. "People went to other players because we couldn't supply the Thinkpad. Now we're in the best supply position we have ever been in," he says.

But, according to Atsutoshi Nishida, general manager of Toshiba's PC business, the current short supply of components, namely lithium ion batteries and large-format TFT LCD screens, will keep the notebook shortage alive through this year.

"The shortage will continue until next year," Nishida says. But, "if there is a price war we will win".

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