Local PC prices have fallen by 25% to 40% over the past year - a boon for individual and corporate users - but manufacturers are asking themselves if this is too much, or if margins could be squeezed a little more.
Factors that have influenced the fall in prices have been the scrapping of the 5% ad valorem on imported PCs and the strengthening of the rand exchange rate that has seen the local currency gain 40% against the US dollar. Furthermore, the 2.5% drop in interest rates and aggressive pricing by overseas companies in their own markets added fuel to the price war.
US manufacturers Hewlett-Packard and Dell are locked in a price war of their own, with Dell announcing a sharp reduction in its US retail prices. The SA PC market is expected to feel a knock-on impact.
Local competition
HP`s South African operation has been aggressively dropping the prices of its flagship notebooks and next week will announce a new deal. The company has dropped its local prices from around R17 000 per notebook to around R11 999.
"The price war between ourselves and Dell in the US has not really been a factor as that market is different from ours," says Adrian Delport, country category manager for HP`s PC division. "If one takes the SA price fall of 40%, only around 10% has been from the manufacturers, the rest is from other factors such as the rand."
Dell SA director of enterprise systems group Tony Bogatie says the South African market follows the international pricing model quite closely.
"Because of our structure, in that we only carry three days` worth of stock, our prices react quite quickly. But in SA we are seeing that customers are becoming quite demanding as far as credibility and service is concerned," Bogatie says.
Another local representative of an overseas manufacturer agrees. Craig Butterworth, NEC product manager for Packard Bell, says: "There has been a fall in the international prices of some technologies such as optical devices, but it has been the rand that has had the major effect."
Butterworth says that while Packard Bell has cut its prices partly in response to the aggressive pricing policies of competitors, it has not been as sharp a cut.
SA retailer Incredible Connection MD Tony Fourie says that while the aggressive pricing policies of the manufacturers have benefited the number of units sold, it has been the scrapping of the ad valorem tax and the fall in interest rates that have kept margins higher.
"We have had a great last quarter, but the fall in prices seems to be set to bottom out as the manufacturers` margins get squeezed," Fourie says.
Incredible Connection could not release any numbers as the group is within a week of its year-end results.
Local manufacturer Sahara Computers says it has seen the greater impact of the price drops on its low range models.
"PCs that were retailing at about R7 000 last year are now going for around R5 999 this year - the lowest prices we have seen since 2000," says Sahara marketing manager Gary Naidoo.
David Kan, CEO of Mustek, says he has noticed a strong price war in the notebook sector in particular, and that this should continue for the next two to three months.
While there is a general feeling that price cuts may be close to bottoming out, there is still plenty of market share up for grabs and as the country begins to gear up for the end of year holiday shopping spree, manufacturers and retailers may be forced into some more cuts.
"I only expect prices to start stabilising around the first quarter of next year," says Naidoo.
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