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Drastic price cuts may damage PC industry, jeopardize Microsoft's hopes for Windows 10

Gregg Keizer | Nov. 11, 2014
Microsoft's strategy to kill Chromebooks could come back to haunt it in 2015, says analyst.


Windows PC makers slashed prices to historically low levels in the U.S. during the last three weeks of October, damaging the consumer business just as Microsoft tries to push Windows 10 as its salvation, a retail analyst said last week.

"The implications of a much more price aggressive PC market are enormous, and while many of them are positive, many are not," said Stephen Baker of the NPD Group in a good news-bad news post to his company's blog on Friday.

In the span from Oct. 5 to Oct. 25, the ASP (average selling price) of Windows-powered personal computers was $430, down 10% from the year before, according to NPD's data. During the week of Oct. 5, the Windows notebook ASP was even less: $415.

"In contrast, the ASP last year at this time was around $480, a monumental change in pricing for a category that had seen stable pricing for the last few years," Baker said of the "Black Friday"-like numbers.

Although the price cuts were good news to consumers shopping for a PC, Baker questioned what the business would look like in 2015. "I would say this is damaging rather than unsustainable," Baker said in an interview Friday. "Some can withstand these prices better than others. But from an overall perspective, clearly at the end of the cycle, there are going to be a lot of losers."

U.S. retailers like Best Buy and Walmart can withstand an extended stretch of aggressive price cuts, as can some OEMs (original equipment manufacturers) such as Hewlett-Packard. But not every retailer or OEM has the resources to stick with those prices.

Baker predicted further consolidation as those unable to play in the ultra-low price bands bickered over an evaporating pool of sales in the $450-and-up range.

More importantly, said Baker, was that the price cuts were changing the design and manufacturing of PCs. "The challenge isn't that the ASP last year was $500 and that next year it will be $300, but that these lower-priced PCs are being designed and marketed and intended to be sold at $199 to $249. In the past, those prices have been reserved for models at the end of their cycles. Now they're pervasive."

At those cut-rate prices, touch -- once a major part of Microsoft's Windows 8 strategy -- disappears.

"The Windows notebook PC segment above $300 has been decimated, with sales down 10% over the past three weeks," Baker said in the blog. "This has impacted the uptake of touch in the Windows market as well. Basic clamshell notebooks with touch only accounted for approximately 25% of the Windows market over the past few weeks, in contrast to points earlier in the year when it was above 30%."


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