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September 12, 1997


Trouble in paradise

The world's most promising IT market may see a rise in PC prices

Prices of personal computers are likely to go up if the rupee continues to depreciate against the US dollar say industry analysts. According to them, the rising cost of component imports is putting pressure on PC manufacturers' margins.

The PC manufacturing business is highly dependent on imports with components making up as much as 90 per cent of the cost. Analysts say that it is just a matter of time before prices go up as the rupee is "just not showing any signs of strengthening".

Sources say it is not certain as to what level of the exchange rate manufacturers are willing to wait before hiking prices.

This could be "as early as the rupee touching 37 to a dollar or as late as 37.50 to a dollar". "At present, we are just waiting and watching. But prices would go up the moment the rupee touches 37 to a dollar," Zenith Computers Limited CEO Raj Saraf has been quoted as saying.

Saraf expects the prices to go up by about 4 to 5 per cent. Analysts echo this view but say that prices of high-end systems would increase more than the entry level ones.

Other personal computer vendors are slightly more optimistic. Companies such as Siemens Nixdorf expect the prices to go up only after the rupee touches 37.50 to a dollar. However, both manufacturers and analysts say that prices would go up certainly at the 37.50 mark.

"If prices don't go up now, then the cuts that manufacturers would announce when Intel cuts its processor prices before Christmas will not take place," said CMS Computers director Varun Prasad.

CMS Computers distributes international brands such as IBM, Hewlett Packard, Compaq, Digital and Toshiba. However, analysts are of the opinion that companies should be willing to take up considerable losses till the time Intel announces its price cuts.

While on the one hand, manufacturers are trying not to increase prices, they are faced with increasing costs and reducing margins on the other. Analysts say that the margins in the personal computer business are already under pressure due to the cut-throat competition prevailing in the market. Apart from ever-reducing margins, PC manufacturers are also facing stable international prices of key components such as hard disk drives, mother boards, random access memory, microprocessors, etc.

"With stable international prices, the cost of imports will only increase. Manufacturers are not in a position to absorb the increase in costs due to their thin margins," said an analyst.

At the same time, they would also face a problem in effecting a price hike. Analysts say that as PC prices are always seen to be reducing, any increase would be met with resistance by customers.

- Compiled from the Indian media

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