Component costs rising, but PC prices won't

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Hardware

Costs are on the rise for several types of PC components, including memory chips and LCD screens. But while that's a concern for procurement managers at PC makers like Dell Inc. and Hewlett-Packard Co., users should have little to fear, analysts said.

Prices for PCs remain on their traditional downward spiral, and little is going to change that, said Bryan Ma, computer industry analyst at market researcher IDC in Singapore.

The average price of a desktop PC fell to US$847 in the first quarter of 2005, from US$1,022 in 2002, according to IDC. For notebooks, the average price dropped to $1,340 from $1,644. The figures include all types of PCs, from high-end systems for gamers to low-end PCs aimed at emerging markets.

What PC buyers may see, however, is that the higher component costs mean they get slightly less bang for their buck. That's an important consideration for corporate buyers, and could be enough to put them off buying some new equipment until early next year when the market settles down.

The rise in component costs has been driven in some cases by shortages for parts, such as computer chipsets. It creates a tricky situation for the PC market, coming just before the hottest buying seasons of the year -- the back-to-school rush in early September and the holiday buying season at the end of the year.

PC sales have been strong globally so far this year, according to analysts, and judging by the earnings reports from companies like Dell Inc. and Lenovo Holdings Ltd., the number-one and number-three PC makers. Microprocessors have also been selling well -- so well, in fact, that Intel Corp. said it would cut back production of other kinds of chips to make room for more microprocessors in its factories.

Amidst this backdrop, prices of the most widely-used computer memory chips, 256M-bit double data rate chips that run at 400MHz, or DDR-400, have been on the rise. DDR-400 could reach $3 per chip by the end of this month, up 27 percent from its low in late June, according to iSuppli Corp., an industry research group.
Price increases for LCD screens are even more worrying.

"Any increase in panel costs, or any change to the supply/demand situation, has a major impact on the total cost of a system," Sweta Dash, director of LCD research at iSuppli, said in a report.

For mobile devices such as notebook computers, the LCD screen accounts for about a third of the cost of the entire system, while for desktop PCs it accounts for 60 percent to 70 percent of the cost, according to iSuppli.

A jump in notebook PC sales has helped spur demand for LCD screens. This helped cause prices for notebook-sized LCDs to rise 6 percent over the past two months, while prices for screens used to build 17-inch displays rose 8 percent in July alone, iSuppli said.

Prices for notebook LCD screens could rise more than US$20 each in the next few months, executives at AU Optronics Corp., one of the world's largest LCD screen makers, said at a conference in early August. Prices for LCDs used in desktop PC monitors and televisions could increase $5 to $10 over the same period, the company predicted.

But while the price increases may seem alarming, users probably will not see an increase in the price they pay for PCs, Ma said.

When component prices rise, PC makers typically reconfigure their systems to keep costs down, he said. They can do this in several ways, such as using different technologies, buying parts from different suppliers, or simply reducing the amount of some parts, such as memory chips, that they put into a system.

A battle over components may rage between PC vendors and even push up the cost of building systems. But for end users, history suggests that PC prices will only move lower.

By Dan Nystedt
IDG News Service