Shake-Out in the Hardware Wars

A fierce pricing battle claims a major casualty

At Olympic Sales in downtown Los Angeles last week, an Atari home computer that cost $630 three years ago carried a price tag of $77.95. At Lechmere Sales in Cambridge, Mass., Texas Instruments micros that retailed for $525 in 1981 could be had for less than $100. Gemco stores in California were selling Commodore 64 computers for $199 each, two-thirds off their price of six months ago. In Chicago, K mart was unloading tiny Timex Sinclair 1000s, listed last year at $99.95, for $29.97 each.

The market for the smallest computers, always competitive, has finally blossomed into a full-scale price war. Manufacturers have been trumpeting price cuts and rebates and spending heavily on TV ads. Until recently, the high-pressure strategy seemed to be paying off: sales of 5 million home computers were predicted for 1983, a huge increase over last year's record-breaking 2.5 million.

Lately, however, there have been signs that the market may be approaching saturation. Consumers are beginning to complain that without expensive printers and disc drives, many of the low-priced machines are little more than video-game players with built-in keyboards. Talmis Inc., an Oak Park, Ill., market research firm, estimates that small computers have been selling at a monthly rate of 275,000, but manufacturers have been shipping more than 450,000 a month.

Last week the fragile market cracked. Reacting to news that Texas Instruments, suffering from disappointing hardware and software sales, had predicted a $100 million loss in its current quarter, Wall Street turned negative on the company's stock. Shares of TI, one of the world's largest manufacturers of silicon chips, dropped 40 points in one day, trimming nearly $1 billion from the company's paper value. On the heels of Atari's multimillion-dollar loss last quarter, it looked as if one segment of the computer revolution was wobbling.

Fortunately for the industry, higher-priced microcomputers have not succumbed to the price cutting that has bedeviled the bottom portion of the market. Apple and IBM continue to sell full-price personal computers ($1,500 to $4,000) as fast as they can ship them. Even among the low-end companies there have occasionally been flashes of rational pricing strategy. Timex, for example, has systematically reduced its prices on the Timex Sinclair 1000 to help clear the way for more powerful and more expensive models due later this year.