PC Prices May Jump As Chips Become Scarce

The prices of most PCs have been down over the last three years as consumers looked for bargains and the market became crowded with machines from China and Taiwan. The drop in what consumers and business paid for computers was helped by falling component costs which allowed manufacturers to improve margins.

The days of PC price drops may have ended. Chips that are crucial computer components are in short supply. Research firm Gartner reports that semiconductor costs will by up 3% in 2010.

According to the FT, the increase is “almost entirely attributable to a 23 per cent increase in the price of D-Ram memory chips . Those chips, which are needed in every computer, make up about 10 per cent of a PC’s overall cost.”

The news could not come at a much worse time for the industry which has been party to cutthroat competition due to a rising number of companies vying for a limited number of customers. Lenovo, Acer, and Asus benefit from the low manufacturing costs in Asian factories. Asus was the first large PC company to introduce the netbook. The small inexpensive machines have become a major growth area in the industry. These machines sell for about $300 and are not as profitable as larger, more fully featured products.

PC sales have been helped by the introduction of the new Microsoft (NASDAQ:MSFT) Windows 7 operating system. The effect will begin to fade as a greater number of customers upgrade to the new OS and the market for new customers shrinks.

PC companies have also been pressured by the increased market share of the Apple (NASDAQ:AAPL) Mac which has consistently sold well even through the recession.

The price of building a computer is going up. The ability of PC firms to pass those prices on to consumers is limited.

Douglas A. McIntyre