Edition: U.S. / Global

Consumers Holding Off On Buying Computers

Published: January 11, 2001

CATHERINE DAWKINS had visions of bulky computer boxes dancing in her head when the holidays rolled around last year. Planning to surprise her husband, Peter, with a shiny new 600-megahertz, Pentium-chip desktop, Ms. Dawkins, of East Northport, N.Y., spent part of an early December weekend configuring different hardware setups at the Dell Computer Web site.

On Christmas Day, however, Mr. Dawkins unwrapped only a few books and some miniature toy trains from his wife. Although Ms. Dawkins had found a desktop she liked at the Dell site with an attractive payment plan, she ultimately decided to forgo the big purchase.

''My husband said, 'That would have been great, but I'm glad you didn't,' '' Ms. Dawkins said. ''Our computer runs, though not as fast as we'd like, but it felt better to save our pennies rather than go into debt for faster Internet service.''

Unless you are a Tom Hanks character stranded on a Pacific island, it would be pretty hard to miss the rumblings about slagging sales in the personal computer industry -- especially over this past holiday season. Whether because of a sense of economic uncertainty or the fact that so many people already have PC's and don't feel the need to upgrade, Ms. Dawkins was far from alone in her decision.

''People just aren't buying PC's,'' said Stephen Baker, vice president of technology products at PC Data, a research firm in Reston, Va. In early January, PC Data released a report saying that retail revenue from PC sales last month had declined almost 30 percent compared with December 1999 revenue. ''A lot of PC's were sold over the last couple of years, and there doesn't seem to be a compelling reason to buy right now,'' Mr. Baker said.

But does the slowdown mean anything for consumers? Does the fact that people have steered clear of the computer aisles mean exciting deals for those who venture into them? The answer varies, depending on whom you ask.

As spring spring approaches, computer manufacturers and retailers typically clear their shelves of older inventory to make room for new models, and some analysts say the slow holiday season has resulted in inventory levels that are higher than usual.

''Inventory rates were much higher than in past holiday seasons because demand was overaccounted for by manufacturers and retailers,'' said Matt Sargent, senior industry analyst at ARS Inc., a research company in La Jolla, Calif., that tracks retail inventory. ''This will prompt a need to clear out a lot of stuff.''

PC manufacturers and retailers have been slow to commit to significant price reductions. ''We have no price cuts planned at the moment, but we're going to continue to do everything we can to stay competitive,'' said Brad Williams, a spokesman for Gateway.

Mr. Williams said that Gateway had lowered prices on its Essential line of entry-level desktops in September and that it would continue to offer a variety of configurations and peripheral bundles.

Chris Bates, senior marketing manager in the consumer business division at Dell, said the company is offering $100 off its Inspiron notebook line. In December, Dell also cut prices on its Latitude notebooks by as much as 20 percent.

''We don't speculate beyond that,'' Mr. Bates said, ''but we'll continue to provide the best value and run specials like these. One thing about selling computers directly is that it allows us to be very aggressive with pricing.''

Many computer analysts say shoppers can expect significant price reductions. ''Come February, there will probably be some very good deals,'' said Roger Kay, an analyst at IDC, a technology research company in San Jose, Calif. ''The big consumer manufacturers will need to get their 2001 lines out, and they'll get more desperate as they get closer to launch dates.''

But even price cuts of several hundred dollars might not be enough to entice consumers who have purchased computers within the last two or three years. IDC released a report early last month predicting that worldwide PC shipments would grow by only 16.6 percent in 2001, well below the 20 percent and higher averages the industry has seen in the last several years.

''People are buying accessories for PC's instead of PC's,'' Mr. Kay said. ''I don't think it's a matter of people waiting for the better model or price. It's a matter of not feeling that rich.''

Although consumers may see price cuts in the coming weeks, they are likely to be disguised by rebates and other offers. Peter Christy, research director at Jupiter Communications in New York, said that as in many industries, computer manufacturers are loath to advertise price reductions for fear of starting pricing wars with competitors.

''Once an advertised price war starts, everyone can lose money,'' Mr. Christy said. ''If they can find things that seem like a call to action to consumers while keeping the prices from going down, then they'll do it.''

One company that is advertising significant price cuts is Apple. On New Year's Day, the company lowered prices on its high-end 500-MHz G4 Server by $1,100, to $3,099 from $4,199. The company also lowered prices by several hundred dollars on its Cube and 500-MHz PowerBook. The cuts don't surprise some Mac users, who say they have come to expect lower prices before the release of newer models.

Some retailers are hoping that the availability of broadband Internet access will lure computer users back to the stores. Laura Conover, a spokeswoman for The Wiz, said PC sales were strong over the holidays because of the high-speed Internet service The Wiz offered in conjunction with CableVision, its parent company. Circuit City, which offers cable modem access with the computers it sells in 186 stores and D.S.L. access in 141 stores, is planning to expand its high-speed offerings.

''We are seeing that when people increase the performance of their Internet connection that they look to increase the performance of their computer,'' said Bill Cimino, a spokesman for Circuit City. ''Broadband at retail is just starting to come into its own and this year you'll see it in much greater availability.''

Consumers who did buy computers over the holidays noticed that they got more for their money than in recent years, a trend that manufacturers say will continue. ''The price of an average entry-level system in 2000 was sort of equivalent to an intermediate level computer in 1999,'' said Tom Kehoe, a spokesman for Dell. ''As time passes, performance increases and prices decrease.''

David Lown, an investment banker in Manhattan, said, for example, that the 600-MHz Pentium computer system he bought his sister in December was both more powerful and about $450 cheaper than the 500-MHz system he bought his parents in December 1999.

''I think the values increased at a higher percentage than they normally have over the years,'' Mr. Lown said, adding that he might have waited longer to buy his sister's computer because he believed prices would drop further this winter. ''But when it comes to your sister or your parents and Christmas, you end up doing what's right.''

Photo: In stores like The Wiz in midtown Manhattan, customers are shopping for computer accessories, but seldom for computer systems. (Michelle V. Agins/The New York Times)