Analyst: PC Average Selling Price Collapse Permanent & Structural

The rush to the bottom for most PC vendors has led to a collapse in their average selling price (ASP) that is both permanent and structural, according to Ezra Gottheil of Technology Business Research. In a research note to clients obtained by The Mac Observer, Mr. Gottheil said that the 4th quarter saw a major collapse in ASPs, and that this collapse is, for all intents and purposes, permanent.

The Race to the Bottom Helped by Netbooks

Mr. Gottheil said that while declining prices were helped by the gaining popularity of cheap netbooks, prices declined across the entire spectrum of PC products.

"Netbooks showed both consumer and business purchasers that, for most uses, they do not necessarily need top-of-the-line PCs," wrote Mr. Gottheil. "The recession is driving customers to value-based decisions and they will retain the habit long after an economic recovery. Like the gasoline price shocks of 2008 and the 1970s, the recession is causing PC buyers to downsize."

That downsizing has effectively completed the end-goal of PC vendors such as Dell, Acer, Asus, eMachines, and others to fully train customers to understand that PCs have no value. The race to the bottom, in other words, is just about over.


In an interview with The Mac Observer, Mr. Gottheil said that the price compression that has occurred in the market has changed the playing field for Apple, too.

Whereas the company was once one of the few players competing in the high end of the market, Mr. Gottheil said that Apple will soon be the, only player at the high end. More importantly, he added, "I don't think they can sustain that."

"Apple has always been able to command a considerable premium over similar devices," Mr. Gottheil told TMO. "[Customers are] paying for the software, better support, and the availability of [Apple's] retail network that is of immense value to customers."

Be that as it may, the analyst said that the price compression the industry is seeing is going to eventually force Apple to lower its prices. So even if the company does remain at the top end of the market, which is likely, that top end will sooner, rather than later, be cheaper than today's top end.

The company could see new pricing flexibility in lower component costs, but Mr. Gottheil said that even if the company has to eat into its industry-leading margins, prices will simply have to come down.

"Apple will be forced to produce real Macs with a lower entry price than they currently do," he told TMO. On Tuesday, that process began as Apple cut the entry-level pricing for its Mac Pro  product lines by US$300. [Edit: The article was corrected as per the comments below. - Editor]

Opportunities & Change

In his research note, Mr. Gottheil concluded, "the PC market is changing radically. Vendors must look to change their relationships with buyers, establishing longer-term relationships and providing valuable paid services after the sale. No longer dominated by hardware or software, PCs are becoming a service business."

"The change in the market presents vendors with threats and opportunities," he added. "Companies that can figure out how to embrace this trend most quickly and profitably will emerge as winners, and the winner's circle may contain different players from those who stand there now."

Much of that already applies to Apple, a company that maintains very long-term relationships with its customers, and a company that was at the forefront of selling services such as .Mac/MobileMe.

In Apple's quarterly conference call in January, Apple COO told analysts that the company looks at the recession as an opportunity, due in part to their enormous balance sheet of cash on hand. How that plays out, of course, will have to wait for time to do its work.