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Are Cheap PCs a Thing of the Past ?

Thinking of buying a new computer? With fewer cheap PCs being manufactured, you may have to pay more than you used to. Let us explains why.

Over the past decade, we've become used to PC prices falling. As machines have got faster and more powerful, so they have become cheaper to produce and computer manufacturers have reduced prices to get their machines into as many hands as possible. It is now possible to buy a decent laptop for a couple of hundred quid.

But that could all change, because computer manufacturers are planning to focus more on advanced, higher-end PCs in order to boost their profits. The cheap PCs might appeal to the average customer, but manufacturers don't make as much money from them. So while we win, they lose.

Following Apple's lead 

The strategy is one that has proved massively successful for Apple, whose growth has outpaced its PC rivals over the last five years. Apple has done this by reaping huge profits from selling expensive products (the MacBook Pro range starts at £999). PC manufacturing giants HP and Dell want to copy this success, which will lead to higher prices for customers.

Dell has told investors that it's not interested in "low-value opportunities", and is instead "productizing profit share over unit share". Translated, that means it wants to make more money by abandoning cheap PCs and producing more expensive machines, such as the XPS laptop range (http://dell.to/xps283), where prices start from £549.

HP is heading the same way. The company, which is the world's largest manufacturer of computers, restructured in July last year in order to focus on expensive premium machines.

Smaller PC manufacturers are following suit. “It’s a collective ambition across the PC industry, because all of them are... struggling with margins," said Ranjit Atwal, an analyst at technology research company Gartner. "To try to increase their selling prices and move up to higher priced products is obviously one of the only ways they can remain in the PC industry. The other direction means lower margins, and as they get into emerging markets, the price pressures are greater."

These increases come at a time when prices are already climbing because of the hard-drive shortage caused by floods in Thailand, the world's second-largest producer of hard-disk drives. Manufacturers and smaller PC makers say the higher cost for hard-disk drives will have to be passed on to customers. This price hike is there even when companies are not giving good support, however there are other options to get good it support.

Dell's XPS laptop range is priced from £549, but will it find customers willing to pay higher prices at a time of great economic uncertainty?

Reversing price falls

The crucial question is: do customers actually have the money to buy these pricier computers? With the UK suffering its worst economic downturn since the 1930s, and money tight in households throughout the country, it's hard to imagine that customers will dig deep into their pockets to buy more expensive PCs.

Part of the problem for manufacturers is that having attracted customers by reducing prices for so long, they're now finding it difficult to reverse the trend. Meanwhile, competition from other devices, such as smartphones and tablets, has made the market even tougher.

For Gartner's Atwal, PC manufacturers "have never really thought: 'How do we then go back and get users to pay?'." He added: “It isn't only a case of [PC makers] increasing prices. You've been using decreasing prices to try to get people to buy PCs before; how do you now add value over and above only the hardware?"

£800 for an Ultra book, anyone?

The answer might lie in Ultra books (www.intel.co.uk/ultrabook), a new batch of slim, fast-booting laptops with a long battery life, which are being made by companies including Acer, HP and Asus. The cheapest Ultrabooks cost around £800, which the PC industry hopes customers will think is a fair price for extended power capacity ( five hours is about average).

But industry experts aren't convinced. Eszter Morvay from technology analysts IDC said: "To be honest, if you want to sell an £800 device, you better have Apple's name on it; otherwise, it's going to be difficult to sell. People aren't going to spend £800 on an Acer when generally an Acer costs £300 or £400." Atwal agrees, saying that customers are happy to pay more for Apple's laptops because they're so well integrated with software and hardware (the famous Apple 'ecosystem'). He says that PC companies should stop trying to imitate Apple. "If any of them are copying Apple, then they shouldn't be, because Apple is the really high end of this. Instead, they should be trying to increase the average selling price by $50 or $100, not $300 or $400."

PC manufacturers hope to persuade buyers to spend £800 (and more) on Ultrabooks

Ultrabooks 'need to be cheaper'

The evidence is that the public isn't yet excited by the Ultrabook. Cheaper laptops, such as those in Dell's XPS series, are selling in greater numbers. "The uptake of Ultrabooks is quite minimal at this point in time," IDC's Morvay said. "Obviously, I think sleek design and thin, light products with long battery life are key things people are looking for, but it has to be at the right price. If people want to sell Ultrabooks, they'll have to cut the price. People have become used to getting more for their money," Morvay continued. "If you compare what you could buy for £500 five years ago and what you get for it now, there's been a compression of the price bands. As a trend, prices don't go up."

The key to boosting Ultrabook sales is very simple, according to Morvay: "If you make something cheap enough, people will buy it. If, all of a sudden, you make it more expensive, people won't start spending more."

That's what happened with netbooks. Once prices dropped, sales rocketed. But netbooks were always meant to be cheaper laptops. Ultrabooks have been specifically designed to drag PC users up to the price range Apple users spend. And it's doubtful whether they're ready to go there.