The Computer Buzz

October 1st, 2009

Nome and Paul Van Middlesworth - owners - The Computer Factory
 

PC Prices Going Up?

From the time of Window 95’s release in 1995 until the present, we have seen a mind-boggling improvement pattern in the cost of PC technology. In 1995 the cost of 1Gb of hard drive space was about $120, today it is about 13 cents. A megabyte of RAM was $40, today about 4 cents. In 1995, $200 would buy a Pentium CPU with 3 million transistors running at a clock speed of 100MHz (100,000 cycles per second). Today $200 will buy an Intel Itanium CPU with 700 million transistors running at 2.7GHz (2,700,000 cycles per second).

Technological advances in other areas such as video, audio, Internet access and optical drives (CD/DVD) are more difficult to compare directly but have been no less impressive.

Increased functionality at a lower cost is mostly the result of improvements in process technology that allows manufacturers to improve products without increasing labor and materials costs.

Some PC components, however, like cases (tower) and the power supplies, have benefited from improved technology; but process cost improvements have been largely offset by the ever-increasing cost of the commodities from which they are constructed. The cost of plastics (made from petroleum derivatives) and metals are strongly linked to energy prices.

The driving force behind cost improvement is free market competition. Where competition is not present, as in the case of Microsoft’s monopoly on PC based operating systems, performance improvement is glacial and cost improvement non-existent. Microsoft’s operating system is the only PC component that costs more today than it did fifteen years ago.

At the end of each month we evaluate components costs to determine our pricing for the coming month. Typically, because, of down-trending components costs, we either reduce pricing or increase functionality (more RAM. Higher speed processor, etc) on our finished PC systems price list. This month for the first time in several years we had to increase the price of our low end PCs by 3 to 5%.

Because of the worldwide recession, the cost of most components had stabilized at very low levels early this year. Then, as the US Dollar weakened, prices began to inch up. A spike in demand for RAM in the past six months has caused their prices to more than double. New operating systems (Vista and Windows 7) require twice as much RAM as XP. Users of older PCs are also finding that adding RAM can make a huge difference in their XP PC’s performance and PC makers have been stockpiling RAM in anticipation of a surge in PC sales when Windows 7 is released in October.

Component price increases have not been noticeable to PC buying consumers of late because retailers have cut PC prices to the bone in order to dump their inventories of PCs with the soon to be obsolete Vista operating system.

Once Vista is gone and Windows 7 arrives (Win. 7 is really Vista SP3), PC buyers will enjoy the full force of increased component costs and Microsoft’s new, higher operating system pricing.