Consumers benefit as computer hardware prices plummet

The cost of kitting yourself out with a powerful, multimedia computer is dropping almost as fast as Asian stock prices these days.

A year ago pounds 1,000 would have bought a machine with half the working memory, half the hard disk size and something three times as slow as that cash would buy today. Prices of pentium II MMX computers - the type of hi-tech machine that takes 3-D graphics and high-quality sound in its stride - have dropped by 50 per cent in the last year.

A four-speed CD-Rom cost pounds 100 in the summer. Today shoppers can pick up one that is six times as fast for half the price. And the best is yet to come for computer buffs prepared to hang on. According to Phil Burnham of Romtec, which monitors trends and prices in the UK PC market, Intel the giant US computer chip company is planning to slash the price of Pentium II processors next January and again in April. For consumers, the precipitous decline in prices - the result of retailers winding down stocks in readiness for the latest technology and continuing overcapacity in the market for computer components and semiconductors - is obviously welcome news.

For those companies supplying components and selling computers, it means thinning margins and falling profits. Viglen, demerged from Amstrad, is the latest casualty. Just a month after announcing disappointing full- year figures, the company warned yesterday that oversupply of computer components was forcing it to cut prices, hitting margins, though sales volumes were still rising. Shares in the company crashed almost one- third from 50p to 22.5p. The problem is industry-wide.

The UK computer group RM and the US group Gateway have all announced pricing pressures in the last few weeks. David Moore, marketing manager at Dell Computers, the number two direct-to- consumer supplier of computers in the UK agrees: "Everyone is competing on price. The market is incredibly aggressive. The only way for companies to win is keep costs low and sell high-quality products where prices are holding up."