SAN JOSE, Calif. — Big rebates. Free printers. Promotions everywhere.

        Consumers are now benefitting from a brutal price war as personal computer makers try to stimulate demand — and stay alive.

        The economic slowdown has tightened the screws on a saturated market, leading in 2001's first quarter to the industry's first-ever U.S. revenue decline.

        Aggressive pricing by market leader Dell Computer Corp. has forced smaller PC makers to bow out or scale back. And analysts say continued pressure from Dell could trigger more consolidation.

        “This has been Dell's strategy from the beginning. It's just working better now,” said Roger Kay, analyst with International Data Corp. “Inevitably, some will get strangled and leave.”

        Micron Electronics Inc. had $1 billion in PC sales in fiscal 2000. But the price war proved too tough: Last week, it sold its PC business to Gores Technology Group, an investment group.

        Micron chairman Joel J. Kocher said it was better to exit rapidly, cut losses and focus the Nampa, Idaho-based company on its growing Web hosting business.

        From October to March, overall prices of mainstream computers sold by major U.S. vendors dropped by 22 percent, according to IDEAS International.

        Prices by Dell, whose 24 percent share of U.S. sales is almost double that of second-place Compaq, were sliced by more than 30 percent. Dell's products were still 23 percent cheaper than the industry average.

        Dell, which has gained market share with its direct-order business model, shows no signs of relenting.

        The 1.7-gigahertz Pentium 4 processor debuted two weeks ago. By Monday, Dell had dropped its introductory price by 20 percent — to $1,349 — for desktops featuring the fastest available PC chip.

        The aggressive promotions and price cuts — $400 instant rebates, free shipping, free printers and free Internet access abound — come after steady long-term price drops, in part due to cheaper components.

        The average retail price for desktop PCs was $880 in February, compared to $1,700 in 1996, according to NPD Intelect.

        The brains of PCs — processors — are at bargain-basement prices. Chipmakers Intel Corp. and Advanced Micro Devices Inc., engaged in their own battle, have repeatedly slashed prices.

        Intel's new 1.7 gigahertz Pentium 4 chip started at a bulk price of $352 when it debuted last month. By comparison, when Intel introduced its 1.1-GHz Pentium III last July, it sold for $990.

        Prices of memory modules, hard drives and modems are also at all-time lows. Many features, such as video cards and sound cards, are being integrated into computer motherboards, so PC manufacturers need not purchase them separately at higher prices.

        As a result, computers are also gaining in performance, said Steve Baker, analyst with NPD Intelect.

        For instance, Hewlett-Packard Co.'s Pavilion desktops with 128 megabytes of RAM, a CD-rewritable drive, a 15-inch monitor and 20-gigabyte hard drive start at $699 today, including AOL service. Several months ago, consumers would have paid that price for a model with only half the memory and without the CD-RW drive, Mr. Baker said.

        Slashing prices wins customers, but it also translates to lower profit margins. PC makers are reeling from declining revenue: Compaq, HP, Gateway Inc. and Dell all have announced layoffs.

        Some companies have offered promotions, but have not matched Dell's steep price cuts.

        Without middlemen or channel distributors, analysts say Dell is able to save on supply chain expenses and efficiently pass on cost savings to its customers.

        “Dell has an hour of oxygen and others have a half-hour,” said Andy Neff, an analyst at Bear Stearns. “And Dell's agenda is to convince everyone they shouldn't even go in the water.”

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