Home Is Where the Heartbreak Is

By Alexander L. Taylor III

Sales of low-cost machines are far less than anticipated

The International Summer Consumer Electronics Show in Chicago is the gaudy showcase of American high tech. By day, 100,000 industry officials throng the aisles of vast McCormick Place, surrounded by towering displays at 1,381 booths. At night, they dip shrimp into cocktail sauce at lavish corporate receptions and gossip about the competition. A year ago at the show, people were predicting that it was just a matter of time before there would be a computer in every house. But last week much of the talk was about the slow growth in home computers.

Analysts attending the show set things off by drastically revising their 1984 sales forecasts for home computers, the low-cost, low-power machines. The Yankee Group, a Boston-based industry watcher, slashed its projections for the year from 7.1 million to 4.9 million. Future Computing, the Richardson, Texas, research firm, lowered its estimate from 6.5 million to 5.5 million units. That would be only a 10% increase over last year, good growth for almost any other business but skimpy for an industry in which sales have been doubling and tripling annually. Says Harry Edelson, a technology analyst for the investment banking firm of First Boston: "The bloom is off the rose in the computer field. It is not going to grow as fast as everyone predicted."

Since last year's show, two of the largest home-computer makers have left that part of the business after losing millions of dollars. Texas Instruments quit, following an orgy of price cutting that saw its 99/4A computer, which had once sold for more than $1,000, fall to as little as $49. In February, Timex shut down when the sales of its machines that first sold for just $99 collapsed.

Meanwhile, two other companies making home computers are trying to regroup after disastrous performances. Coleco's Adam, the big hit of last year's show, was plagued by production problems and sold poorly after going on the market in October. The product has been rolled out again at a price of about $750. Atari, which lost $539 million last year on video games and home computers, announced last week that it will introduce a new home machine this fall that will have a larger memory.

The troubles for home computers have hit even mighty IBM. When its PCjr, which sells for $669 and $1,269 in different models, was first marketed in January, analysts forecast that 500,000 would be sold this year. But First Boston's Edelson says results will be less than half that. Mark Wozniak, co-owner of a Sunnyvale, Calif., computer store and brother of Apple Co-Founder Stephen Wozniak, no longer even stocks the PCjr. Says he: "It was too much heartache." Last week, in an effort to spur sales and make the PCjr more compet-/0 itive, IBM cut its prices to $599 and $999. It reduced prices on its other personal computers by up to 23%. Smaller companies that make personal machines similar to IBM's may have to follow the lead, and observers predict that a nasty price war could erupt this summer.

All of those missteps have left Commodore International the leading small-computer maker, with some 60% of the market. Two million Commodore 64s, which sell for about $500, have been sold. Last week in Chicago, Commodore showed off a model called the Plus/4, which includes four basic business programs and will cost under $400.

The slowdown in the home-computer market is not surprising. While futurologists still talk about how home computers will one day turn on all your lights and raise your garage door, many home machines currently on the market do little more than play video games. Thousands of the low-cost computers that have already been sold are finding their way into closets. Asks Dennis Pelak, director of consumer research for Talmis, an Oak Park, Ill., market-research firm: "If you're not a game player and you don't have any children, is there really any reason to buy a home computer?"

But while sales of low-cost machines are off, higher-priced and more powerful personal computers that are often used at home are selling well. More and more consumers are looking for computers with greater versatility that can perform office functions like financial planning and word processing. Tandy's Radio Shack, for example, has seen a spurt in the sales of accessories that expand the uses of its low-cost Color Computer II. Says Tandy Chairman John Roach: "There is no question that the buyer is becoming more sophisticated and wants a more meaningful machine." Figures compiled by Dataquest, a California research company, project that sales this year of machines costing $1,000 to $5,000 will be 6.6 million, slightly more than those of less expensive computers.

Apple is perhaps the major beneficiary of the popularity of higher-priced computers. When the company's new IIc model was launched in April, President John Sculley was careful to explain that the $1,295 machine "isn't a home computer at all. It's a serious personal computer you can also use at home." Sales of the lie since April have been good, although they have been somewhat hampered by a shortage of important accessories like monitors. But Apple's older IIe model, which costs $650 in some places, is selling out. It may not open a garage door or turn on the kitchen lights, but for its price, it is extremely powerful. In fact, many stores complain that Apple cannot supply enough of them.

--By Alexander L. Taylor III.

Reported by Cristina Garcia/Chicago and Michael Moritz/San Francisco

With reporting by Cristina Garcia, Michael Moritz