Originally created 08/14/97

Computer companies may raise prices if UPS strike drags on

NEW YORK (AP) - The UPS strike is starting to hurt an industry that has boomed in recent years on fast, cheap delivery.

Not pizza, live lobsters or fresh flowers.

But computers.

Computer companies that sell directly to customers by mail are feeling the strain and may be forced to raise prices if the strike drags on.

By charging 10 percent to 20 percent less for computers than their rivals, these companies have become industry leaders in sales growth in recent years, stealing customers from larger PC sellers such as No. 1 Compaq Computer.

So far, Gateway 2000 Inc., Dell Computer Corp. and other major direct sellers of computers insist they are holding up. Shipping a computer to customers may take only a few days longer than before in some areas, and the prices the companies charge - the cheapest in the business - are holding steady.

But the direct sellers are preserving their cost-cutting reputation at a price.

UPS is the lowest-cost of the rapid-delivery carriers, and switching to FedEx and other alternatives has forced PC sellers to swallow the higher shipping expense, cutting into profits.

If the strike continues another month or two, the higher expense may force them to pass on higher prices to consumers.

In the meantime, spending more doesn't mean the package will get there on time. FedEx and other delivery services trying to handle the overflow business have dropped guarantees on overnight and other fast delivery, turned away new customers or put limits on how much freight they will accept.

"Just because some other means of transportation is able to move this stuff is like saying because airlines are shut down we can all drive around in cars and buses," said Satish Jindel, owner of S.J. Consulting Group in Pittsburgh, which follows the shipping industry.

Further delays in shipping could make computers almost as perishable as seafood and flowers because advances in technology can make today's machines obsolete in a matter of months.

More immediately, the scramble for alternative carriers is expected to hurt sales in August, said Matt Sargent, an industry analyst at Computer Intelligence in La Jolla, Calif.

"I think it will significantly affect all three," Sargent said, referring to direct-seller leaders Gateway, Dell and Micron Technology Inc. "All rely very heavily on shipment by UPS."

Gateway 2000 Inc., based in North Sioux City, S.D., had been one of the nation's biggest users of UPS, spending about $100 million annually on UPS shipping, according to S.J. Consulting.

Gateway and others insisted that the strike is having no big effect because they made plans in advance with other shippers.

But most declined to discuss delivery costs, which the strike almost certainly is driving up. FedEx, for example, charges up to 10 percent more than UPS for fast delivery.

Tiger Direct, a midsized direct seller of computers based in Miami, said it is swallowing extra shipping costs of up to $20 per computer.

President Gilbert Fiorentino said the strike would have to last a month or two before the company may be forced to consider passing on the extra price to consumers.

Several analysts said that as the PC sellers adapt to their new shipping plans they should get better at delivering products without delay.

Still, the UPS strike also threatens another way these companies keep costs low: having computer parts such as modems delivered at the last minute so that they can make PCs when orders arrive. That saves on warehousing costs.

Gateway and other companies insisted that they were not experiencing delays in getting computer parts, but some analysts expressed skepticism.

"I'm more concerned not with their ability to deliver things but with their ability to get parts," said Steve Kleynhaus, an industry analyst at the Meta Group, a technology research firm. "The reason their (business strategies) work is because they don't have to stock parts. They have very tight control over their supply chain."


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