The seemingly inexorable descent of personal computer prices continues.
Date: 6/12/98
Author: Nick Turner
Acer America Corp., a unit of Taiwan's Acer Group, announced a business PC for
$699 on May
26. Packard Bell NEC Inc. unveiled its own $699 model for consumers the same week.
The sub-$1,000 PC category, which just emerged last year, has quickly given way to
several
subcategories. There are $999 PCs, $799 PCs and now $699 PCs. Most pundits
expect to see
$599 models by Christmas.
Consumers greet the falling prices with mixed feelings. The reverse sticker shock is nice,
but
they're concerned about buying a product that could cost much less in a matter of
months.
But don't look for prices to go much lower. PC makers say they can't squeeze much
more cost
out of the systems.
''After a period of free fall, the parachutes went out,'' said Jim Bartlett, vice president of
IBM
Corp.'s consumer PC division. ''We're now in a much more controlled period in terms
of pricing.''
Manufacturers and analysts figure prices for the cheapest models won't go below $500.
And the
average selling price of PCs will remain far higher.
PCs sold at retail in April for an average of $1,195, says Stephen Baker, an industry
analyst at
PC Data Inc. in Reston, Va. That's actually an increase of about $40 since January.
Still, he says, sub-$1,000 - and sub-$800 - PCs are gaining momentum. By the fourth
quarter,
sub-$1,000 PCs will represent 60% to 65% of the market, Baker figures. Of those
models,
about one-third will cost less than $800.
Several factors have come into play. Asian currency problems have brought down some
component costs. PC makers streamlined supply chains last year. And as they jockey
for market
share, some manufacturers have pumped out extra inventory.
''We have found the bottom of the barrel,'' said IBM's Bartlett, ''and I think it's around
$599. We
will draw the line at the point where we can deliver a quality, reliable product with
lasting value.''
The price of a PC hinges on the price of the machine's central chip - the
microprocessor. Many
sub-$1,000 PCs use chips from Advanced Micro Devices Inc. and Cyrix Corp., a unit
of
National Semiconductor Corp.
These companies compete with Intel Corp., the market leader, which was slower to
recognize
the fast growth of the sub-$1,000 PC market. Intel introduced its own low-budget chip
in April.
The cheapest processors typically cost PC makers about $100. Performance in these
chips
varies, but analysts say they can run most software.
Each of the major chipmakers has its own approach to the market. Intel's Celeron chip
is a
stripped-down version of its Pentium II processor. AMD recently unveiled its K6-2
processor,
designed to run programs with three-dimensional graphics.
Cyrix's goal is to integrate many of the silicon chips in a PC into one processor. This
''PC on a
chip'' could eventually lead to machines that break the $500 barrier, company officials
say.
But there still are plenty of other parts to a PC.
A PC's hard drive costs $100. Then there's the $50 to $75 in memory. CD-ROM
players,
floppy drives and other innards account for another $100.
PC makers already have cut costs on the chassis, power supply, power cord and other
supplementary parts. They used to account for a larger percentage of a machine's
overall cost.
So
PC makers now are at the mercy of those who make the core computing components.
''We've wrung every optional cent out of that carcass,'' Bartlett said.
Most PC prices are quoted for machines without monitors. These also are coming down
in price.
They can be found for under $100, though a quality monitor costs closer to $200.
There also are other intangible costs that figure into prices.
Service and support is a major liability, says Mike Culver, vice president and general
manager of
Acer's consumer business. Acer is focusing on making PCs easier to use to cut down on
technical
support calls.
Even if PC prices continue to drop, analysts aren't sure consumers will keep buying at
the lowest
levels. Right now, the cheapest PCs run most software. But that could change.
There should be games out by Christmas, says PC Data's Baker, that are more
demanding of
processors, memory and hard drives. That could encourage buyers to spend a
little more on new
machines.
And then there's the emergence of digital video discs, or DVDs. More games
and other programs
will soon become available on DVD. And DVD players are only found on
higher-end PCs.
So PC makers aren't worried that every buyer will be content with a sub-$800
machine, says
Jack Yovanovich, director of product marketing at Packard Bell.
''Someone's going to go into a store, see what they get for $999, see what they
get for $799, and
make a decision to step up,'' Yovanovich said. |
