Fred and ALL: Article...Debunking the myth on who is buying sub 1K machines...
investors.com
Cheap Computers Change The Consumer PC Picture
Date: 10/20/97
Author: Russ Britt
The PC industry is trying to figure out if the fourth quarter will bring holiday cheer or the mean season.
There should be a healthy increase in unit sales, pundits say.
Trouble is, there may not be much in profits for PC makers. This year's Scrooge could come in the form of the sub- $1,000 PC, which is gaining popularity.
Even profit-minded Intel Corp. is jumping on the sub-$1,000 bandwagon. Intel has been reluctant in the past to enter this price group because of low-margin concerns. Now it's changing its tune.
''We have repositioned our product line to participate in this growth area,'' Paul Otellini, Intel's vice president for sales and marketing, told a group of analysts Tuesday.
Analysts are predicting a 17% to 18% increase in unit sales for the fourth quarter over last year's holiday season. They say the consumer market could grow by as much as 19%.
Sub-$1,000 PCs, however, will lead fourth-quarter consumer sales, say market observers.
Led by Compaq Computer Corp., the sub-$1,000 PC leapt from a 23.1% share of the retail market in July to 38.7% in August, according to market researcher Computer Intelligence of La Jolla, Calif. The price range now is the most popular in retail, says Matt Sargent, a CI analyst.
Compaq's low-cost machines - a $799 PC made with a chip from Richardson, Texas-based Cyrix Computer Corp. and a $999 Intel-based machine - held 72% of August's sub-$1,000 market, Sargent says.
''This egment was) traditionally a dumping ground,'' Sargent said. ''Now it's a rat race.''
Earl Mason, Compaq's chief financial officer, says the sub-$1,000 market fueled a 111% increase in the company's consumer PC sales in the third quarter.
That made for some pleasing profit. Compaq's earnings for the third quarter rose 48% to 71 cents, before a six-cent merger charge. Revenue was $6.5 billion, compared to $5.0 billion in the year-ago period.
Closely held Packard Bell NEC is running a distant second behind Compaq, with 16% of the sub- $1,000 PC retail market. The remaining 12% is shared by Hewlett-Packard Co., Taiwan-based Acer Inc. and others, Sargent says.
Is this the magic bullet computer makers were hoping would drive PCs into more homes? At last count, roughly 40% of U.S. households owned a PC. Intel's Otellini says it looks as if the majority of sub-$1,000 buyers are new purchasers, meaning the industry should be increasing its household penetration.
But Sargent says that isn't the case.
His figures show that of the sub-$1,000 purchasers, only 20% were first- time buyers. Meanwhile, in all price categories, 39% were first-time buyers, Sargent says.
He adds that low-priced PCs are not necessarily the machine of choice for lower-income groups. The average income of sub-$1,000 PC buyers was $59,500, while the average overall was $61,500.
For the most part, it appears sub-$1,000 PCs are the domain of repeat buyers looking for an additional machine, Sargent says. Those purchasers already bought their first PC at a higher price - and may have watched it plummet in value. So they're looking for a lower-priced machine.
That could spell trouble for Intel and PC makers in general. Analysts are concerned that Intel's third-quarter results foreshadow lower-than- expected earnings down the road and bad tidings for PC makers.
Intel's earnings rose 19% to 88 cents a share in the third quarter ended Sept. 27, three cents below analyst estimates. Revenue grew 20% to $6.2 billion.
Intel officials say revenue should be flat to slightly higher for the fourth quarter, compared to the third. Margins should be slightly higher. They add that the average selling price of their chips, in 85% of the world's PCs, has not fluctuated that much.
Mark Specker, an analyst with SoundView Financial Group in San Francisco, says both consumers and commercial PC buyers are realizing they don't need to move up the technological ladder as quickly as they did before.
''It doesn't appear processor ales) have (moved) up as rapidly as they could have,'' Specker said.
That is particularly true in processor sales to corporations, he adds. Most companies buying PCs in March chose 133-megahertz to 166- megahertz machines. In October, the range shifted up to 166 megahertz to 200 megahertz.
But product offerings were widely available above the 233-megahertz level. So the sales range could have been much higher, Specker says. Companies are finding they don't need the maximum power available and are willing to settle for less expensive machines, he adds.
That is what companies such as Digital Equipment Corp. are banking on. Digital was set to announce Monday two new machines that are under $1,000 and are specifically designed for the corporate market.
''Our customers see those price ranges on the retail side and they're looking for the same thing,'' said Tom Roberts, Digital's product marketing manager. ''They say we need you to drive down the price, not drive up the technology.''
Not well-known for its PC business, Digital is coming out with an $899 machine with a 166-megahertz, multimedia-enhanced K6 chip made by Advanced Micro Devices Inc. The machines include 16 megabytes of memory and 1.2 gigabytes of disk space. For another $100, customers can get a 14-inch monitor.
Digital also is offering a $969 machine with an Intel 166-megahertz multimedia-enhanced chip. The price does not include a monitor.
Instead of such consumer peripherals as CD-ROM drives, the machines include extra slots for Ethernet cards or other communications devices, Roberts says.
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Regards, Michael
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