Ian, an excellent article. Recommended reading for John Fowler and others on this thread, as it goes into significant detail on the gross margins for Pentium II chips at various performance/price levels. Generally well balanced. Here is an excerpt:
<<<Indeed, Intel execs insist that their gross margins will remain above 50%. But, says one Intel insider, ''if the sub-$1,000 category grew to more than 50% of the PC market, we couldn't sustain our gross margins.''
Fear of collapsing computer prices at first drove Intel into denial about the low-cost-PC phenomenon. Until November, the company stuck to its well-honed marketing message, enticing customers to buy Intel's latest chips. That included a $100 million ad campaign this quarter to promote the Pentium II, including TV ads of chip-plant workers in clean room ''bunny suits'' dancing on Broadway.
But behind the scenes, Intel's managers were already hashing out a response to a market shift that had clearly caught them by surprise. The PC price collapse had been stunning. In January, 1996, a $1,300 machine from Circuit City Stores Inc. wasn't enough to run Windows 95 well: It bought only a 75-Mhz Pentium PC with 8 megabytes of RAM. A year later, the same money bought a 150-Mhz Pentium with 16 MB of RAM--ample enough to run Windows 95 and cruise the Internet. ''Now, there's real meaty value available for less than $1,000,'' says Greg Gonzales, general manager of AES Technology, a small PC maker in Austin, Tex.
''GENIE IS OUT.'' Intel concedes that a permanent change has occurred in low-end PC pricing--similar, perhaps, to the 40% price drop triggered by Compaq in 1992 that slashed margins for both PC makers and retailers. . . >>>
Charlie. |
