Another honorable mention on the CNN page today as part of an article on "off-brand" microprocessors into $500 PCs.
Margins will suffer, but it may be a way to move volume into units that will sell well into the XMAS season. At this price we may see second unit sales improve (into homes) and another price barrier removed......?
cnn.com
Vendors push PCs below
$500
August 3, 1998
Web posted at: 2:00 PM EDT
by Jason Krause
(IDG) -- It wasn't very long
ago that the sub-$1,000
personal computer set the
PC industry on its ear and
helped bring a new wave of
consumers onto the Net. Now get ready for the inevitable next step D the
sub-$500 PC.
In recent weeks a number of small computer vendors have begun
introducing Windows machines in that price range D and some of the prices
even include the monitor. Other firms, notably a start-up called iDot, are
using the Internet to cut distribution costs to the point where they can sell
even high-powered PCs for as little as $700. All are relying on a new wave
of off-brand microprocessors to cut prices.
So far, market analysts say, most of the buyers are not newbies with modest
incomes, but experienced users looking for a second or third machine. It
may be a while before the sub-$500 machines have enough horsepower to
attract a broad audience. Yet history suggests that this new pricing wave will
take hold eventually, and it's likely to have a big impact on the strategies of
PC companies and vendors of low-cost "Internet appliances."
It's surprising how much you can already get for $500. A $499 system from
NetRam in Irvine, Calif., for example, includes a 200MHz WinChip (from
Integrated Device Technologies), 16MB RAM, a 1.7GB hard drive, a
33.6KBps modem and a monitor. The configuration is acceptable for
running word processing, spreadsheet and other office-type applications,
and is sufficient for Internet browsing.
The key to such super-cheap machines is a new generation of low-cost
microprocessors. Both IDT and Cyrix, now owned by National
Semiconductor, have developed chips that have the power of a low-end
Pentium and manage to integrate a number of other functions, including
sound, graphics and memory control, into the main processor, thus cutting
overall system costs.
Intel is beginning to play more aggressively in the low end of the market, but
it doesn't expect to see its chips in sub-$500 systems any time soon. Neither
does Advanced Micro Devices, the distant number two to Intel in the PC
processor market. But fierce competition among the second-tier processor
vendors should continue to spur dramatic performance improvements for
even the cheapest chips.
Meanwhile, the economic crisis in Asia, while damaging to computer
manufacturers in general, has helped cut the price of many other pieces of
the PC. Most disk drives, motherboards, monitors and other components
are manufactured in Asia, and the collapse of many Asian currencies has
made them far cheaper.
Distribution costs are dropping too D
thanks in part to the Internet.
"Our goal is to make money with single-digit
margins," says Neil Bremner, executive VP
of iDot Computers, which sells exclusively
over the Net. "Cheap PCs will be the key
to our success. Most of our traffic comes
from people checking out our cheapest
machines."
But cheap PCs are not just sales gimmicks
to reel in reluctant consumers. Compaq
recently said it enjoys its biggest profit
margins on its cheapest machine, a wildly
popular $899 computer. But as with almost
all products, the Net is likely to keep
margins on cheap PCs thin indeed.
It remains unknown whether the advent of
the sub-$500 PC will have the same kind of
market impact as the $1,000 PC, which
nudged household PC penetration up to 50
percent in many areas of the country and
became the standard price for a big
segment of the market.
Although common sense suggests that many
non-PC owners could be lured by lower prices, home users have
traditionally demanded substantial processing power, partly out of fear of
being left behind and partly because they want to use graphics-heavy games.
"There's been an inversion," says Steve Tobak, VP of corporate marketing
at Cyrix, a CPU company in Richardson, Texas. "What's driving innovation
is not high-end scientific computing, but what the consumer wants to get
under the Christmas tree."
By definition, novice users are not in a position to get on the Net and seek
out the best price. And new buyers are often slow to get online.
According to a May survey by ZD Market Intelligence, only 34 percent of
those who have purchased PCs for $500 or less are on the Internet. At the
other end of the spectrum, 79 percent of those who have paid $2,000 or
more for their PCs are using them for Web access.
Right now, sub-$500 PCs are primarily purchased by experienced users
who already own a system. Many in the industry still believe that easy-to-use
Internet appliances that don't require navigating Windows and cost $200 or
less D such as Microsoft's WebTV D are the keys that will open the Net to
new users.
Still, the recent history of the PC business suggests that growth is likely to
come at the low end of the market. As system vendors and chipmakers
begin integrating 3D rendering engines, audio enhancements and other
functions into the CPU or motherboard, a sub-$500 machine could become
suitable for the vast majority of applications. And that could bring ubiquitous
Net access a little closer to reality. |
