Business Week Part 2
by: Strawboss10 (46/M/AL)
56226 of 56226
DRASTIC CUTS. The result of this profit squeeze has become dangerously apparent in
recent days. On Feb. 19, Packard Bell NEC announced a 15,000-person layoff, along
with news that its Packard Bell home-PC unit had lost more than $1 billion over the past
two years. On. Feb 23, Acer America Inc., after years of losses, said it would get out of
unprofitable retail-store channel and sell only via the Interent. These moves followed
Hitachi's Feb. 4 announcement that it would shut down its U.S. notebook subsidiary,
Hitachi PC Corp. Rather than downsize or surrender, some PC makers are taking a
different tack. To break the cycle of falling prices and shrinking profits, they're adding
services, which may draw new buyers -- and also produce revenue annuities for the PC
companies. On Feb. 24, for instance, Gateway 2000 announced it would provide free
Internet service to customers who buy a PC costing more than $1,000. Other companies
are expected to make similar moves. Compaq, for one, is trying all kinds of schemes to
find a profit formula that adds up. On the one hand, it's experimenting with the so-called
free PC model: It will sell 10,000 Presario home PCs to startup Free-PC Inc., which will
"give" them to customers who agree to have online ads appear on the units 24-hours a
day. But Compaq is also buying up software and E-commerce companies such as
Shopping.com, with the goal of creating services and content that set it apart from the
PC crowd. One PC maker that appears unlikely to stray from the pure Wintel model is
Dell Computer Corp. The Texas company has mastered the direct-order business and
continues to squeeze great profits from conventional PCs. But even Dell may be feeling
the heat from plunging PC prices: Revenue growth in its most recent quarter fell from
historic 50%-plus levels to just 38%, prompting a shellacking on Wall Street on concerns
over a slowdown.In the end, high-volume PC producers, including even Dell, will have to
follow the market-segmentation strategy of their patron saint (and master) Intel, which is
trying to compensate for cheaper chips by selling more high-powered models used in
corporate servers and engineering workstations. So far, that balancing act has helped
keep Intel growing, even as PC prices plunge. For PC makers contemplating a plunge
into ultracheap, low-margin information appliances, having a high-end server and
workstation business could prove to be a crucial determinant of their continued
success.By Peter Burrows, in San Mateo, Calif. |
