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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: Riskmgmt who wrote (29830)	11/26/1999 5:23:00 AM
From: IQBAL LATIF	Read Replies (1) \| Respond to of 50167

EMachines faces Alzheimer's By Tom Davey Redherring.com October 25, 1999 With DRAM prices recently leaping by as much as 25 percent, PC box makers that already have slashed prices to the bone will likely be forced to ship products with less memory, or to do the unthinkable: raise prices. Rivals.com enters the ring Sycamore closes $400 million deal Kpe chases digital stardust Emerging companies such as eMachines now stake their livelihoods on hawking PCs in the $400 to $600 range -- just a cut below the prices of the major vendors. Other new vendors rely entirely on unproven new business models to sell their wares. For example, Free-PC gives away PCs to customers who agree to view advertisements. And Directweb bundles PCs and Internet service for a flat monthly fee. These models have been made possible in part by the last three years' plummeting component prices. But still, with razor-thin margins and risky business models, there's no room for error. A hike in component prices can put marginal box makers like these through the wringer. Even behemoth Dell Computer (Nasdaq: DELL) said this week it will have to cut the amount of memory in machines to stay within given price ranges. "Dell is admitting that it's a slave to price points," says Mercury Research analyst Mike Feibus. EMachines is on the fast track. Free PCs flood the market. PCs for free: we didn't think any company would actually try it. MORE MEMORY = RAW DEAL Because of the increase in memory prices, Dell has been hit by "a $70 per unit cost" for an average machine, says a spokesperson. Because most people have a fixed amount in mind that they want to spend on a PC, many will sacrifice memory to get what they want in other areas. "More memory wouldn't be featured right now in a best value system," notes the spokesperson from Dell. An eMachines spokesperson declined to comment on the potential impact on her company, citing a quiet period imposed by the Securities and Exchange Commission before the company's planned stock offering. But analyst Ashok Kumar of US Bancorp Piper Jaffray (Nasdaq: UBAN) estimates eMachines has only a $20 profit margin on each machine. Cutting profits that close, he says, puts eMachines in a precarious position when component shortages or price hikes occur. "PC makers will have to make more choices on how they'll spend their dollars," says Dataquest analyst George Iwanyc. Indeed, DRAM manufacturers have a difficult job forecasting demand. Mr. Iwanyc notes that if they build production plants for $1 billion or more that are not used to full capacity, it can be more costly to their bottom lines than having a supply shortage, which would drive up prices. Mr. Iwanyc forecasts a short-term dip in memory prices, starting in December or early next year. But by the middle of next year, he expects cutbacks in manufacturing relative to the supply. This should result in higher prices over the long haul.