Sub-$1,000 Notebooks Recall Shades of The Past
LA JOLLA, Calif., Jun 19, 2000 (BUSINESS WIRE) -- Compaq (NYSE:CPQ) recently
broke with tradition when it became the first tier-one PC manufacturer to offer
a newly introduced notebook for under $1,000.
The Compaq Presario 1200-XL 450, which includes a 450MHz AMD K6-2 processor,
32MB of RAM, and 12.1 inch passive matrix screen, is currently selling on the
Compaq Web site for $999.
Other manufacturers have from time-to-time sold older, end-of-life notebooks for
under $1,000, but this marks the first time a major notebook manufacturer has
initially priced a system below the magical $1,000 price point.
This low price notebook offering is reminiscent of the initial days of the
sub-$1,000 desktop market. In early 1997 Compaq was the first major vendor to
introduce a new desktop system for under $1,000. Before this step was taken,
sub-$1,000 systems accounted for less than 15% of total desktop retail sales. A
year later, the sub-$1,000 market expanded to over 30% and today sub-$1,000
systems dominate the consumer desktop market accounting for over 75% of retail
desktop unit sales.
During the early days of sub-$1,000 desktops, many vendors chose to stay away
from the low-end, indicating that these sub-par systems would not be well
received by customers or that it was impossible to build a system for under
$1,000 and gain any sort of profitable margin.
Toshiba and IBM (NYSE:IBM) were two of the more vocal opponents to the
sub-$1,000 market. IBM, at the time, had a strong position in the retail desktop
market with its Aptiva line while Toshiba, having just entered the retail
desktop market, was growing quickly and had managed to grab the No. 5 position
from Apple (Nasdaq:AAPL). Both vendors appeared to have everything going their
way ... that is until their denial of the sub-$1,000 market caught up with them.
Toshiba was hit hard, and saw its market share plummet throughout the rest of
the year to the point where Toshiba ended up pulling its desktop line from
retail shelves in the first quarter of 1998. Toshiba has yet to rejoin the
retail desktop market and has no apparent plans to do so. IBM watched both HP
(NYSE:HWP) and Acer surpass IBM in unit sales until it revamped its Aptiva line
to include sub-$1,000 desktops.
Dell (Nasdaq\NM:DELL) was also an initial opponent of sub-$1,000 desktops, but
was afforded the luxury of having a very small portion of its overall sales
coming from the consumer market, which initially fostered the highest demand for
low-cost systems. Dell, however, has revamped its desktop lineup over time and
now offers a desktop for $799, which includes a monitor and a DVD drive.
Packard Bell, while not being a vocal opponent of sub-$1,000 desktops, was
obviously the hardest hit vendor. Packard Bell had been the leading vendor in
retail since the inception of retail PC sales. Packard Bell's lead in retail had
mainly been due to its low-price leadership. This strategy worked when the
average PC in retail sold for $1,800, but not when Compaq starting pushing
sub-$1,000 desktops. In the four quarters preceding the introduction of
sub-$1,000 computers, Packard Bell saw its market share cut in half with Compaq
and HP surpassing Packard Bell for the top two positions. Packard Bell has since
been completely removed from the PC market.
Viewing these events surrounding the initial days of the sub-$1,000 desktop
phenomenon provides important context for some of the initial reactions to
sub-$1,000 notebooks. Steve Andler, Toshiba's VP of marketing for portables was
quoted in PC world as saying, "We could put out a decent product for $999, but
it wouldn't be as good as our $1,199 products."
Does this position, so hauntingly similar to Toshiba's position on sub $1,000
desktops three years ago, mean that Toshiba will end up like Packard Bell? Most
likely not. Toshiba sells the majority of its systems to corporations, which are
less price sensitive then consumers. However, Toshiba does need to be aware that
a fundamental price shift within notebook computing may be under way.
Additionally, this fundamental price shift will likely not be confided to
consumer (retail) notebooks. If we look back to the desktop example, we see that
in early 1997, sub-$1,200 desktops within corporate resellers accounted for less
than 11% of unit sales. Today sub-$1,200 desktops account for over 60% of unit
sales in corporate resellers. So, while corporations tend to be less price
conscious then consumers, there is a link, a link which notebook manufacturers
such as Toshiba should be highly aware. The PC market has shown the ability to
shift very rapidly, and will leave behind those which cannot adapt.
ARS Inc. is a La Jolla-based business-to-business Competitive Market
Intelligence Company specializing in the daily tracking and analyzing of the
e-commerce, PC, and Networking markets. ARS is the Information Technology
Industry's most comprehensive source of business-to-business and
business-to-consumer competitive market intelligence on products, pricing,
margins, marketing activities, promotional campaigns, channel programs, and
sales channel dynamics. ARS provides fact-based research to help companies
understand what is happening in their respective markets and why. ARS's scope of
coverage includes the U.S. and European markets.
CONTACT: ARS Inc.
Ryan Peddycord, 858/551-0008
rpeddycord@ars1.com
www.ars1.com
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