Get ready for the sub-$800 computer
By Michael Kanellos
December 9, 1997, 5:40 p.m. PT
Sub-$1,000 computers were only the beginning.
Major computer vendors are currently pondering--and in some cases
implementing--product plans for sub-$800 computers based around Pentium MMX processors. The machines would appear in the first part of next year, setting a new low-cost standard for Intel-based computers.
Sources close to Packard Bell NEC have said that company will offer a new computer this month based around a 200-MHz Pentium MMX chip. By
January, the machine will cost $799. Likewise, Hewlett-Packard is preparing a 200-MHz Pentium MMX machine at that same price point, according to the trade magazine Twice.
These major-vendor releases are likely to draw competitive responses; meanwhile, prices for 233-MHz Pentium MMX machines will take over
as the processor of choice for the $1,000 computer.
This new low-price floor would come as a result of price cuts in the component world and barebones engineering. Prices on hard drives, memory, and processors have been dropping throughout the year and will likely continue to drop next year, according to various analysts....
[Note:The DD industry metrics are ~60% CAGR in density and a corresponding ~40% CAGR reduction in costs. The key is the sequential quarterly drop in costs. ~40% CAGR reduction in costs = ~9% quarter to quarter drop in costs yet ASPs have been dropping in double-digit terms the last 2 quarters. To illustrate, Maxtor is probably the only one dropping its CGS faster than ASPs because it is getting preferential pioneer pricing (with the corresponding volume discounts) on its channel electronics from TXN, it is making more of their own platter requirements, it is gradually making more of its ASICs and it is buying more parts from the other Korean chaebols]
....By February, volume prices on 166-MHz Pentium MMX chips will drop to $89 while 200-MHz versions will slip to $115. Discounts here in turn have resulted in lower system prices.
In addition, some vendors may elect to eliminate separate components for modems, video, and/or sound. Instead, these functions will run off of the central processor as a software product, said Rob Enderle, senior industry analyst at Giga Information Group. Examples include a software modem or software-based audio, which run on the Pentium or
Pentium II processor instead of using a dedicated chip.
While these stripped-down 200-MHz machines might end up performing more like a standard 133-MHz computer because of the shift of
functions back to the central processor, they will be cheap.
"At this point you're down to a motherboard, a chip, a hard drive, and a case," said Enderle, who estimated that the parts cost for such a machine could run as low as $400.
[Note: Historically, disk drives have accounted for 25% of the cost of materials of a PC so that translates to disk drive ASPs starting at $100 for most assuredly single-platter+1 or 2 headed drives in the low-end segment of the desktop going forward.]
"I don't think it [the low-cost market] will get below $500, but the question they are all contemplating is what do you do about the $795 to $500 space.
"Compaq has to participate," he added, "They can't let this segment slide."
David Goldstein, chief executive officer at Channel Marketing, a Dallas-based retail analyst, agrees that companies will likely shave parts from current designs, but emphasized that the component price
cuts will get manufacturers most of the way there. Clone manufacturers, he pointed out, are already coming close to this price point already. HP itself is marketing the Pavilion 3100 multimedia PC with a 166-MHz Pentium MMX for $899, he said.
"We will likely start to see some new price points before the end of the year," he said. Compaq, in fact, is expected to drop the price of one of its 200-MHz Pentium MMX machines to $999 before 1998 arrives.
Despite meteoric sales in cheap computers, low-cost sales have not impacted the high end of the market, added Goldstein. "The over-$2,000
segment is still going strong," he said. "The $1,500 to $2,000 [segment] is what is being impacted."
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