Tony and thread,
The following is from InfoWorld:
Low-cost PCs get to work
By Andy Santoni and Dan Briody
InfoWorld Electric
Posted at 2:29 PM PT, Jan 5, 1998
Intel's plans to break with its traditional processor strategy this year will redefine the price-performance ratio of the corporate PC.
The chip giant will bring new processors to market at the low end of the price curve that boast enough power to get onto IT managers' buying lists. This marks a departure from the company's usual practice of waiting for the company's high-performance chips to drop in price after they have been superseded by even faster CPUs.
For example, in the third quarter Intel will unveil Covington, a 266-MHz Pentium II CPU for systems priced less than $1,000. To bring the CPU in at a price of about $100, Intel has dispensed with Level 2 cache memory and the Pentium II's plastic case, leaving just a CPU chip on a printed-circuit board (PCB).
Following Covington comes Mendocino, a 300-MHz Pentium II CPU with Level 2 cache memory integrated onto the chip, instead of in separate chips on the PCB. This processor is aimed at systems selling for $1,000 to $1,500.
These low-cost CPUs will change the pattern in system prices, said Nathan Brookwood, principal analyst at Dataquest, in San Jose, Calif. Although midrange and high-end systems will still see higher performance balanced by static prices, average prices will drop as buyers shift some purchases to systems priced less than $1,000, he noted.
One reason for the shift is "nobody has delivered compelling [multimedia and graphics-intensive] applications, especially enterprise applications, that require the performance Intel is delivering on the higher-end machines," Brookwood said.
"We've already seen a dramatic decline in the average selling price of PCs," said Roger Kay, an analyst at International Data Corp., in Framingham, Mass. "A similar trend is likely to take place in the commercial market, driving sales of sub-$1,000 systems as corporate buyers look to pick up low-cost systems to run routine office software."
Sub-$1,000 PCs have been "crippled," running last year's technology in order to meet the new price point. But what the new year holds in store are sub-$1,000 PCs with all of their "fingers and toes," Kay said.
Facilitated by the shift in Intel's product strategy, and with competitive low-cost CPUs from Advanced Micro Devices, Integrated Device Technologies/Centaur, and National/Cyrix, all of the major PC vendors are expected to play in this emerging market in the coming year, and demand should increase throughout 1998.
But it won't stop there. Typically in the cutthroat PC industry, once a price threshold is reached, the next level is targeted. Cyrix has already targeted the market, and although 1998 is not likely to see $500 PCs abound, the first of these products should be available toward the end of the year.
Meanwhile, at the other end of the spectrum, Intel will continue to push its "visual computing" initiative, which is geared for such resource-intensive applications as video conferencing, computer telephony, and training simulators, to create demand for high-performance PCs. New high-end systems will follow the typical pattern, being introduced at prices somewhere between $2,500 and $3,000, gradually migrating down in price as newer technologies are introduced.
In the past, Intel introduced new high-performance and high-priced CPUs, said Dataquest's Brookwood. As new chips were introduced, the older ones slipped in price until they reached about $100. Then they were removed from the PC CPU price list and became the responsibility of Intel's embedded processor group.
Brookwood likened Intel's product portfolio to an escalator, with new products on the top step and the oldest, slowest parts falling off the bottom step.
An example of this process is the 233-MHz Pentium II, which recently dropped in price from $401 to $268 in 1,000-unit quantities. A similar price cut on faster Pentium II CPUs can be expected later this month as a new, 333-MHz Deschutes Pentium II hits the market, according to analysts.
Intel's next quarterly price cut is due at the end of this month. The following price list is due at the end of April, about the same time as Intel's 350-MHz and 400-MHz desktop Pentium II chips, along with the first mobile Pentium II CPUs, at 233 MHz and 266 MHz. The chips should bring down the price of existing processors, Brookwood said.
At mid-year, Intel will unveil its Slot 2 Pentium II processors, in 350-MHz and 400-MHz versions. With as much as 2MB of L2 cache running at the full speed of the processor, and designed for as many as four CPUs per system, these chips are aimed at server applications.
The Slot 2 processors are expected to cause concern for suppliers of servers using non-Intel processors.
Another major issue likely to share center stage this year is PC procurement alternatives. Many PC vendors are beefing up leasing options to make it easier for IT managers to obtain high-end systems without the fear of quick obsolescence.
"The question people are asking is, how much can I [get] and how long can I run it?" said Michael Takemura, desktop product marketing manager at Compaq, in Houston. "Leasing is one of the things that is keeping up the demands for the higher-end products."
And although most of the pieces of the "manageable PC," including Desktop Management Interface 2.0, Wired for Management, and Zero Administration Windows, are in place, widespread implementation is still lagging. The myriad technologies introduced in 1997 are expected to be put into action and begin producing results this year.
"We've been inundated with these technologies for the past year," said an IT manager at a Fortune 500 company. "We are just now getting to the point that we have enough of it and know what to do with it all. Maybe soon we can start saving some money, too."
As for thin clients, analysts are predicting slow adoption rates, mostly for terminal replacement. This emerging category of devices is not expected to affect the PC market dramatically this year.
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