Yousef & Intel Investors - Two Views on Sub $1000 PCs.
Linley Gwennap & John Dvorak "Debate" the sub $1000 PC Issue.
Read all about it below.
Paul
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Copyright (c) 1998 Ziff-Davis Inc.
zdnet.com
Myths About the Sub-$1,000 PC
Segment will remain small, providing some foothold for Intel's
competitors.
From Microprocessor Report
By Linley Gwennap
The emergence of the sub-$1,000 PC market reflects an
inexorable trend toward less-expensive systems that will surely
doom Intel in the long run. You could easily be convinced of this
argument by the blizzard of recent stories on low-cost PCs. These
stories, however, are based on myths, not facts, and the
emergence of this new market is not likely to upset the status quo.
Myth: Sub-$1,000 PCs represent up to 40% of the PC
market. This gem is based on misinterpretations of a survey by
Computer Intelligence (a sister company of ours) that shows an
increasing percentage of PC sales below $1,000 during the
course of 1997. Sales in this category peaked at nearly 40% in
August, but this survey measures only the U.S. retail desktop PC
market, which represents less than 10% of the worldwide PC
market and has specific characteristics that make it unusually
receptive to sub-$1,000 PCs.
In particular, it is mainly a consumer channel; two-thirds of all PCs
are still bought by businesses, where the sub-$1,000 concept is far
less popular. Many business users seek faster systems to
increase productivity. Others shun low-end systems to avoid rapid
obsolescence. Although low-cost PCs run today's software
adequately, firms looking to upgrade to Windows NT and other
advanced software in the future might not be able to afford the
limitations of a sub-$1,000 PC. These systems also lack
expansion slots in some cases, giving new meaning to the term
"fixed asset."
The survey also doesn't include worldwide demand. While the
sub-$1,000 PC is popular in emerging markets such as China, the
large markets such as Europe and Japan have been slow to
change their focus. Finally, the survey excludes mobile systems,
which make up more than 20% of the total PC market but are not
available for less than $1,000. We believe total sales of
sub-$1,000 PCs were perhaps 5 million units in 1997 and will
approach 10 million units, roughly 10% of the worldwide PC
market, in 1998.
Myth: Sub-$1,000 PCs have been enabled by low-cost CPUs
from Cyrix and AMD. Sub-$1,000 PCs have been available for
years; the problem has been that their capabilities were well below
the needs of contemporary software. The new popularity of
low-cost systems has been driven mainly by two factors: a drop in
DRAM and storage prices along with a lack of performance-hungry
software.
DRAM prices have dropped nearly 90% in the past two years. The
price of a 1G hard drive also fell precipitously. In years past, PC
makers would simply increase the DRAM and hard-disk capacity
in their entry-level systems, keeping prices constant. Component
prices fell so fast in 1997, however, that many vendors chose to
discount their entry-level configurations rather than beef them up.
This decision was aided by a relative stagnation in software
demands. Given a lack of compelling new software (see MPR
11/17/97, p. 3), an $799 PC provides good performance on
Windows 95 and basic applications. A 1G disk and 32M of
memory are more than enough for this software.
Using a low-end processor from one of Intel's competitors can
shave $20 to $40 in cost, a significant amount in a sub-$1,000 PC.
But similar savings can be achieved by adjusting the memory,
storage, or other features of the system, which account for 80% of
the total system cost. Many PC makers have decided the Intel
brand name is worth the extra expense. Both HP and Micron, for
example, have chosen a Pentium/MMX-200 for their $799 PCs.
Myth: The trend toward lower prices is irreversible. The
factors that made low-cost PCs popular can easily be halted or
even reversed. Since December, DRAM prices have firmed and
even started to rise, as bleeding chip makers finally began to reign
in production. This situation, exacerbated by Asian financial
turmoil, could cause shortages as early as next year. In addition,
the unusually fast progress in hard-disk density over the past two
years is likely to return to historical rates.
More important, new software will emerge that demands faster
processors, more memory, and larger hard drives. Windows 98
won't do the trick, but digital photography, videoconferencing,
voice recognition, and other muscular applications might. Both Intel
and Microsoft, companies I avoid betting against, are investing
heavily to make sure that today's software doesn't remain good
enough. Demand for low-cost PCs will dry up if those systems can't
run the most popular new programs.
These factors won't change immediately, and sub-$1,000 PCs are
likely to be popular in some channels throughout this year and
probably beyond. They will remain a relatively small part of the total
PC market, however, particularly when measured in dollars. This
price segment will provide a foothold for Intel's competitors, but to
achieve their market-share goals, AMD and Cyrix must do more
than simply sell cheap processors.
April 6, 1998
Dvorak on the Cheap
By John C. Dvorak
The editorial column in last month's Microprocessor
Report says that the sub-$1,000 PC is not the
beginning of the end for the desktop computer as we
know it. But to me, the beginning of the end is always
marked by denial in high places. I still recall a couple
of interesting articles written in 1983 that boldly pronounced, "8-bit is NOT
DEAD!" And they were discussing not cheap controllers but desktop computing.
So in Microprocessor Report, Linley Gwennap pooh-poohs sub-$1,000 systems,
outlining what he considers to be three myths:
1) Sub-$1,000 computers represent 40 percent of the market.
2) They have been enabled by low-cost CPUs from AMD and Cyrix.
3) The trend toward lower prices is irreversible.
The key to understanding the sub-$1,000 computer is to understand branding.
Gwennap states that there have always been sub-$1,000 computers and that
this is nothing new. True enough. I recall $900 el cheapo clones during the 386
era, in fact. But this completely misses the point. The fact is that no-name
clones and one-shots that float in and out of the market can't trigger a
movement. Note that it was Compaq that started this recent wave. Here's one
way to look at the situation. Suppose that people wanted a sub-$1,000 car, so
Yugo and the Plastic Car Company made such models; those cars would be
perceived as pieces of junk. Now suppose BMW introduced a sub-$1,000 car.
The market would explode with interest and we'd have a new market category,
since it would have been given official sanction by what people perceived to be a
real car company.
This is exactly what happened with Compaq's inexpensive Presarios. Now that
the cat is out of the bag, the prices will just lower.
Before I go on, let's look at Gwennap's three
assertions. First he argues that the 40 percent figure
refers only to retail sales and that they are
unimportant. Indeed, the numbers are those for retail,
but to dismiss them is foolish. Retail, with its
associated markups and overhead, makes this
number even more impressive. His second comment,
about the CPUs, is rather strange and is part of the
typical Intel boosting practiced at Microprocessor Report. In fact, it was the
Cyrix MediaGX that triggered this whole scene. Third, the trend toward lower
prices is not irreversible. I suppose if the economy went into hyperinflation, one
could argue this position. But the fact is that lower and lower pricing in high
technology has been a trend since tube-based computing switched to
transistors.
The real situation that is unfolding (and nobody wants to admit this) is that
desktop computing as we know it is dead. The underlying helpmate for this
sub-$1,000 computer is the fact that processor speed and hard disk capacity
have finally left software in the dust. There are no new killer applications on the
horizon, and Microsoft--as hard as it tries--cannot bloat its code much more than
it already has.
We're at a juncture not unlike the one in 1975 when the Altair was introduced or
the more recent one when the World Wide Web was developed. We have
massive changes taking place in our computing model. During such eras, weird
denials (which deny even basic trends, such as lower prices) start to crop up,
and when I see them, I consider them more confirmation of impending change.
Every year I try and find a handful of new topics that I believe will dominate the
scene in the next 12 months or so. The transition from desktop computing to
hand-held/pocket computing is high on my list. The emergence of the
sub-$1,000 category and its eventual dominance is another. So are home
networking and what I believe will be a stabilization of the Internet market.
There are a lot of people who, like Gwennap, would just as soon see the world
beat a path to the upcoming IA-64 architecture and beyond until we all have
extreme supercomputers on our desktops. But what will these machines be
doing in a world of mediocre Net bandwidth and bloated apps that have too many
features already? Unless we're going to do moon shots from our backyard
launchpads, there's no reason to continue on this path. Of course, I'll be one of
those people with IA-64 machines when they arrive in a couple of years, but I'd
only be fooling myself if I thought millions of computer users would be coming
along when the alternatives interested them more. One of the alternatives is the
cheap, fast, reliable sub-$1,000 computer. It is here to stay.
John C. Dvorak
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