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To: Meathead who wrote (45610)	6/1/1998 12:13:00 AM
From: Bilow	Read Replies (1) \| Respond to of 176387

Hi Meathead; I stand by my prediction that an average PC compatible purchased by the public will be in the $100 to $150 range within 3 years, though I should note that I am not including the cost of the monitor or printer in that figure. With the monitor and printer, the price will be around $300 or so. Anyway, lets talk about what keeps the price of computers as high as they are. You quoted Linley Gwenapp VP of the Microprocessor report: First of all, trying to squeeze another $200 out of today's bare-bones $699 PC is tough. The total semiconductor content of these systems costs about $100, so even if Moore's Law drives this down to zero, we're still a hundred dollars short. The rest of the system is motors and metal that aren't likely to get much cheaper in the near future. The person quoted above clearly has never built a computer from parts. If they had, they would know that what keeps computers expensive is not the "motors and metal", but is instead the electronics. This is the internet, and I will now prove my assertion with the use of links. I went to the Yahoo shopping guide for computer hardware, and picked the first vendor on the list that had computer parts. Now Linley's statement is that the electronics are not now the driving factor on computer prices. We can check this by looking at the retail prices for some of the parts used in computers that are left over from previous generations of technology. The manufacturers of these parts have presumably paid off all their R&D expenses, and are now down to the bare-bones costs of manufacturing, at low margins: Keyboard $12.88: 168club.com I think I bought keyboards for a lot less at Frye's down in SI valley, 18 months ago when I had to assemble a couple 200MHz Pentiums for use as routing workstations. But keyboards have a lot of plastic in them, and are cheap. Power Supply and case. $20.88: 168club.com A damn good proportion of the metal in a computer consists of the case and the power supply. Here they are (225W) retail for less than $21. And that power supply is about as heavy as any other part. Floppy disk drive (3.5"). $17.88: 168club.com Last I looked, a floppy disk drive included a motor, so that isn't what is keeping the price of computers above $500. So much for "metal and motors". The fact is that if the metal and motors are from previous generations of computers, they are cheap as water. This is what commodity pricing really means. Commodity pricing means that there is no R&D in the price, but instead that the price corresponds to the cost of production. Newer parts, such as 24x CD roms, and 2.1G hard drives are more expensive. But these parts will drop in price just like the others. Anybody who has been a (successful) hardware designer knows the facts that I have shown here, and knows how little production costs are in even state of the art computers. The public believes that it costs $500 to build a computer cause that is what they are sold for. Not so. And Linley Gwenapp VP has clearly not analyzed anything. I have a lot to say also about the cost of monitors and set top boxes. But I'm going to put that into a following post. -- Carl

To: Meathead who wrote (45610)	6/1/1998 1:26:00 AM
From: Bilow	Read Replies (2) \| Respond to of 176387

Hi Meathead; About those expensive monitors... The basic problem with monitor pricing is that the technology predates the transistor era. Yes, tech fan, that high-resolution monitor you bought recently uses tube technology. I remember a time when CPU memory technology was dominated by something called (magnetic) "core". It took a while to be replaced by semiconductor, but it eventually happened, and prices dropped. I think the same thing may be happening in display monitor land. Here are some links to EE-Times articles of interest: LCD prices nosedive & replace monitors. EETimes 5/4/98: techweb.com techweb.com Another technology, reflective LCD: techweb.com There are also a lot of other technologies out there that are likely to reduce the cost of displays. Do a search through the last year's EE-Times to see em. But the basic fact is that there are no inherently expensive parts in a monitor anyway. If TV tubes were like catalytic converters and required a certain amount of precious metal, then you could expect that their cost of production would be driven by the cost of materials. But picture tubes don't have anything particularly expensive. Making those shadow masks and pixel arrays align is kind of touchy. But it is one of those production problems that can be solved. To get an idea of the true cost of production of monitors, take a look at historical pricing of obsolete monitor sizes, like 14 inch. One thing that is guaranteed to bring down the price of computer monitors is higher production. But I don't expect the number of computers sold to expand enough to drive monitor prices that low. Instead I expect TV display devices to go to much higher resolutions, and the extra production line capability to also pump out computer monitors. This will probably take some years, as it will be a while before the picture tube makers will have satisfied the public with HDTV tubes. (There are probably some investment opportunities here in SEAsian companies...) I guess all investors are following the digital TV news. For instance: HDTV article in EETimes 2/25/98: techweb.com When digital TV causes consumers to upgrade their TVs, the increased resolution will allow the set-top box makers to sell a lot more equipment. In fact, I expect the usual retail TV sellers to sell TVs that include a PC as well. Its going to be great to play computer games on a 60 inch high resolution screen! (Maybe I'll finally actually buy a TV!) Now sales of PCs by the retail TV sellers will take PC sales away from the current PC sellers. This will be associated with the final conversion of the average PC to be a true commodity. As I have said before, computers are not yet commodity priced. You will be able to tell when they are commodity priced. Wheat is a commodity. Wheat is piled in the open on the ground, when room runs out in silos, in the midwest US. When you see companies doing the same thing with PCs, then you will know that you have finally seen commodity pricing in PCs. :) By the way, when prices get that low on PCs, the companies that make the most expensive part of the machine, (probably the CPU, possibly the motherboard or hard disk) will have the advantage over their competitors in putting together the box. At that time, all the box makers will be put out of business. I know the above statement will seem a little silly to long term bulls on DELL. But take a look at TVs. All the major manufacturers make their own picture tubes... If a TV "box maker" had to buy tubes from somebody else, the mark-up would prevent them from competing in the commodity market. You just haven't seen PCs reduced to a commodity market yet. It will happen, and the reduction in ASPs, is your first clue. By the way, the action I am describing here is called "vertical integration". The fact is that a high-end computer will always cost more than semi-obsolete technology (like 3.5" floppy drives or power supplies). But that fact does not mean that computers are automatically going to go over to commodity pricing. Instead, you have to watch for when the consumer quits buying high end, and starts buying low end. When the bulk of the market shifts to low end, its over folks. That defines the end of computers as a high profit business, and defines the beginning of vertical integration. My suspicion is that a phase of vertical integeration is approaching the personal computer industry, and the companies to bet on are IBM and HWP. INTC doesn't seem to want to make boxes, and its chips are easily copied by its high tech competitors, anyway. -- Carl