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To: Chuzzlewit who wrote (48765)	6/23/1998 6:55:00 PM
From: rudedog	Read Replies (3) \| Respond to of 176387

chuz - I think you are confusing the symptom and the cause. I don't believe that CPQ entered the sub-1K commercial market to gain share. I think that's where they had to go to get rid of the channel bloat. The combination of fire sale margins and aggressive price competition from IBM and HP guaranteed a bad quarter. The combination of CPQ's pricing action, and the fact that both IBM and HP had also stuffed the channel at the end of '97 drove the results for all three companies. Same problem (channel bloat), same market dynamics and same result - no or low profits. The consumer market has always been much lower price point than the commercial market, and has been at about $1K at the low end for several years, so I don't see why this would have had a greater effect on profitability now than in the past. For example my brother paid $1100 for a presario for his son for Christmas in 1996. If there was a secondary effect on the commercial market from the 'cheap consumer products', it has not been significant to date. I believe it is a coincidence that the price points crossed in 1Q98 due to the commercial inventory problems. The features and content, as well as the construction, expandability and reliability of the consumer machines is very different from commercial boxes, and there has just not been much linkage between the two markets. Ever open one of those puppies up? Highly integrated everything on the motherboard designs, don't think about upgrading or changing anything except memory. No network interface card, no high performance graphics, no fancy disk controller. And for all of those same reasons, these machines are completely inappropriate for commercial systems. Maybe some other hardware-knowledgeable folks on this thread can back me up here - It is no problem to produce a profitable consumer product sub-1K because most expensive features are simply not in the product. In volume, the low end consumer products can be produced for less than $450 (less monitor). At a street price of $799, that allows a target margin of 30% and 15% for the channel. No mystery here, it makes money.