September 28, 1998, Issue: 220
Section: News
Compaq, IBM Among Vendors Addressing Low End -- Top Tier Eyes
Sub-$600 PC
A CRW Report: New York - As clone-PC makers swarm to sub-$500 price points,
Compaq Computer and IBM are reported to be eyeing retaliatory moves that could put
branded PCs at the $599 level this fall.
While neither company would discuss their plans directly, sources briefed by them said
both have been gauging interest in $599 units for release as early as October.
Compaq is reported to be considering a system based on a Cyrix MII 300MHz
microprocessor that would be available for ads by November. The system, model 2266,
would be part of a bundle that would also include a Compaq monitor and printer, in
which the PC would add $599 to a bundle totalling $899.
Sources close to IBM, meanwhile, said the company has a $599 PC based on a K6
266MHz chip "on the drawing board," though the product hasn't been finalized.
Both systems would be aimed at recent entries by Packard Bell and second- and
third-tier PC makers in the $599 and below price points.
Compaq has lowered the bar in the retail PC market for the past two years. It was the first
top-tier PC maker to reach the $999 price point with its Cyrix MediaGX-based 2200 series
two years ago. It subsequently broke a low-price barrier with a $799 PC last year.
Analysts say the $599 model is a natural evolution. "Eventually we'll see the top tier get
down to the $399 level," said Duncan Cameron, PC analyst at ARS, Dallas. "So $599 is
definitely feasible. I'd be surprised to see them get there with a Pentium-based system."
He said the strategy could cause some clone makers to rethink their marketing plans.
"This fall, the clone makers are going to have to go below $599," he said. "They'll have
to get to $399 and $499 before people will consider them."
Many clone-makers, in fact, are already there, and the market has welcomed new
entrants.
A Fremont, Calif., company called emachines, for instance, plans to release $499 and
$399 systems in October. The company, a joint venture between Korean monitor maker
KDS and Korean PC maker TriGem, has no retail accounts yet, but is hoping to get the
machines in Fry's Electronics and "Best Buy-type stores," a spokesman said.
"We feel there are some customers for whom the $600 to $700 range is still a problem,"
he said. "That price point is still too much to expand the market. We want to take it
down to VCR and TV pricing."
The emachines $399 system is based on a 266MHz Cyrix chip, the spokesman said. The
$499 system will be based on Intel's cache-less 300MHz Celeron chips. Future releases
at that price point will include cached versions of the Intel chip, he said.
In Q1 1999, emachines plans to release a Wintel-based iMac knockoff with a built-in
monitor for $499, the spokesman said.
The company also plans to offer service packages with the systems, as service is not
included in the price. The spokesman said pricing for those packages has not been
determined.
Other systems hitting low price points: Micro Center's $399 PowerSpec 1810; the Gazelle
180, a 180MHz IDT WinChip-based $399 system from PrecisionTec sold through
Egghead.com; and International Business Computers' 233MHz Intel Pentium-based $499
Pegasus PC, which is sold at American TV and Hartco Enterprises. (Micro Center last
week set the bar even lower with a limited-quantity advertised special of a new system
and monitor at $199.)
One system no longer on shelves is a $499 IDT WinChip-based PC from NetRam, a
division of Millenium Electronics. Company president John Torres said NetRam was
unable to turn a profit at that price and pulled the PC from shelves about a month ago.
"What happens is, the customer takes the system home and returns it to the retailer," he
said. "The return rates on those machines are much higher than our high-end systems."
Torres said NetRam provided its usual level of support for the low-end system, but the
expense was disproportionate to that of a high-end PC. "It's a segment of the market I
just can't imagine anyone can do profitably."
Still, the market seems to be edging to ever-lower price points. Stan Swearingen, vice
president of desktop products for Cyrix, a subsidiary of National Semiconductor, said
while he doesn't expect vendors to break the $399 price point this year, he foresees $299
and $199 prices about a year from now, when Cyrix's system-on-a-chip is introduced.
Hitting those price points, Swearingen said, would require an alternate OS to Windows
98. Cyrix recently got approval from Microsoft to use the company's Windows CE
platform on MediaGX chips, he said. Windows CE's licensing cost is about half that of
Windows', he said.
Despite claims that new low-income consumers are edging into the market, industry
pundits said the price cuts probably aren't needed.
Stephen Baker, senior hardware analyst for PC Data, Reston, Va., said the top-tier price
drop is uncalled for, adding it will hurt sales of PCs in the $2,000 range.
"The demand has been good at $799-what's the real reason to go lower?" he said. "The
major effect will be to drag the whole market down. It's hard to justify a $2,000 product
when the $600 is almost as functional."
Lou Mazzuchelli, an analyst with Gerard Klauer Mattison in New York, said the appeal of
low-end PCs has been overstated. "It's not affecting the market," he said. "What I'm
hearing is, people are looking at them, but then when they see what they get, they move
up."
Copyright ® 1998 CMP Media Inc. |
