|
|
 |
 |
 |
 |
   |
BREAKING THE $1,000 BARRIERFor years, PC makers have struggled to make their way into the 60% of U.S. homes that still don't have computers. On the theory that price was the problem, they offered up bare-bones machines that cost less than $1,000 but lacked power and pizzazz. Still no go. This holiday season, PCs priced under $1,000 accounted for less than 10% of the 1 million computers sold via retail--and penetration into homes remains stalled. Try, try again. On Feb. 26, Compaq Computer Corp., the world's No. 1 PC maker, will unveil its $999 Presario 2000--and, with it, a whole new approach to low-cost machines. Unlike the usual feature-starved models, the Presario 2000 is a sleek black unit that comes loaded with the goodies consumers love: a 133-Mhz processor, CD-ROM drive, speedy modem, built-in stereo speakers, and a generous 32 megabytes of memory. ''We've tried to hit the market with a fully featured product--one you don't have to apologize for,'' says Robert W. Stearns, senior vice-president for technology and corporate development. OTHER PLAYERS. The result, analysts say, could be as profound as the company's giant 1992 price cuts that unleashed a surge in sales and changed PC pricing forever. If Compaq has finally hit upon the right formula, it could bring droves of new customers into the market and force the industry to follow suit. To be sure, Compaq is not the only one with this idea. It's not even the first. On Jan. 8, Packard Bell NEC Inc. announced a loaded 120-Mhz Pentium PC priced at $999 with a monitor. Meanwhile, players such as Acer, AST Research, and Gateway 2000 say they, too, may have powerful, low-cost models out later this year. But it is Compaq, with its quality brand name, that experts say will make the difference. And none too soon. Gaining new customers is critical for the PC industry, which will grow more slowly in 1997--14%, vs. 23% just two years ago. More than 63% of the households most likely to buy PCs--professional, high- income families with children--already own a computer, says researcher Odyssey LP. Instead of reaching new customers last year, PC makers rolled two-thirds of their 10.6 million home computers into households that already had at least one machine, says market researcher Computer Intelligence.
To get back on a go-go growth path, PCs will have to appeal to But price isn't the only obstacle. Bargain-basement machines carry such low margins thattheymay produce only paltry corporate profits--at best. That's because there is only a limited amount of cost engineers can squeeze out of a PC. Compaq, for example, saved money by limiting expansion options and using a microprocessor from Cyrix Corp. that replaces a handful of more expensive parts from Intel and others. More important, the $999 price tag doesn't include a monitor. To hit the sub-$1,000 price point, PC makers will have to live with margins as low as 10%--half of what they can earn from high-end systems (table). That's why some PC makers are taking a wait-and-see attitude. IBM says it's not pursuing the low end of the market. And Hewlett-Packard Co. has no plans for an ultracheap PC because it's not convinced consumers will pass up top performance or expandability to save a few hundred bucks. One player that could be hurt if low-cost PCs take off is Intel, whose profit model relies on pushing customers to buy the latest, highest-margin chips. Intel insists it has no plans to design new processors specifically for cheap PCs--even though the low end creates sales opportunities for rivals Cyrix and Advanced Micro Devices. Compaq and other cheap PC champions think that might be shortsighted. If low-cost systems--with or without Intel Inside--bring millions of new households into the computer age, then Compaq will have once again changed the personal computer business.
By Andy Reinhardt, with Peter Burrows, in San Francisco and Larry Armstrong in Los Angeles
|
Updated June 15, 1997 by bwwebmaster
Copyright 1997, by The McGraw-Hill Companies Inc. All rights reserved.
Terms of Use