Businessweek Archives

The Big Squeeze In The Pc Market


News: Analysis & Commentary: Computers

The Big Squeeze in the PC Market

Only the giants and the mom-and-pops may survive

When the market for sub-$1,000 personal computers took off a couple of years back, scores of small companies saw their chance: With the top brands focused on more profitable machines, they had an open field. Now, it's closing in. Other than phenom eMachines Inc., the top names in cheap PCs are the top names in PCs: Compaq, Hewlett-Packard, IBM. "As the top brands press down, the guys at the bottom get squeezed to death," says Chuck Cebuhar, general manager of Sears, Roebuck & Co.'s home electronics unit.

Already, Packard Bell is scaling back and free-PC upstart Microworkz.com faces an uncertain future. The market share for PC makers outside the top five has slid from 47% of the U.S. market in 1997 to a projected 26% in 2000, according to Ziff-Davis InfoBeads.PRICES PLUNGE. This year, suppliers such as Compaq and HP have been attacking the bottom end of the market full force. They're selling PCs for as little as $499--and that's not including the $400 rebates given to customers to agree to sign up with selected Internet service providers. The average price of a home PC has plummeted 48%, to $843, since mid-1997, says ZD InfoBeads. So sub-$1,000 PCs now represent 75% of the market. Now, retailers report, shoppers are using those rebates to buy top brand PCs, not to take home no-names for no money down.

The big guys can afford to play and win at the low end because of falling component prices--particularly Intel Corp.'s aggressive cuts on its Pentium microprocessors. PC makers also have cut costs, outsourcing almost all PC production and paring inventory costs with just-in-time deliveries to dealers.

There are still a few niches where the little guys can eke out a living. Local computer stores that crank out no-name "white boxes" will maintain roughly 33% of the overall market, say analysts. These mom-and-pop outlets do a better job than the national brands when it comes to offering handholding to small businesses.

But the lack of any middle ground makes it next to impossible for entrepreneurs trying to create the next great PC company. Analysts scoff at the plans of Packard Bell founder Beny Alagem to resuscitate near-dead AST Research Inc. And despite the fastest launch in U.S. corporate history, eMachines still has far to go. In a recently released public filing, eMachines disclosed that it had lost $3.9 million in the first half of the year. "You have to be very, very large or very, very small," says Matt Sargent, an analyst with ZD InfoBeads. Staking out territory someplace else doesn't seem to be an option.By Peter Burrows in San Mateo, Calif.Return to top

TABLE

Big Names vs. No-names

More and more, big national brands such as IBM, Dell, Hewlett-Packard, and

Compaq rule. "Others" are getting squeezed.

1996 1997 1998 1999

TOP 3 DIRECT PC MAKERS 18.6% 21.8% 27.5% 34.5%

TOP 3 INDIRECT PC MAKERS 26.9 30.4 33.0 35.0

OTHERS* 54.6 47.8 39.5 30.5

*Includes Apple and eMachines

DATA: ZD INFOBEAD INSIDER

Return to top

The Soul of an Old Machine

The last Amiga rolled off the assembly line in 1994. But the pioneering multimedia PC still commands the loyalty of several hundred thousand devotees around the world. Gateway Inc., which now owns Amiga, last year promised to resurrect the old Commodore computer by Christmas. "The new Amiga will take the breath away from all computer users on the face of the earth," boasts die-hard Danish fan Michael Ljungstedt Andreasen.

Alas, it is not to be. Instead of building new Amigas, Gateway plans to develop Amiga-like software that will link Internet appliances over home networks. "Amiga will be the Internet-appliance infrastructure company," says a company insider.

For Gateway, which declined to comment, the shift is part of its strategy to move into Internet services. By early next year, Amiga hopes to have test versions of the new software, which will be written in Sun Microsystems Inc.'s Java language. The interface will allow users to control household devices and download content off the Web with simple commands, the source says. Sounds great: unless you're one of the disappointed Amiga faithful.By Steven V. Brull in Los AngelesReturn to top


Tim Cook's Reboot
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus