Dell introduced the OptiPlex GX110 at $999, making it the first large PC maker to offer a sub-$1,000 Pentium III-based commercial PC with a monitor.
The move is part of a significant shift in Dell's strategy, as it seeks to get more out of online sales and uses tighter control over components to take on low-cost PC leaders.
Compaq Computer created the sub-$1,000 market, first for consumer PCs and then for business computers. In July, for example, systems priced $999 or lower made up 72 percent of Compaq's retail sales, according to PC Data.
"There is no question there has been a shift toward under $1,000," said PC Data analyst Stephen Baker. "It's what you have to do to compete, but you have to be ready for what that does to your bottom line."
Dell is in a better position to protect profits because it sells its products directly to buyers. That allows it to carry less inventory of systems and components than competitors like Compaq, which rely heavily on dealers.
Compaq recently has hovered around four weeks of inventory versus about one for Dell and must stock more components because of its manufacturing operation.
"Dell is really a master at passing on component cost reductions to customers, but it does so by incorporating the latest and greatest technology," said Lindy Lesperance, analyst with Technology Business Research.
But Dell's component management has a dark side, analysts say. The recent surge in PC memory prices has hit manufacturers like Dell harder than those that carry a longer supply of such components. A survey of three online retailers today found an average price of around $300 for 128MB of SDRAM, about double the price a month earlier.
Dell is introducing the OptiPlex GX110 with Intel?s 810e chipset, which will be announced later today. Intel had also planned to introduce the 820 chipset, which supports next-generation Rambus memory, but canceled the announcement after discovering a major technical problem.
The OptiPlex GX110 is available in a small form factor design with a 450-MHz Pentium III processor, 64MB SDRAM, 6.4-GB hard drive, 4MB of video memory, integrated 3COM 10/100 networking, and 15-inch monitor for $999.
Compaq does offer some comparable Pentium III systems, such as the $949 DeskPro EP 6450+, but the price does not include a monitor.
Compaq also introduced new PCs today based on the 810e chipset, starting around $1,239. The Houston-based company also announced today it is offering the Deskpro PCs with new 10X DVD-ROM drives.