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Microworkz $299 PC draws interest

Microworkz is flooded with inquiries for its $299 PC and the CEO tells how they are coping.

Microworkz over the last two days has been trying to cope with a crush of consumer interest.

After touting its $299 PC, the Seattle-based PC maker said it received more than 7.4 million hits on its Web site about the offer.

Microworkz's Web site quickly became inaccessible, according to dozens of people who tried to get to the site. "Another example of the hype ahead of the reality," read one of the many of emails sent to CNET News.com complaining about the Microworkz site.

President and CEO of Microworkz Rick Latman said it is no hype. "On April 19th, about 100,000 computers will be ready to ship," he said. The 33-year-old CEO said a problem with misstatements--about actual shipment dates--yesterday by sales staff has been rectified.

The Web traffic "fried two servers. These issues are going to occur. We did not anticipate the media reaction," he added.

While Microworkz has caught the interest of consumers, the company's business model and general market readiness have caused observers to scratch their heads. The relatively small manufacturer is selling a full featured PC, the Webzter Jr., with Windows 98, a Cyrix microprocessor, a 56K modem, and a year's worth of free Internet access from Earthlink for $299.

Examined from any angle, the deal is a good one. The Webzter Jr. costs $40 less than the lowest end receiver from WebTV and a year's worth of service. The machine is also about $100 less than the cheapest computers on the market without any free Internet access. Put another way, if the consumer price of the Internet service is subtracted, the PC price comes to $50, about $30 less than what small manufacturers typically pay for a copy of Windows 98.

Latman admits that he doesn't intend to make much money on the $299 PC. "We won't make a living off this. [Any profits] will be eaten by [company] growth [needs]," he said. But he is quick to point out that Microworkz already sells a line of $499 PCs which are profitable--and the media coverage of the $299 PC is generating sales for this existing line, he added.

Also, the costs that go into the deal are being defrayed by unspecified support from some of Microworkz's partners, he said.

"We have significant financial participation from our partners. No, they don't write us checks but our advantage is we get components within the price parameters that allow us to sell a $299 PC." Cyrix and Earthlink are currently cited as partners. "We will be announcing the system at the Cyrix booth at Spring Comdex as well as our own booth," he said.

He said they will announce other partners at that time also.

The company currently has only 45 employees, according to Latman. A recent Dun & Bradstreet report states a much smaller number.

Latman says that in addition to the 45 fulltime employees, they have between 60 and 70 contract employees that assemble PCs. This latter number will grow as they add plant capacity, he said.

Other questions persist, though.

Stephen Dukker, CEO of Emachines, another unknown only six months ago, and one of the early leaders in this segment, said he has not been able to get subsidies from partner component makers, such as Cyrix.

"You cannot make money off a $299 PC. The natural cost of materials does not support it," according Dukker.

Dukker said for such machines, a hard drive costs about $80, the processor about $40. Add a CD-ROM drive at $40, an operating system at $50 to $70, memory for $35 and a motherboard for $55. All this, including casing, adds up to between $320 and $340, and comprises the basic bill of materials.

Latman says simply that Emachines has not been able to cut the deals that he has.

Another possibility is that Earthlink is defraying many of the costs. ISPs, however, encounter fixed costs when signing up new companies and such a program would certainly be expensive.

Some remain skeptical
Analysts are a bit skeptical too. "Anyone can announce that they can make a $299 PC, but are they going to be able to produce 200,000 a month?" said Stephen Baker, PC analyst at PC Data.

Like others, Baker also believes that the cost realities mean that free PC model is intriguing, but unproved.

"Everybody thinks the model is there to give away the PC and make money on services or other things, but nobody has figured out how to make it work," he said.

Latman disagrees again. "If we sell nothing but $299 PCs between now and Christmas we'll still show a profit," he said.

The startup started selling locally in the Seattle area early last year and went national for the first time last August. It currently sells a line of $499 PCs, among other models.