Most analysts are betting that sub-$1000 personal computers running on Intel's new Celeron processor will help, not hinder, the tenuous recovery of some PC makers.
As reported, the new Celeron PCs are rolling out this month. Despite the pressure of the current high-tech business climate, analysts speculate that the PC industry will be able to sell enough of the lower-cost Celeron models to stay on a course of profitability.
"On balance, the [Celeron chip's] impact is going to be positive for PC makers because it's going to have more features for that price range," said William Gorman, an analyst at PNC Institutional Investment Services. "That will help further stimulate demand for that bracket of the PC market."
The roll-out of the lower-cost chips comes as PC shipments to the Asia-Pacific region tumbled 5 percent during the second quarter compared with the same period a year ago, according to research firm International Data Corporation.
But just last week, Dell Computer beat Wall Street's earnings estimates. While other major PC makers have posted relatively flat revenues and earnings for the most recent quarter, Dell saw its revenues climb 54 percent to $4.3 billion.
Gorman pointed out that many PC makers have thin profit margins to begin with, and noted that chips such as Celeron could help jump-start the industry by making PCs more affordable to the masses. "Compaq, Dell, Apple, and Gateway are the only companies with some semblance of a recovery--it gets pretty meager for the others," he said.
PC makers planned most of their product lines with Intel-projected chip prices in mind, said Louis Mazzucchelli, an analyst at Gerard Klauer Mattison.
"These companies have been planning for [the Celeron]," Mazzucchelli said. "What computer makers do is pass along component cost savings to the consumer in the form of lower prices. But it will put pressure on them to either make up in volume sales or to trim the fat elsewhere."
An increase in sales of the lower-end computers is not likely to hurt sales of more powerful machines, either, analysts agreed.
"I don't think you'd want to see any of these PC companies move their mix too rapidly to the low end," said Gorman. "They'd want to balance [their product sales] with high-end stuff like servers and workstations."
Most analysts speculate that people who buy higher-end machines are unlikely to consider purchasing the lower-priced Celeron machines instead. Still, sales are expected to be healthy and will help "fulfill expectations that many analysts have that you'll see the PC market grow at about a 15 percent annual rate for the second half of the year," Gorman concluded.
(Intel is an investor in CNET: The Computer Network, publisher of News.com).