Cheap PCs don't draw new buyers

Despite steep prices cuts and a bevy of new products specifically introduced for the sub-$1,000 market, PC makers haven't been able to attract new buyers, according to a new study.

The penetration of PCs climbed to 42 percent of U.S. homes in the last six months, but repeat buyers still made up two-thirds of those who bought a consumer PC, reports San Francisco-based market research firm Odyssey. The company's semiannual "Homefront" study pegged PC penetration at 39 percent six months ago, and 37 percent one year ago.

Of those buying a home computer in the past six months, only 35 percent were first-time buyers, Odyssey found in a survey of 2,500 customers. That's an increase from 32 percent in the similar period ending January 1997, but down from 49 percent in both January 1996 and January 1995.

Sub-$1,000 machines played little role in the growth, according to Odyssey.

"We didn't see what many expected to be a huge increase, despite the fact that PC manufacturers basically cut their prices in half," said the company's director of business development, Elizabeth Atcheson. "Even more troubling to PC makers, the percentage to first-time buyers stayed the same, at about one out of three.

Earlier this week, rival research firm Computer Intelligence (CI) preliminarily reported that PC penetration climbed from 40 to 45 percent in 1997, attributing a second-half surge to the popularity of the sub-$1,000 PC. CI believes the low-cost segment comprised as much as 40 percent of the PC market in the latter half of last year.

"It is true that penetration went up, but it's still steady growth," Atcheson said.

Despite the disagreement, both studies generally leave open the question: Who is purchasing more low-cost machines, first-timers or repeat buyers? The answer is important because it plays a role in determining how PC makers target their products to ensure continued growth.

Sub-$1,000 machines are also significant to the industry because of their notoriously low margins. Lost revenues have to be made up in volume, but so far, even industry leaders haven't been able do so.

Compaq and Intel recently preannounced their earnings would fall short of expectations this quarter, citing lagging sales, but industry analysts have said the sales are there, but the margins aren't.

"PC sales will not defy traditional laws of economics," Atcheson said. "[PC makers] are learning the hard way that PC sales are not all that elastic with regard to price."

Reuters contributed to this report.