Emachines scores with low-cost PCs

Emachines made quite a splash when it announced a few months ago that it would debut no-frills desktop systems starting at $399, including monitor. Last month, the start-up proved that bargain-basement prices may be enough to compete in the consumer market.

Emachines' eTower, which contains a 266-MHz Cyrix processor, was the third best-selling desktop PC in retail stores in December, according to data released today by market research firm ZD Market Intelligence. The company's market share jumped from 1.7 percent in November to 5.9 percent of the market in December.

A joint venture between Korean PC manufacturer TriGem and monitor maker Korea Data Systems, Emachines distributes its systems primarily through retailers such as Best Buy and Costco, as well as direct-marketing and mail-order companies such as Insight.

December sales made Emachines the No. 6 desktop PC maker in the retail market, right behind Apple Computer, which had 6.3 percent. Emachines has said it expects to market a PC similar in look to Apple's iMac in June.

Among the other top manufacturers, Compaq Computer took the No. 1 spot last month, with 34.5 percent market share, followed by Packard Bell, with 16.8 percent, Hewlett-Packard, with 16.8 percent, and IBM, with 12 percent.

"It's somewhat surprising to see a company this new grab that much market share, that quick," said Matt Sargent of Market Intelligence. "This shows that they hit the track running--and it says that there's a lot of consumers out there that don't value the equipment beyond $1,000."

The new low-end player grabbed most of its market share from Packard Bell and CTX, two companies that typically dominate the sub-$1,000 market. Although Emachines didn't take away many sales from traditional heavy-hitters like Compaq and HP, the company's quick success may force these larger companies to take heed, Sargent said.

"It's very hard with that level of price differentiation to engage in this market," Sargent said. With $399 and $499 configurations, Emachines sells its systems for roughly half the price of other PC companies' low-priced machines.

"Compaq and others will be forced to play in this market. When [large PC makers] bring their forces to bear, it's not going to be easy to play against those guys," Sargent said.

Emachines says its bargain-basement prices are not the sole cause of its success. "It's the price point, plus quality," said Stephen Dukker, CEO of Emachines, noting that retailers have reported return rates of between 3 and 5 percent for Emachines systems, which is lower than the industry standard.

"There was some [retailer] concern early on as to whether the customer who bought a $500 computer would be a profitable customer for the retailer, and the answer is 'absolutely,'" Dukker said, adding that Emachines customers do purchase peripherals and software, along with the low-priced PC.

Expanding the market
In addition, the company's initial demographic information indicates that the majority of Emachines customers report a household income under $50,000 and 56 percent are first-time PC buyers. "One of the things we told [retailers] was that we believe we were expanding the markets. We told them we were bringing new customers into the market. The statistics showed we were right."

Emachines reported revenues of $70 million in the fourth quarter of 1998, with shipments of 180,000 units in the last six weeks. The company expects to ship 300,000 units in the first quarter of this year.

Emachines will not offer a computer under $399, Dukker said. In fact, the company announced today a $599 system with a Celeron processor. "We're moving up in the world, but not by much," he said.