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HP delivers $800 PC

Hewlett-Packard will attempt to ambush competitors in the low-cost consumer PC market today, with a bevy of new Pentium and Pentium II PCs.

Hewlett-Packard (HWP) will try to ambush competitors in the low-cost consumer PC market today, making clear that it isn't content with being a follower in this increasingly important segment.

Today's introduction of several aggressively priced Pentium and Pentium II systems, including a fully-configured $800 system with a 200-MHz MMX Pentium processor, signals that HP has decided it will cede no further ground to market-leader Compaq (CPQ).

It has become obvious to vendors in the last 12 months--painfully so for some--that being successful in the PC business means offering attractive systems in the sub-$1,000 segment. Preliminary data from market research firm Computer Intelligence indicates that 40 to 42 percent of all PCs sold in December cost less than $1,000.

HP raises the stakes with the new Pavilion 3260. This includes a 200-MHz MMX Pentium, 32MB of memory, a 2.1GB hard disk drive, a 16X CD-ROM drive, and a 56-kbps modem for $799. This is the first 200-MHz MMX Pentium system with these features from a major vendor at this price point.

HP is also upping the ante for systems priced between $1,000 and $2,000, another area where Compaq and Packard Bell have been successful. HP today introduced the Pavilion 8240 with a 233-MHz MMX Pentium, 32MB of memory, a 4.0 GB hard disk drive, a 24X CD-ROM drive, and 56-kbps modem for $1,099. This also beats similarly configured systems from Compaq by a few hundred dollars.

HP's assault doesn't stop with Pentium systems. The Pavilion 8260, priced at $1,699, comes with a 266-MHz Pentium II, CD-ROM drive, 512KB cache memory, a 4GB hard drive, and a 56-kbps modem. The 8275 boasts a 300-MHz Pentium II processor--Intel's top-of-the-line chip--and a DVD drive plus other goodies, for an estimated street price of $1,999.

Compaq has gained market share over its rivals in the consumer retail market in large part due to the success of its lower-cost systems. In the third quarter of 1997, Compaq increased its total U.S. market share from 13.5 percent to 18.8 percent, according to International Data Corporation (IDC).

Hewlett-Packard has been less aggressive than Compaq in the consumer PC market, though it has been offering the Pavilion 3100, a 166-MHz model which goes for $899 at some retailers. In the third quarter, HP, the No. 5 vendor in the U.S., went from 5 percent to 7.1 percent of total PC sales, according to IDC. By comparison, IBM (IBM), a vendor that entered the sub-$1,000 PC market late, has seen growth stagnate, while Toshiba has decided to exit the U.S. consumer market altogether because it decided it couldn't make money in a market increasingly dominated by sub-$1,000 systems.

HP will emphasize its reputation for quality as it attempts to make headway against Compaq. The company says that it conducts stringent tests on all of its systems. "Even consumers paying less than $1,000 want high-quality, easy-to-use multimedia PCs they can trust to work" said Harry McKinney, general manager of HP?s Home Products Division.

HP is also emphasizing the use of Intel processors in the new systems. To date, many of the PCs in the lower end of the market have used Intel-compatible processors such as the Cyrix MediaGX or the AMD K6, but HP has gone exclusively with Intel?s Pentium in the consumer segment.