IBM $599 PC arrives

IBM today announced a $599 consumer PC, the first top-tier PC vendor to break the $600 mark.

IBM is trying to turn the tables on Compaq. After IBM's entry into the consumer PC market with the Aptiva line, it quickly lost ground to market leader Compaq which attacked the market with a wave of sub-$1,000 systems in early 1997.

Today, as previously reported IBM launched an Aptiva PC for $599 that comes with a chip made by IBM but based on a design from National Semiconductor's Cyrix division.

The system also includes a 3.2GB hard drive, CD-ROM Drive, a 56-kbps modem, and a slot that can accept upgrade circuit boards.

In 1997, IBM lost market share in the consumer space because it was offering upscale systems while the market gravitated toward the low-cost computers, a trend that began in March. IBM did not respond with machines in that price range until November, and by that time it had built up excess inventory of unwanted systems that dampened earnings.

Even without the new model, IBM's systems have been garnering more interest from retailers, writes Cameron Duncan, a research analyst with ARS in a report. CompUSA stores nearly dropped IBM products from their selection entirely, but have been offering more shelf space to the systems, he wrote. Increased shelf space is often a precursor to higher sales.

With the new system, IBM could be poised to gain market share on Compaq and Hewlett-Packard, the current PC market leaders among consumers.

IBM's use of its own chips comes at an ironic juncture because the company is currently phasing out these microprocessors. In September, National broke off a long-standing processor agreement with IBM: IBM will lose the right to make chips based around the Cyrix-National designs after the first of the year.

IBM's semiconductor division has for years sought to land its chips inside of IBM's Aptiva machines, sources have said. Big Blue's PC division, however, has largely rejected them in favor of chips from Intel, AMD, and Cyrix. Some IBM consumer PCs have used the IBM-branded chip, but typically in computers sold to overseas markets.

Nonetheless, IBM signed a technology licensing agreement with ST Microelectronics which could give IBM the opportunity to once again get back into the market for Intel clone chips. ST has its own Intel clone chip, which IBM can use under the agreement, said sources.

News.com's Michael Kanellos contributed to this report.