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IBM jumps into sub-$1,000 market

To stem market share losses, IBM finally jumps into the red-hot sub-$1,000 market, introducing a low-end model in time for the holiday season.

IBM (IBM) finally jumped into the red-hot sub-$1,000 market today, introducing a low-end model with a 166-MHz K6 processor.

Big Blue also added a high-end machine to its Aptiva series of home PCs.

The new machines follow last month's announcement that IBM would fold its consumer personal computer division into its division for business PCs, an effort to revive the ailing Aptiva line and stem the loss of market share. IBM has been hard hit by its failure to compete in the booming sub-$1,000 market.

In introducing its first PC in this low-cost category, the company apparently acknowledged that it had erred in not anticipating the popularity of this market.

"We may be late to the party, but we're the best dressed," IBM Consumer Division general manager Jim Firestone said in an interview. "We feel we have the best offer at this price."

Sales of sub-$1,000 PCs accounted for 40 percent of all U.S retail computer sales in August, and such sales continue to grow at a faster rate than the overall PC market. (Traditionally, PCs sold at retail have been priced well beyond $1,000 and typically in the $2,000-to-$3,000 range.) Companies like Compaq, which claimed 60 percent of the sub-$1,000 market in August, have been riding this wave of growth and gaining market share as a result.

IBM has been openly discussing the need to get into the sub-$1,000 market since third-quarter sales results revealed how poorly the company had fared in retail, said Kevin Hause, computer analyst with International Data Corporation.

"They've been talking about this since it became evident they missed the boat on low-cost systems," he said. "They got clobbered. They didn't have a system in the low end. They didn't have anything near the low end."

Hause added that IBM's miscue resulted from misjudging the consumer's desire for luxury: IBM was trying to turn the Aptiva line into the Lexus of the computer word. The computers came with the best processors and were designed with an eye on style more suited to a furniture maker. As a result, even at the high end, the less stylish, but less expensive high-end models from Compaq and Hewlett-Packard sold better.

"They tried to charge a premium for innovative design and it didn't go over," Hause summed up.

IBM did attempt to market some low-cost versions of its PCs, but they remained high priced and were not promoted heavily. In August, IBM began selling the E40, a machine powered by the Cyrix 6X86 processor and selling for $1,858. The computer, which was first marketed in Europe, was only sold in Radio Shack in the U.S.

In September, IBM came out with other lower-cost models with processors from Cyrix and Advanced Micro Devices. These were priced between $1,199 and $1,699.

Apparently to differentiate its product from sub-$1,000 machines made by Compaq and other manufacturers, IBM has equipped the Aptiva E16 with features not always found at this price point. The E16 comes with a 166-MHz IBM K6 MMX-enhanced processor, 16MB of speedy synchronous DRAM (SDRAM), a 20X CD-ROM drive, a 56-kbps modem, and a graphics card. MMX is an instruction set for advanced graphics capabilities.

The Aptiva E16 comes without a monitor, however, meaning the total cost will likely be closer to $1,200. The E16 also pares costs by using a K6 processor, a chip designed by AMD and jointly manufactured by AMD and IBM.

At the other end of the spectrum, IBM debuted the Aptiva L71. The high-end machine features Intel's top-of-the-line 300-MHz Pentium II processor, a 6.4GB hard disk, 32MB of SDRAM, a DVD (digital versatile disc) drive, a 56-kbps modem, a graphics card, and a specially outfitted sound system. DVD is the next-generation storage and playback technology that's expected to replaced CDs.

The Aptiva L71, which will sell for under $2,500, will compete in the same market as Gateway's G6 300 "Best Buy," announced earlier this week. Again, however, the IBM system comes without a monitor.

IBM has been shipping the Aptiva E16 since last month and the system will be available in OfficeMax retail stores beginning this weekend, IBM said in a prepared statement. Other retailers will receive the E16 in coming weeks. The Aptiva L71 will launch at a variety of retail locations.

The new lower-cost Aptiva will be made by Acer, which is part of the reason the E-16 will come out so quickly.

Reuters contributed to this report.