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IBM's $859 PCs come amid analyst caution

Big Blue releases inexpensive business PCs as analysts call for caution on profits due to the trend toward ever cheaper computers.

IBM released today a series of inexpensive business PCs based on Intel's Celeron chip as analysts issue warnings about lower profits and revenues in the industry, in part because of ever cheaper PCs.

IBM today announced new 300GL computers using Intel's latest Celeron running at 433 MHz. The low-end Celeron computer will be priced at $859, while a mid-range model is set at $1,199.

This follows yesterday's cavalcade of new systems announced in conjunction with the release of Intel's new Celeron chip.

Analysts noted that severe price competition for customer accounts is eating into profits and said that IBM is going aggressively after Dell Computer in the business segment. "Given some of the pricing that we have heard about at some...accounts, we believe though that the profitability of this business is less than expected," said Daniel Niles and Alex X. Mou of BancBoston Robertson Stephens, in a report.

"We noted...that IBM, not Compaq, was Dell's biggest problem," they added.

The analysts said shipments in the first quarter will likely be outstanding, but because of the pricing, "we expect total hardware revenues and margins to be less than originally expected."

"PC units look like they are doing better than expected, but profits seem to be worse."

BancBoston Robertson Stephens is lowering first quarter earnings per share estimates for IBM to "$1.37 vs. $1.42 consensus due to hardware growth being below plan."

IBM's new Celeron-based systems include either a 4.2GB or 8.4GB hard drive and graphics chips from S3, which use Intel's AGP technology.

IBM is also offering a model with a top-of-the-line Pentium III chip running at 500 MHz for $2,159. IBM's ViaVoice speech recognition software will be targeted for this model.

IBM is bundling Microsoft Office Small Business Edition and include a Lotus SmartSuite CD.

IBM tools for managing PCs are also included. All PC 300GL models support Wake on LAN, a remote "wake-up" technology that enables information system managers to remotely turn on PCs, and IBM LANClient Control Manager software.

Together, these two applications allow users to perform tasks remotely and unattended, such as updating BIOS settings and performing operating system installation.