New chips come amid notebook plateau

Although processor prices continue to decline because of competition, the cost of other notebook components is stabilizing, and even climbing in the case of LCD monitors. As a result, the retail price of low-end notebooks is beginning to settle in at around $1,499 and may soon rise.

"You won't see entry-level prices continue to fall. In fact, you might even see people raise prices," observed Randy Giusto, notebook analyst for International Data Corporation. "$1,499 is getting harder to make money on."

"The price of screens has gone up $100 to $150 since the end of last year," pointed out Charlie Carey, mobile product launch manager for Intel. "This has put a significant dent in the reduction of prices in the notebook market."

Notebook makers have yet to pass on this additional cost to users, but they may try to do so around June, near the start of the PC Expo trade show. At that time, a number of companies will likely release new products with faster processors or larger drives--not all that different from current products, but bearing $1,799 price tags to cover higher display costs.

The halt in component price slides will also likely effect higher-end systems.

The reversal in the downward trend comes largely as a result of a rebound in prices for LCD monitors, explained Giusto and others. Prices were steadily dropping until the fourth quarter of 1998, when 12-inch monitors hit approximately $200 in volume. The trend helped inspire low-cost notebooks such IBM's Thinkpad i series or HP's Ominbook XE.

Toward the beginning of the year, however, the display manufacturers based in Japan and Korea began to shift more of their manufacturing capacity to flat-panel desktop monitors. Notebook vendors themselves also began to shift to 14-inch screens.

The change in strategy caused a notebook display shortage, which increased prices about 30 percent, said Giusto.

"From a pricing standpoint, people a year or two ago were talking about $1,299 notebooks and $999 notebooks, but it's not happening," said Brian Phillips, portable analyst with ARS. Unlike Giusto, Phillips believes that manufacturers will have to eat the cost of the screens.

Some notebook vendors are indeed trying to sell portables for around $1,299, Intel's Carey noted, but "you have to 'de-feature' the machine" to get it to the lower price.

Memory prices have also put a dent in the notebook slide. Executives at memory maker Micron Technologies and various analysts also noted recently that memory prices have finally begun to stabilize, although memory has recently begun to go south again. Precipitous price declines in memory contributed mightily to the sub-$1,000 PC revolution; conversely, a halt to the trend is expected to slow future declines on PC prices.

Intel's latest processors are focused on the low-end of the notebook segment and at mini-notebooks. The chip giant today released a 333-MHz Celeron, which will be targeted at budget systems, and low-power versions of the 266-MHz Pentium II and 266-MHz Celeron for mini-notebooks.

The 333-MHz Celeron, which will cost $159 in volume, comes as part of Intel's overall strategy to become more aggressive in the low-cost computing space. "We're trying to release Celerons as quickly as possible," Carey said. HP today said it will use the chip in upcoming OmniBooks.

While Intel has not experienced the same sort of market share erosion that it has in the cheap desktop segments, the company is definitely seeing more competition from rival AMD in portables. Last week, Compaq Computer announced that it would use K6-2 mobile processors in upcoming Prosignia notebooks for small business. Earlier this year, Toshiba rolled out AMD-based Satellite notebooks for the U.S. market.

Despite the connotations that come with the word "budget," notebooks in this category come with 13-inch screens, fairly large hard drives, and substantial amounts of memory.

The other chips released today--the 266-MHz Pentium II and 266-MHz Celeron--are largely designed for mini-notebooks such as the Sony Vaio. The processors consume under 6 watts of power, less than standard Pentium II or Celeron units, which means they also dissipate less heat. As a result, they can be used in smaller units.

Mini-notebooks are available in the United States but most sales have occurred in overseas markets, said Carey. A number of new machines based around these processors should start to roll out toward the end of May for the "bonus buying season" in Japan. Japanese companies typically hand out their employee bonuses at the end of May. In turn, manufacturers release new products at this time to capitalize on the surge of spending money.