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Notebook prices under siege

Last year desktop prices plunged to new lows, and the same will likely happen in notebooks this year.

Last year, desktop prices plunged to new lows, a trend that both excited consumers and forced vendors to tweak their business models to adjust to lower margins. The same will likely happen in notebooks this year.

Although historically more insulated from the pricing fluctuations than desktops, notebooks are expected to drop in price due to a combination of world economics, component supplies, increasing competition, and changing customer expectations.

More value-priced notebooks will come to the market, say analysts, while higher-end models will come down in price while adding features. Notebooks won't descend to sub-$1,000 price points in 1998, but there will be a lot more under $1,800.

Toshiba in Japan, however, plans to bring out a notebook PC in the second half of the year at 120,000 to 130,000 yen, which is close to $1,000, according to a report in Japan's Nihon Keizai Shimbun, a major Japanese business daily.

"You are going to see a lot of buyers, individuals and corporations, being very aggressive when it comes to price," said Mike McGuire, mobile computing analyst at Dataquest.

"The price of the component technology is coming down. This year, you can get a pretty good notebook for $1,500 to $2,500. Last year, the same notebook costs $2,500 to $3,000," said David Goldstein, president of Channel Marketing Corporation, who said that notebook prices have been falling steadily. "The price is down about $1,000 from January 1997 to January 1998."

Toward the end of the year, fairly full featured $1,500 will be common.

Component parts will likely be the main factor driving down prices. Memory and hard drive prices continue to remain low due to manufacturing overcapacity and large available supplies. More recently, supplies of 12.1-inch active-matrix screens, which are used on value-priced notebooks, have recently increased, said McGuire.

"13- and 14-inch screens come from a different [factory] and use next generation of technology. They are still tough to get, but it's getting much better for 12-inch screens," he said.

In addition, non-Intel processors are starting to come to the market, an event that will drive prices down even further, McGuire added. Compaq kicked off this trend by announcing notebooks with processors from both Cyrix and Advanced Micro Devices earlier this month.

It was fitting in many ways that Compaq is at the forefront of the trend. Compaq's success with its first Cyrix-powered Presario is credited by many with starting the sub-$1,000 PC craze.

While all of these factors conspired to drive desktop prices down in 1997, notebooks will face additional pressure from the rise of handheld devices. Handheld devices on their own will not be as powerful or flexible as notebooks, but customers may find that their personal computing needs are better served, at a lower price tag, by the combination of a desktop PC and a handheld device.

"[The handheld device] is still a fragmented market, but the writing is on the wall. In the long term, notebooks are going to be threatened," said Richard Zwetchkenbaum, an independent computing analyst.

Desktop prices will further act to drag down notebook prices, added Zwetchkenbaum, who also credits the Asian currency crisis for the pricing situation.

"There is a definite relationship between desktops and notebooks to the extent that notebooks are seen as a desktop replacement," he said. "A $3,500 that replaces a $2,500 desktop, OK. But a $3,500 notebook that replaces a $1,200 desktop?"

Dave Freeman, president of Advanced Computer Products, a Southern California reseller, observes that home and small business users have increasingly started to look at notebooks. While these types of customers mean incremental notebook sales, they are also typically more cost-conscious. Completed systems are also in greater supply, he added, which is also drawing prices down.

"It's hard to sell anything over 2000 bucks even with active-matrix screens" he said.

What remains to be seen is how these trends will manifest themselves. So far, a price-performance mix has yet to emerge. In other words, there is no equivalent of a sub-$1,000 computer in the notebook arena yet.

Zwetchkenbaum predicted that a number of machines will be seen in the sub-$1,800 area. McGuire said that the price will depend largely upon what components get included in the standard value notebook. Neither, however, expects the price to reach the $1,000 level, or even the $1,200 level. Prices will go down, but the specialized design considerations of notebooks will keep the price higher than that.

This price gap, however, is where the notebooks will feel heat from handheld devices, both said.