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Strong sales for sub-$1,000 PCs

Strong retail sales of consumer PCs priced at or below $1,000 bode well for the new boxes on the block.

Inexpensive consumer PCs priced at or below $1,000 are are off to a fast start at retail stores, a fact that bodes well for the future of this new category of consumer computers but ill for set-top boxes.

PCs such as the Compaq Computer's Presario 2000, low-end models from Packard Bell, and AST's Advantage line are doing a brisk business at retail stores, according to analysts and stores. This new breed of cheap consumer PC is not the bargain-basement, stripped-down, or aging PC of old but new, full-featured systems designed exclusively for this market segment.

Consumers' positive reception of the systems may spark a new expansion of the home PC market, a market that many analysts had thought was saturated.

"My impression based on conversations with vendors and channel folks is that all of these [inexpensive] models are selling quite well," says Eric Lewis, International Data Corporation's personal systems analyst.

But the popularity of the new breed of low-cost PCs may be bad news for the set-top box device market, which includes Internet access devices such as the WebTV sold under the Sony and Philips brand name. These alternative devices are being sold on the basis that they are cheap. But, according to Lewis, because they only have a subset of the functionality of a PC, the market size will get squeezed.

"What's changed in the marketplace is that you can get a pretty decent machine now [for a low price]," Lewis says. Before, low-cost machines were compromised machines which usually lacked features such as a CD-ROM drive. Also, there weren't any offerings from trusted brand names, Lewis says.

AST, which Lewis says pioneered the sub-$1,000 PC segment last November, is expanding their offerings, and is selling well at Wal-Mart stores. AST Advantage models 525 and 650 are priced at $997 with a monitor as part of an exclusive arrangement with Wal-Mart.

The Packard Bell C115a, $899 without a monitor, is reportedly CompUSA's best selling model.

The recently introduced Compaq Presario 2000, $999 without a monitor, also appears to be doing well. "We're back-ordered and out of stock. We have hundreds on order...They're doing very well," said one sales representative at J&R Computer World, a major New York based reseller. CompUSA in New York and San Jose also said they are out of the systems and don't know when more models will hit the shelves.

One of the reasons manufacturers are moving down into lower price ranges is that growth in other market segments has been slowing. According to IDC, sales of PCs will grow 15 percent this year, but average growth from 1997 to 2001 could slow to less than 11 percent. In the U.S. market in particular, growth is slowing because market penetration is much higher than anywhere else in the world. In short, to recapture the growth the PC industry once enjoyed, vendors must expand the sub-$1000 range.