Sub-$1,000 home PC sales strong

Strong sales in August of sub-$1,000 PCs helped Compaq (CPQ) increase its share of the U.S. retail market to 37 percent, according to market research firm PC Data.

Sub-$1,000 PCs are indeed hot. They accounted for a massive 36 percent of all retail PC sales in August, the biggest retail month of the year, according to PC Data. This compares with the previous month, when sub-$1,000 PCs accounted for only 19 percent of all retail sales.

"Definitely it's a segment that's here to stay," said Stephen Baker, senior hardware analyst with PC Data. "Typically August is a good month, even so, there was a big jump in units," he added.

Compaq bested its competitors--on the back of its sub-$1,000 offerings--by increasing unit sales by 10 percent over July figures, PC Data said. Packard Bell was second in sales with 17 percent of the retail market, while Hewlett-Packard (HWP), Acer America, and Apple rounded out the top five manufacturers.

PC Data says that sales of the $999 Presario 4504 with a 200-MHz Pentium processor and the $799 Presario 2200 with Cyrix (CYRX) 180-MHz MediaGX were largely responsible for Compaq's strong showing.

Compaq's Presario 2000 series is one of the first lines of consumer PCs designed specifically to sell for under $1,000. To date, only aging or stripped-down PCs have typically been sold in this price category.

The sub-$1,000 category has been strong all year long as consumers who used to shy away from PCs because of the high price of feature-laden systems jump into the market. Based on growth in this segment, other companies have introduced low-cost models. Hewlett-Packard unveiled sub-$1,000 PCs in July, and Acer too recently began offering models in this market segment, but neither have yet to pose a serious challenge to Compaq.

While the news is great for consumers, retail stores and PC manufacturers may face lower profits if consumers move away from purchasing higher-priced consumer PCs. Profit margins on the low-priced systems are about nine percent, while margins on typical PCs are about 12 to 15 percent, according to Associated Research Services, a research firm specializing in retail channel market information.

Three of the top five computers sold in August were priced under $1,000, PC Data says. At the same time, average prices of a PC reached a new low of $1,425, which accounted for lower overall revenue growth on a month-to-month basis for manufacturers, said Baker.

"It's causing everybody to rethink how they do things because revenue is not there. One of the things vendors need to be able to do is try to get customers to trade up or find ways to really increase the volume enough to get some kick out of sales of these machines."