Sub-$800 corporate PCs in pipe

Despite hopes and predictions that low-price fever would not hit the corporate market, inexpensive machines appear to be finding their way into the business world, and Compaq and IBM are leading the way.

Both companies will unveil sub-$800 computers for business and corporate customers in approximately a month, said sources close to the companies, at a price point that will represent roughly a 20 percent discount. IBM's computer will contain a 200-MHz Intel Pentium MMX processor, a 2.1GB hard drive, and 16MB of memory.

More models are on the way as IBM is determined not to miscalculate on this market again. "We have several PC announcements coming in the second quarter," said Ray Gorman, an IBM spokesman. "Low cost and manageability--those are two things will emphasize."

Compaq, meanwhile, will release a new model in the Deskpro line that will sell for less than $800 and possibly less than $700, said various sources.

Earlier today Compaq said it will start marketing the Deskpro 1000 business PC for $749 in Europe and the Middle East. The computer will contain a 200-MHz Pentium MMX processor and 16MB of memory. (See related story)

The drive for yet lower prices owes to customer demand. While corporations remained lukewarm to sub-$1,000 PCs last year, interest is now snowballing.

"It's more real and more on the customer's mind these days," said Kanan Hamzeh, general manager of Tri-Pole MicroAge, a corporate computer reseller in Fountain Valley, California. "It didn't used to be as important."

Partially as a result, major vendors are becoming increasingly competitive when it comes to landing and maintaining relationships with large corporate customers, he added. "Compaq and HP are furious about [seeing] Dell at a customer site."

While lower prices will be good for business customers, computer makers will see revenue per computer decline in an increasingly competitive market. Margins on computer sales will likely decline as well as since margins are historically lower on lower-priced machines.

"We're going to see a lot more price aggression in the commercial market, said Kevin Hause, a computer analyst at International Data Corporation, who predicted that corporate America will gravitate toward low-cost machines. "Engineers and people doing computing intensive work still need fast processors, but people [in business] using Microsoft Office applications and email don't need it. A system of this caliber is plenty.

Hause added that machines with more performance will be casualties of low-end price trends as well.

"Instead of releasing a system for $2,500 and letting it get down to $1,200, you are going to see them start at $1,500 and ride down from there," he said.

While Compaq and IBM have released discount versions of consumer computers, both vendors, as well as most other major manufacturers, have not embraced sub-$1,000 and sub-$800 price points for business customers with the same gusto. Nearly all manufacturers have business PCs that fit this price point, but they typically get there only after a few rounds of price cutting. A number of the machines, moreover, contain end-of-life products.

These new computers differ from their inexpensive business predecessors in that they are coming out at fairly low prices. And though hardly cutting-edge machines, the processors and other components are not yet on the trailing edge of technology. Base configuration of the sub-$800 machine will include a 200-MHz processor, a network integration card, a 1.6GB to 2.0GB hard drive, and 16MB of memory, said Roger Kay, an IDC analyst. Even after discounts, current equivalent computers from both Compaq and IBM are more expensive than the upcoming models. Basically configured computers with 200-MHz Pentium MMX processors now sell for $968 on electronic retail sites, $170 higher or more than 20 percent over the price of the upcoming computers. Bare-bones systems with 166-MHz processors sell for just under $900.

"This is a trend and you can't stop the trend," said Mark Romanowski, president of Jade Systems, an integrator based in Long Island City, New York.

The bottom-line mentality, however, is far from universal. "This is primarily a consumer issue. We've not seen our corporate customers move to the $1,000 box," said Eric Walton, vice president of product management at Entex, a multibillion-dollar computer reseller.

Interestingly, Compaq and IBM represent polar opposites when it comes to experiences in the sub-$1,000 market. Compaq was the first major vendor to strike gold with the sub-$1,000 PC. The Presario 2000 series, powered by MediaGX processors from Cyrix, came out in February 1997 and became one the best-selling models for Compaq during the year. Gains in retail made others follow suit.

IBM predicted that consumers would gravitate toward cutting-edge, high-concept computers and designed its Aptiva machines with an eye toward performance and design. Instead, the sub-$1,000 PC caught consumers' fancy. As a result, IBM's store sales slumped, especially in the third quarter.

By the fourth quarter, IBM had begun to actively pursue the low-end of the market. Not only had it released sub-$1,000 computers for consumers, it was already working on inexpensive models for corporate use. Sources said that IBM at that time had considered using Cyrix processors in some of its cheap business computers.

While neither Cyrix nor Advanced Micro Devices are used in these new machines, pervasive cost-consciousness improves the prospect that inexpensive processors from these alternative suppliers will appear in business systems, said IDC's Kay. Currently, Cyrix and AMD processors are limited to consumer PCs only at top-tier vendors.