It used to be any PC that cost less than $1,000 made an excellent paper weight. Most were missing a few important parts, like, say, a hard drive. All were sure to be slow, but that all changed last autumn.
With the introduction of cheap microprocessors from Advanced Micro Devices and Cyrix, computer makers were able to build attractive and fully functional machines that come with 32MB of memory, the Windows 95 operating system, and a 56-kbps modem to boot. Add to that the fact that Compaq Computer, the largest PC manufacturer in the world, dragged the rest of the industry into the market by aggressively marketing its own inexpensive computer, and you have all the components of the sub-$1,000 phenomenon.
The deafening hype of last Christmas aside, what does the sub-$1,000 PC mean for the computer industry?
First, expect more corporations to buy these cheap computers this year, bearing in mind that the sub-$1,000 PC only has been embraced by consumers thus far. Today, individuals generate only about 25 percent of total PC sales, with corporations buying the other 75 percent. Some critics, the most noteworthy being Dell Computer, have charged that sub-$1,000 PCs aren't industrial strength, but by the second half of this year, PC OEMs will offer sub-$1,000 PCs with enough functionality that corporations will be able to depreciate the cost over their standard four-year schedules, as Dell no doubt will.
Second, as corporations start buying sub-$1,000 machines, PC prices overall will begin to trend downward even faster. PCs that traditionally have sold in the $2,200 to $2,300 range will decline toward the $2,000 range. Last year alone, overall PC prices declined from $2,300 to $2,150. Companies such as Dell, with prices hovering at around $2,700, will begin to feel the pressure from companies such as Packard Bell-NEC, which is offering a 333-MHz Pentium II system with 64MB of memory for $2,199.
Third, consolidation likely will play more of a role in the PC industry in 1998. Only large companies, such as Compaq, IBM, and Hewlett-Packard will be able to offer powerfully configured PCs at low prices without seriously damaging their bottom lines. Smaller PC manufacturers, such as Packard Bell and AST, already have been swallowed up by larger corporations (NEC and Samsung). The acquisition interest surrounding companies like Gateway 2000 and Micron Electronics will continue, with Micron posing an especially attractive target.