Sub-$1,000 PC sales soar

Close to half of all PCs sold at retail outlets now cost less than $1,000, according to a marketing report.

It shouldn?t surprise anyone that low-cost PCs are all the rage: Close to half of all PCs sold at retail are now in the sub-$1,000 category, according to a marketing research firm report released today.

But it may come as a bit of rude "="" height="264" border="0" align="left" hspace="5" vspace="5" alt="PC sales"> awakening for PC vendors which look to sales of more pricey, cutting-edge systems to drive profits in the retail market.

Market research firm Computer Intelligence said today that sales of sub-$1,000 PCs accounted for 40 percent of all U.S retail computer sales in August.

Such sales continue to grow at a faster rate than the overall market for PCs, and some companies riding on this wave of growth are experiencing market share gains as a result. Traditionally, PCs sold at retail have been priced well over $1,000 and typically in the $2,000-to-$3,000 range.

Compaq accounted for about 60 percent of all sales in this segment, helping the company to increase its share of the U.S. desktop market to 45 percent, the report says. The findings echo an earlier report from PC Data, a market research firm. (See related article)

Compaq offers a number of low-cost models, including those based on both Intel Pentium and Cyrix processors. Systems with an Intel or Cyrix processor sell below $1,000 for a number of models at retailers such as CompUSA. Packard-Bell also sells systems in this price range.

These systems differ from low-cost computers of the past in that they are designed from the ground up as low-cost machines and come packed with features such as CD-ROM drives, large-capacity hard drives, modems, and plenty of software. Previously, vendors tried to palm off stripped-down PCs as low-cost boxes.

But there is a dark side to the robust sales. Vendors such as Compaq, Packard Bell, Acer America, and Hewlett-Packard (HWP) have been hoping that the inexpensive machines were expanding the PC market by attracting people who hadn't bought expensive PCs before--who would then go on to buy the more expensive, cutting-edge systems.

However, it appears that in a number of cases more savvy, second-time consumers are foregoing PC vendor's more expensive and more profitable computers.

"What we found is that the average incomes of these buyers was not dramatically lower than the typical household purchaser," says Matt Sargent, analyst for Computer Intelligence, who says the findings were based on 100,000 phone interviews conducted in the first half of this year.

"First-time buyers were tending to stay away from sub-$1,000 PCs and actually purchasing higher-end PCs," according to Sargent. Many buyers of sub-$1,000 PCs are buying them as second computers for the home, he said.

PC manufacturers may be facing lower profits if consumers continue to move away from purchasing higher-priced consumer PCs, unless makers continue to sell the systems in large enough quantities. 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.

Packard Bell was second in retail sales with 20.4 percent after stumbling in July, Sargent says. Until then, the company was recovering from earlier problems that dislodged it from the top spot in the retail channel, a market the company had dominated until recently. Hewlett-Packard was third with 14.9 percent, and Acer followed with 5.8 percent.

The trend toward lower-priced PCs is expected to continue across the board, according to Southcoast Capital. The investment house believes that two-thirds of all PC sales will eventually be below $1,500.