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400-MHz system falls to $1,999

NEC apparently has taken the PC industry through another barrier in pricing its fastest Pentium II desktop with a monitor.

The low-price wars that started in early 1997 are taking their toll on the market's high end too, as one of the price-cutting leaders brings out a system with Intel's fastest Pentium II chip below the $2,000 mark.

NEC apparently has taken the PC industry through another price barrier in advertising a 400-MHz Pentium II desktop with a monitor for $1,999. A little over four months ago, the company was advertising a 333-MHz Pentium II system for $200 more.

Falling component costs have mostly fueled the decline in PC prices over the last 18 months. Hard drives, memory chips, and monitors have been halved or more in price over the past year, making PCs cheaper to build but also reducing ability of vendors to differentiate their products on anything other than price.

Currency problems in Asia have further reduced the cost of parts, as these components are most often made there. Also, the increased frequency of Intel price cuts and the growing use of Intel-compatible chips in low-end consumer models have played an important role.

NEC's Direction SP B400 comes with 64MB of memory, a 6.4GB hard drive, a modem, CD-ROM, speakers, a graphics card, a 17-inch monitor, Windows 98, and a 400-MHz Pentium II processor. The Japanese vendor is selling the system via its Web site.

Sub-$1,000 systems proved a hit with consumers, eventually topping 40 percent of all PC purchases. Inevitably, high-end systems were subjected to pressure to match price drops on the other side of the spectrum. Industry observers refer to this phenomenon as "price compression," in which prices consolidate in narrower bands, closer to the cheaper end.

The effect is to shave the margins of PC vendors and reduce their profits.

NEC's competing for PC share on price follows last July's decision to focus on Web sales and a "build-to-order" strategy--both strategies for lowering manufacturing overhead.

It also comes on the heels its move to offer industry-standard PCs in its home market. For years, the Japanese leader sold systems that weren't compatible with Microsoft-Intel machines but relented last October. Interestingly, the machines outsold NEC's proprietary systems, but market share promptly fell.