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Gateway joins sub-$1,000 craze

Direct PC vendors are finally getting serious about the market for sub-$1,000 PCs.

Direct PC vendors are finally getting serious about the market for sub-$1,000 PCs.

Gateway 2000 (GTW) will become the first of the two biggest direct marketers to cave in and deliver a sub-$1,000 PC.

The other major vendor, Dell (DELL), has yet to enter this red-hot market. Micron (MUEI), a smaller direct vendor, entered the sub-$1,000 segment just this week, offering a consumer system with a 233-MHz Pentium MMX and CD-ROM but no monitor for $999.

Coinciding with next week's price cuts on Pentium processors, Gateway is expected to start offering a PC for the business market with a 166-MHz Pentium MMX processor, 16MB of memory, networking hardware, and a 15-inch monitor for under $1,000, according to industry sources.

The move is a squarely aimed punch at rivals such as Hewlett-Packard (HWP), Compaq (CPQ), and Dell, some of the largest vendors of PCs to businesses.

To date, most sub-$1,000 systems have been destined for the consumer market, and sold at retail stores. For instance, HP recently introduced a Pavilion consumer PC with a 200-MHz Pentium MMX for $799 without monitor. Many of the systems from vendors such as Compaq use processors from Advanced Micro Devices (AMD) or Cyrix.

HP was one of the first vendors to address the business market with a sub-$1,000 PC. In April of 1997 it offered a Vectra 500 Series PC with an AMD K5 processor starting at $975. In September, HP started offering a replacement to the Vectra series, called Brio. The entry-level Brio is similarly configured to Gateway's model and costs the same, but lacks an ethernet connection or monitor.

Among direct vendors, only Dell has yet to make a serious push into the sub-$1,000 business or consumer segment, preferring to offer high-end configurations with all the bells and whistles. Dell could address this shortcoming in its lineup next week, however.

Gateway's offering should be well-received among small and medium-size businesses, which typically have much more limited budgets for technology purchases. The small business segment of the PC market is growing at twice the rate of the overall PC industry, according to International Data Corporation.

"Corporations generally tend to buy a little higher-priced system, primarily to make sure it stays in service longer. Anytime a company has over 100 employees, you are going to run into this dynamic," said Rob Enderle, analyst with the Giga Group consultancy.

Giga's research shows that the average price of a computer purchased by a corporation will be between $1,500 to $2,000 and doesn't show signs of dropping anytime soon. "There are places low-cost machines will drop in, such as administrative help, where a low-cost machine can stay in service for a long time," Enderle said, but right now this is a smaller subset of the overall corporate market.