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New twist: Low-cost PC bundle

Gateway announces a processor upgrade for its $1,500 PC package, designed to compete against sub-$1,000 machines.

Gateway 2000 (GTW) is adding a new twist to the low-cost PC: A low-cost bundle including a monitor and printer to compete with no-frills sub-$1,000 offerings.

The South Dakota-based direct seller has incorporated Intel's 233-MHz Pentium MMX chip into its G5-233 model, which comes bundled with a 15-inch monitor, a 56-kbps modem, and a color printer for about $1,500.

The upgrade highlights Gateway's strategy for attracting cost-conscious buyers. Rather than market a sub-$1,000 box that leaves out important peripherals, the company has tried to fashion a more complete offering at a slightly higher price point.

Made possible by price drops in microprocessors, memory, and hard drives, the sub-$1,000 machine took the PC market by storm in 1997, rising from a negligible presence to command about one-third of all sales at consumer PC retailers.

Compaq, early to market with a sub-$1,000 Presario model, gained a big advantage in this segment and used it to solidify its overall leadership in PC sales. Most of the big PC makers decided to follow suit.

The development has proved a boon for consumers. For manufacturers it's been more like a double-edged sword. Margins are decimated, meaning revenues must be made up in volume.

Moreover, recent studies on purchasing trends are cause for concern. Some analysts are claiming that sub-$1,000 machines are not attracting new customers but siphoning repeat buyers from more expensive--and more lucrative--machines.

Gateway is betting that packages with all the requisite extras are more likely to draw first-time buyers. The corollary of Gateway's position is that purchasers of sub-$1,000 PC are second-time buyers looking for a dirt-cheap PC without the peripherals.

"The $1,499 price [allows] for a really simple buying process," said Gateway's Chad Benson, senior manager of marketing. "Sixty-four percent of our [G5-233] buyers are first-time [customers]" he added.

Gateway offers a similar "all-in-one" package for the higher end, a 300-MHz Pentium II system with a 17-inch monitor and modem for $2,499.