Thursday, the company is expected to announce that it is adopting processors from Cyrix for its consumer computers. Less expensive than Intel chips, Cyrix processors will allow Packard Bell to bring out PCs as low as $599 as well as undercut Intel-based wares from other major manufacturers at higher price points, sources said.
If the strategy succeeds, it will help rebuild a market share that has been dwindling for the past year and possibly put the company on the track to profitability. In the first quarter, Packard Bell's unit shipments dropped 9.8 percent, according to Dataquest, at a time when most other major PC vendors saw their shipments increase by double figures.
"Things haven't been great for Packard Bell lately. Their market share has fallen pretty rapidly over the past few months. Compaq and Hewlett-Packard have taken over," said Stephen Baker, an analyst with PC Data. "Packard Bell hasn't been able to give a price advantage."
While it is difficult to determine whether privately held Packard Bell is losing money, it is clear that the company "is not making money," said Roger Kay, an analyst at International Data Corporation.
"Packard Bell has been losing market share," he said. "They will improve their cost structure and their competitive play."
More interesting, if the strategy succeeds, it could lead to a change in the current state of computer retailing. If customers begin to return to Packard Bell, other PC vendors might have to follow suit with further price cuts and cheaper computers of their own.
So far as Cyrix goes, the deal will give the Richardson, Texas-based chipmaker a larger and more varied presence in the retail market than it has enjoyed thus far. Both Compaq and IBM used Cyrix processors in a limited number of desktops last year, but curtailed their dealings in favor of using Advanced Micro Devices.
The proliferation of Cyrix or AMD chips could weaken the Intel brand name with consumers. Kay, Baker and others have said that the industry leader does not enjoy the same resonance it once did with consumers because price has become the stronger determining factor. Packard Bell's success with Cyrix processors would only decrease Intel's share in the low-cost arena.
Nonetheless, success remains a big if. Packard Bell is in the midst of a restructuring. The company recently announced that it would be concentrating operations in Washington and Boston to its headquarters in Sacramento, a move that prompted the layoffs.
Earlier in 1998, Packard Bell hired a new chief financial officer and stated that it will try to hold an initial public offering possibly as early as this year.
Baker also points out that Packard Bell has also yet to achieve strong results on its efforts to get out of the bottom end of the PC market. Known for low-cost computers, the company has been trying to break into the performance PC market at least since NEC initiated its investment.
To date, the results have been muted. The company's best-selling products contain Pentium MMX processors. Sales of Pentium II computers have not been as significant.