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PC pricing levels collapse

The traditional pricing structure for computers appears to be collapsing into a two-tier "pedestrian-performance" structure.

The days of all new PCs debuting around $4,000 or $5,000 are over.

This week's introduction of new Pentium II systems

New performance machines
has created a $3,000 ceiling for mainstream performance PCs, resulting in a whole new pricing structure for the industry, according to a number of computer executives. The traditional three-tiered, "good-better-best" pricing scheme appears to be collapsing into two tiers that analysts are calling a "pedestrian-performance" structure.

For consumers, the new scheme means that even cutting-edge systems are priced at all-time lows. For example, models using Intel's fastest 400-MHz Pentium II processor, monitor, modem, large hard drive, and gobs of memory are being tagged at less than $3,000 by top-tier vendors.

"You're seeing the price of components come down," said Stacy Hand, product marketing manger for E-Series desktops at Gateway 2000. "This is the first time that Gateway has come out with a computer with 128MB of memory, and it's still less than $3,000."

The average selling price of business PCs, he added, is approaching $2,000. Below this threshold are the much-discussed sub-$1,000 computers.

Systems in between, meanwhile, are getting squeezed. Some have theorized that this has happened because there isn't enough room in terms of technology or price for a middle tier to exist.

Today, high-performance machines are the hot boxes. Most major manufacturers announced new performance machines after Wednesday's release of 350-MHz and 400-MHz Pentium II processors. Computers incorporating these chips are primarily grouped between $2,500 and $3,000.

For business users, Gateway released the E-4200. The computers comes with either a 350-MHz or 400-MHz Pentium II, a whopping 128MB of memory, an 8.4GB hard drive, a CD-ROM drive, keyboard, mouse, built-in networking capabilities, and basic operating system and manageability software.

The 350-MHz version with a 15-inch monitor starts at $2,499. The 400-MHz version with a 17-inch monitor and 10GB hard drive sells for $2,999.

These systems also come with the 100-MHz system bus which allows the processor to "talk" to other components, such as memory, at speeds about 50 percent faster than traditional 66-MHz bus systems.

Like many of the computers released this week, the E-Series machines come with an ATI 3D graphics accelerator and a motherboard incorporating the Intel's Accelerated Graphics Port (AGP) 3D technology.

While 3D features have been part of consumer computers for a while, it is becoming a more prevalent feature of business PCs, Hand said. AGP creates a separate data pathway for graphics, which leads to crisper, more brilliant graphical images.

Dell is countering in the business market with the Optiplex GX1. A 400-MHz Pentium II version of the GX1 comes with 64MB of memory, a 4.3GB hard drive, keyboard, mouse, and a 17-inch monitor for $2,371. A leaner version with less memory and a 350-MHz processor starts at $2,022.

On the consumer side, Compaq is offering the Presario 4880. The 4880 comes with a 400-MHz Pentium II, 64MB of memory, a 12.0GB hard drive, 4MB of video memory, a second-generation DVD drive, AGP-graphics coupled with the ATI's RagePro graphics processor, and a 56-kbps modem for $2,599 without monitor.

Hewlett-Packard's Pavilion 8290 is eerily similar. Powered by a 400-MHz Pentium II, the $2,599 computer comes with 64MB of SDRAM, a 12GB hard drive, a DVD drive and a 56-kbps modem.

The IBM Aptiva E86, which features a 300-MHz Pentium II processor, 64MB RAM, an 8.0GB hard drive, a DVD-ROM drive, and a 56-kbps modem. Priced at $1,795, the E86 could be considered a mid-tier computer. With a 17-inch monitor, the system will cost around $2,200 to $2,400.

Then there are the systems for cost-conscious users.

Following a trend that began last year, low-end computers have increased in performance while continuing to drop in price.

One of this week's interesting developments was the debut of $799 computers running chips from the top of the Pentium MMX line. Pentium MMX-powered computers have been available at this price point for a few months, but only after discounts. By contrast, these new machines debuted at these prices. And, while some models are being targeted at the corporate market, others are being aimed at consumers and small businesses.

HP appears to have topped the price performance barrier with the Pavillion 3265. The consumer machine comes with a 233-MHz Pentium MMX machine, 32MB of fast memory, and a 56-kbps modem for $799.

IBM, meanwhile, released a version of its PC 300GL, a business PC, with a 200-MHz Pentium MMX and similar hard drive and memory configurations for $799. Compaq likewise announced the Deskpro EP series, the company's new standard business box, which starts at $899 for 200-MHz Pentium MMX machines.

Packard-Bell in May will join the club with the release of its Packard Bell Multimedia 601, which will contain a 233-MHz Pentium MMX, a 3.2GB hard drive, and 32MB of memory. In addition, the company will also come out with a 606 model using the Celeron processor for $899.

While the Pentium MMX has been a strong seller, the processor platform will disappear during the year. Intel announced in its financial conference call that it has stopped producing silicon wafers for desktop MMX chips and that inventory will be cleared over the next few months.