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Cheap PCs

Prices for home computers have never been lower, and are expected to drop even more.

By DAVE GUSSOW, Times Technology Editor

© St. Petersburg Times, published August 30, 1999


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[Times art: Octavio Perez]
Paul Danner makes no apologies for what his company's new computer lacks: a Windows or Mac operating system, claims about how fast it is, a monitor (it can be hooked up to a TV). What is important, he said, is the price: $299.

"We're trying not to talk about megahertz and gigabytes," said Danner, president of Jacksonville-based Compu-DAWN. "We think it's irrelevant. If someone wants to write a letter, they want to write a letter. They don't care about clock speed or mass storage (size) or so forth."

Tampa Bay area consumers will be among the first to see the GlobalPC this fall when it shows up on shelves at area Kmart and Wal-mart stores. It is the latest entry in the mushrooming market for low-end computers.

In the world of computer prices today, PC means pretty cheap -- with cheaper still to come. The average price of a personal computer using Windows and an Intel microprocessor is $890 (without a monitor that can add another $100 or more) -- and is expected to drop to less than $800 by December, according to PC Data, a market research firm. That is down from $1,123 about a year ago.

Seven of every 10 computers sold cost less than $1,000, up from 13 percent of the market in January 1997. Computers that cost less than $600 make up about a quarter of PC sales.

Consider eMachines Inc. (www.e4me.com), which last fall made a splash when it introduced a $500 computer -- including monitor. It shipped its first computer in November and its 1-millionth in July. It was ranked the No. 3 company for U.S. desktop sales in June with almost 12 percent of the market, and it had two of the five top-selling computers.

"What we've started is the repricing of the whole business," boasted Stephen Dukker, eMachines president and chief executive. "Machines at the low end are becoming so powerful that you don't give up much anymore" in performance.

Dukker, a veteran of PC retailing at Computer City and CompUSA, says growth in the home PC market stagnated in 1997, with sales coming from people upgrading to newer systems, not new customers.

"The issue was simple," he said. "People couldn't afford them."

Dukker teamed with partners at Korea Data Systems and TriGem Computer Inc. of Korea to create eMachines last year at a time when he said demand for low-cost PCs was rising and "the technology was there so you could make computers at these price zones."' He would not comment on whether the company, with headquarters in Irvine, Calif., has turned a profit.

Harry McCracken, a senior writer at PC World magazine (www.pcworld.com), says the low-end machines meet a need.

"The very low-cost systems are basic, and for a lot of people they are all that they need" for surfing the Web, balancing a checking or playing a game, McCracken said.

Consumers give up some features for the low-end computers, McCracken said. Microprocessors are a bit slower than the latest chips and can be made by Intel, AMD or Cyrix; machines generally have less random access memory; hard drives are smaller -- but those aren't major issues for most people.

"Today's $500 system is more powerful than a $1,000 system from a couple of years ago," McCracken said. "Even as they've gotten cheaper, they have gotten more powerful."

For those who are into 3-D games, who want to watch movies or who are into graphics, animation and advanced photo editing, they may need a more expensive system.

Even then it probably won't cost as much as a couple of years ago. For years, $2,000 was the target for a machine that would handle everything for a home user. Now, McCracken says, that mark is in the $1,000 to $1,200 range for what he calls a pretty loaded system, again minus the monitor.

In its September issue, PC World's monthly top 20 chart of best budget desktop computers lists only one model less than $1,000 (a $915 system from Axis Systems Metropolis), with another seven costing less than $1,300.

Apple Computer's (www.apple.com) lowest-priced computer, the iMac, enjoyed a huge sales year and a lot of publicity about its unique look, ease of use and its contribution to Apple's revival. It was the top-selling desktop computer in June, but retailing at about $1,199 with a built-in monitor, it doesn't compete with the low-end market.

"Being priced at $1,199 effectively means that these products are priced out of the reach for consumers who are price-conscious," said Stephen Baker, director of hardware services and analysis at PC Data.

Now eMachines has come up with an iMac style computer (so similar in its translucent blue box that Apple has sued for trademark infringement) that runs Windows. It is retailing for $799 and, unlike some other bargain-price computers, it meets the specifications recommended for most home users.

Consumers shopping for a low-end machine need to be aware of other issues, McCracken says: Some companies that make them have had trouble keeping up with demand. When Microworkz offered its Webzter Jr. for $299, it couldn't keep up with orders, bringing a flood of consumer complaints that still are being sorted out, according to PC World.

Also, warranties on low-end systems may be short and phone support may not be available or may come with fees of $20 or more a call.

"You can get a very inexpensive system and still go with a company you've heard of and that's more likely to be around for the long haul," said McCracken, noting that most major PCmakers offer low-end systems.

Compu-DAWN's Danner hopes to avoid problems others have faced. He expects the supply to be plentiful, based on his partners' expertise in distribution and retail. The company has not decided on its warranty, which Danner expects to be "industry standard." The phone support issue also has not been finalized, though Danner expects to have free support for at least some time after the purchase.

The $299 price is feasible because it doesn't use Windows and depends on "older but reliable hardware." Compu-DAWN's research showed the top concern among people who don't have a PC is ease of use, second was the ability to buy where they shop often and third was cost.

"If you've used Windows, you know there are challenges," Danner said. The GlobalPC will use an operating system called GEOS, which he said has been around for 10 years but has not been widely used. (It will include software applications the company says are compatible with Microsoft products.)

"It runs in an equivalent manner to what you would expect from a higher-end Pentium machine," he said, and includes on-screen tutorials to help new users learn the ropes. Speaking of on-screen: The GlobalPC can be connected to a TV if the user doesn't want to buy a monitor, Danner said.

Kmart and Wal-Mart will give the computers access to mainstream shoppers, and the computers will have a longer shelf life because they won't be outdated by frequent hardware upgrades, which helps the retailers, Danner said. The Tampa Bay area was chosen as a test site because of its number of senior citizens, which Compu-DAWN sees as a lucrative market.

Prices have fallen so far that some companies are offering "free" computers for people who sign Internet service contracts, promotions that have captured the public's interest.

"It has helped accelerate demand for the low-end products," PC Data's Baker said. "Most retailers are reporting that consumers who are accepting the ISP rebates are purchasing the below-$600 products. PCs above this price point have seen very little sales bump from this promotion."

EMachines' Dukker thinks $399 is a bottom price for Windows-based computers, but expects consumers to continue getting more for their dollar.

"You'll see them getting faster and faster and faster," with speed and storage space increasing up to 15 percent every three months, Dukker said.

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