Booming market for $1,500 PCs

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Booming market for $1,500 PCs

By Richard Morochove

First published January 22, 1998

One year ago, they didn't exist. Today, brand name computers that sell for under $1,500 constitute the fastest-growing segment of the PC market.

Preliminary results for the holiday selling season show that up to 40 per cent of the computers sold by U.S. retailers cost less than $1,000 (U.S.). In Canada, that translates to a computer that sells for under $1,500.

These inexpensive home PCs have single-handedly turned around the PC market. The average PC price increased, bit by bit, for the past several years, as first modems, then CDs become standard equipment. But in 1997, the average PC price decreased.

There's no need to turn up your nose at a cheap PC. The latest models are based on processors that are more powerful than most desktop computers over a year old. Furthermore, they aren't stripped down. Most come complete with modems and CD-ROM drives.

What's the catch? At these prices, most units don't include a monitor. Some models allow you to plug-in to a TV set. If you want a basic colour display, figure on paying another $300-$400. In addition, the selection of installed software is limited to MS Windows 95 plus a handful of applications. This is far less than the three or four dozen programs routinely included in home PCs a couple of years ago.

All things considered, these low-priced computers are quite a deal. It seems that computer makers have rediscovered one of the oldest laws of economics: lower the price and demand will increase.

Compaq led off the charge last summer with its Presario 2200. It carried a list price of $1,758 with monitor, but routinely sold for hundreds of dollars less. This was a well-made box based on a 180 MHz. Cyrix chip, ideally suited to the first time buyer. The biggest drawback of the Presario 2200 was its complete lack of expansion slots.

IBM Canada responded a few weeks later with the Ambra Ispirati 10E, which included one slot for expansion and was priced even less, at $1,249 without monitor.

This year's crop of cheap PCs keeps the low prices and offers faster processors and CDs, along with more memory and expansion room. The low prices will continue to attract first-time computer buyers. The faster 200 MHz. processors will entice many computer owners looking to upgrade their machines.

The expansion capabilities now make them suitable for small businesses looking to upgrade PCs hooked up to a network. I think they're the final nail in the coffin for the Net PC, the sealed box computer Microsoft is promoting as a network workstation.

Hewlett-Packard enters the inexpensive PC market with its Pavilion 3200 series. Unlike most, the Pavilion 3260 is based on an Intel chip. It contains a 200 MHz. Pentium with MMX, so it's no slouch in processing power. The 3260 also comes with a 56Kbps modem, 16X CD and 32 MB of RAM. There's one available expansion board slot and one available drive bay. The computer will retail for just $1,299, without monitor, when it reaches dealers in February.

Compaq's updated entry in the low-priced PC sweepstakes is the Presario 2240. It's based on a 200 MHz K6 processor from AMD with MMX capabilities. The PC comes with a K56flex modem, 20X Max CD and 32 MB of RAM. Unlike the closed box of its predecessor, this model includes two open expansion card slots and one available drive bay. It carries a suggested list price of $1,319. Topped up with a 14-inch colour monitor, it lists for $1,670.

IBM Canada continues to lead the way to lower prices with its Ambra Ispirati line, priced as low as $999 for the model 311E. This unit is based on a 200 MHz. MediaGX processor with 16 megabytes of RAM. Of course at that price they don't include a monitor, but you can plug it into most modern TV sets.

At these prices, the profit margins for the computer makers are razor-thin, so I don't expect selling prices will be much below the list price. However, computer prices may take another dip after Intel cuts its processor selling prices around the end of this month and other chip makers fall in line.

How low can the computer price limbo go? As long as consumers snap up the new models, computer makers will be tempted to cut prices. I expect to see brand name computers, complete with monitor, sell for less than $1,000 in Canadian retailers before the year is out. CW

Richard Morochove, FCA, is a Toronto-based computer consultant.

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