InformationWeek

September 8, 1997

The Great PC Price Drop

Fully functional PCs from Compaq, IBM, and others are about to smash the $1,000 price barrier. Are the new machines right for you?

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By Bob Francis

C vendors are set to crash through the $1,000 price barrier for fully functional corporate PCs, on the way to prices as low as $800 early next year. Vendors expect the new systems to satisfy big user demand for low-end, manageable systems-and compete head-on with a raft of new thin-client hardware.

"Our corporate users want to see the full spectrum of PCs being offered across their computing architectures, from $800 entry-level PCs to $10,000-plus w orkstations," says Rod Adkins, general manager of client systems at the IBM PC Co. "And they want to be able to manage those PCs no matter where they are in an organization."

Compaq is expected to spark another round of industry price cuts this month with a new small-form-factor PC in its Deskpro 4000 line that will sell for less than $1,000, analysts say. Compaq already offers a stripped-down sub-$1,000 PC, but the new machine will be a credible full-function corporate desktop with better graphics, a faster, 166-MHz Pentium processor, and remote management software. IBM is expected to announce a full-featured sub-$1,000 PC next month, and others say they will follow. "From our customers, we hear clearly that a large segment want fully configured PCs in that sub-$1,000 price range," says Tom Roberts, a marketing manager at Digital Equipment's PC group. "We see the direction headed that way."

PC vendors aren't just responding to customer demand, though. With low-priced PCs, they're also trying to stif le the impending threat from network computers promoted by Sun Microsystems, Oracle, and others. "One of the goals here is to make sure the NC is not an option," says a senior executive at a top PC maker.

Low-End Prices Get Lower
Expect low-end corporate PC prices to continue to fall early next year. Analysts say a Windows NT-capable corporate PC sporting a 166-MHz-or faster-Pentium with MMX graphics, 32 Mbytes of RAM, built-in networking, and 1 Gbyte or larger disk will sell for around $800 early next year or by mid-year at the latest. In line with industry practice, that price doesn't include a color monitor, which will add another $150 or more. "We have it in the labs" for likely delivery early next year, says a source at Compaq.

That promise whets users' appetites. "I'd buy 1,000 of them right now," says Larry Panatera, CIO at Snap-On Inc., a tool manufacturer in Kenosha, Wis. But he remains skeptical that vendors will deliver at that price.

Several factors are driving prices lo wer, analysts say. At the processor level, competition from chipmakers Cyrix Corp. and Advanced Micro Devices Inc. is prodding Intel to slash prices of its mainstream Pentium chips. In November, Intel will cut the price of a 166-MHz Pentium by $45, to $100, and analysts expect the price cutting to continue.

Vendors that opt to use Cyrix's MediaGX chipset-Compaq already uses it in consumer machines-can deliver PCs at even lower cost than if they used Intel processors. In fact, "$600 to $800 for a commercial PC using the GX is likely," says Nathan Brookwood, a principal analyst with Dataquest Inc. in San Jose, Calif. Cyrix says prices of desktop PCs may even fall below $600.

PC vendors are also able to compete aggressively on price because they're lowering costs through more-efficient business methods such as direct sales and build-to-order, says Andrew Allison, editor of the newsletter Inside the New Computer Industry.

Bruce Stephen, director of PC research at consulting firm International Data Corp. in Framingham, Mass., believes there's plenty of price cutting to come. "Compaq is slowly turning the pricing vise," he says. "We have yet to see them really pour on the price pressure."

Full-function low-end desktops are expected to sell at close to the price of NetPCs, the as-yet unavailable devices promoted by Intel as an answer to the NC. The new desktops will differ from NetPCs in that they'll be upgradable and will have more local storage options, such as diskettes. IBM has scrapped plans to deliver a NetPC, saying its forthcoming low-end desktops remove the need to offer NetPCs. However, after some uncertainty, Compaq says it still plans to introduce a system based on Intel's NetPC specification this month.

The new desktops will also be priced to compete with NCs such as Sun's JavaStation, which starts at about $750. "With NetPCs and our entry-level [desktop] products, we're going to be very competitive with NCs and Windows terminals," says Michael Takemura, North American marketing manager for Compaq's desktop group. Windows Terminals, designed as a PC replacement for dumb terminals, are expected to be introduced by several vendors in coming months (see related story, " Windows Terminal OS Readied ").

Sun admits falling PC prices will affect NCs. "I do think it's significant," says Steve Tirado, Sun's director of Java desktop systems. "It will have an impact on our price decisions. We also will benefit from standard component price drops."

But Tirado stresses that manageability, not price, is driving users to NCs. With JavaStations, information and applications are stored on central servers and downloaded to desktops as needed. NC proponents say this virtually eliminates the need to manage individual desktops. "The reason people are buying into the NC model has less to do with the price of the system, and more to do with the Web-based distribution model," Tirado says.

Manageability Is Key
One user agrees that while pr ice is important, manageability is key. Service Merchandise Co., a Nashville, Tenn., retailer that uses more than 8,000 PC-based cash registers nationwide, is considering using NCs at some locations. New low-cost PCs would "take price out of the equation as a determining factor," says Ken Brame, the retailer's CIO. "It brings it to functionality, manageability, and reliability-which should be the main issues we base our decisions on anyway."

But PC supporters say that much-improved manageability features are on the way for full-fledged PCs-notably Microsoft's Zero Administration for Windows, which will be included in Windows NT 5.0. The technology will be fully supported on PCs running NT 5.0, removing some of the attraction of the NetPC over other PCs. "The real thing that the NetPC has brought attention to is the need to build more-manageable PCs," says Phil Holden, Microsoft product manager. NT 5.0 isn't expected to ship until mid-1998, though. IBM already offers some ZAW features, such as the Wake On LAN remote boot function.

Several vendors say new, low-priced PCs will be an important part of a PC product line that will stretch from high-end systems to Windows Terminals. "We're going to have a spectrum of devices out there, from integrated terminal-type products to NetPCs to high-end workstations, all having a high degree of manageability, says Howard Elias, VP of NT systems at Digital Equipment.

Jim McGann, director of marketing for the IBM PC Co., puts it in terms that users may find even more appealing: "We're going to offer devices from workstations to task-oriented devices, all with a common architecture, with common support tools, so IS managers can support that one operating system."

-with Tom Davey , Stuart J. Johnston and Mary Hayes

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