InformationWeek

December 8, 1997

Sub-$1,000 PCs Now Have More Extras

HP and others pack features into low-end systems, squeezing the competition

C vendors are delivering their second generation of sub-$1,000 corporate PCs. Compared to the first sub-$1,000 desktops, the new machines come in full-featured configurations.

For example, Hewlett-Packard last week introduced Vectra VE systems that start below $1,000 for a unit with a 166-MHz Pentium MMX microprocessor, 16 Mbytes of fast SDRAM memory, a 1-Gbyte hard drive, and include management features found on HP's high-end models. "IS managers told us they wanted the same features across the product line," says Ken Bosley, an HP product marketing manager.

Though this category so far accounts for a small proportion of corporate sales, many observers think it's here to stay. "We have to ask ourselves if it's really a good use of IS dollars to put a 300-MHz Pentium II processor on a desktop that's just doing spreadsheets and word processing," says John Peetz, chief knowledge officer at Ernst & Young in New York, which is considering low-end machines.

Matt Sargent, an analyst with Computer Intelligence Inc. in La Jolla, Calif., says many IS execs are "just not seeing the need to move to faster processors that they did with the 486 and early Pentium chips."

Whether that will remain the case is unclear. Intel plans to phase out the Pentium in favor of the Pentium II next year. IS managers also want to have machines powerful enough for Microsoft's forthcoming Windows NT 5.0.

But vendors say demand for low-end systems should continue. "We believe there will still be strong customer demand for the Pentium-class product,'' says Michael Takamura, director of corporate desktops at Compaq Computer. IBM plans to have a sub-$1,500 Pentium II machine by the second quarter.

Component price cuts are helping make the sub-$1,000 PC possible; so are new distribution efficiencies . Analysts say the top PC makers-Compaq, Dell, HP, and IBM-are grabbing market share from smaller ones. Once-high-flying AST Research Inc. announced last week that it's cutting 37% of its workforce to increase efficiency.

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