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Are cheap notebooks finally here?

PC World

May 26, 2000
Web posted at: 10:27 a.m. EDT (1427 GMT)

(IDG) -- When $999 buys a powerful brand-name desktop system, why is it so hard to find a name-brand notebook for that price?

Historically, top vendors blame component costs, arguing that you can't build a worthy notebook that sells for less than a grand.

But Compaq now begs to disagree: Last week the company announced a $999 direct-sales-only Presario.

Compaq's Presario 1200 XL-450 boasts reasonable specs but is far from a powerhouse. It runs on AMD's 450-MHz K6-2 processor. It's equipped with 32MB of memory, a 5GB hard drive, a 24X CD-ROM drive, and a 12.1-inch passive-matrix screen (which doesn't look as good as more expensive active-matrix, thin-film-transistor displays).

Being direct (and cheap)

  MESSAGE BOARD
 

Compaq can price the Presario 1200 at $999 because it sells the unit direct, at the company's Web site or through retail kiosks, says Lorena Kubera, director of portable product marketing in Compaq's consumer division.

Selling in retail stores would add another layer of costs and wipe out profits, she says. Selling it direct lets Compaq reach the consumer and small-office buyers eager for this type of notebook. "There is definitely a demand here," she says.

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IDC analyst Randy Giusto says he, too, sees demand for a new $999 notebook, but emphasizes the thin profit margins. Just a couple of phone calls to the vendor's technical support center could wipe out the company's profit, he says.

Compaq's Kubera acknowledges the risks, but points out that if customers are pleased with their entry-level notebooks, they'll return to Compaq when they're ready to buy their next, more expensive model.

Tim Bajarin, president of Creative Strategies, cites another reason for a sub-$1000 notebook. That price point draws people to take a look at Compaq's lineup, he says, and then they may talk themselves into a $1200 to $1300 notebook instead.

Who plays this price game?

The Presario 1200 proves that it is possible to build a sub-$1000 notebook by doing what the suppliers of ultracheap desktops do: combine current and trailing-edge components, and sell at razor-thin profit margins.

But most notebook vendors don't want to play that game. They'd rather focus on selling high-end portables to the corporate customers who continue to snap up most notebooks.

Consumer purchases account for only 20 percent of the market, estimates Rob Enderle, analyst with Giga Information Group. Most sales are corporate machines, which carry an average selling price of $2200 to $2500 and correspondingly higher margins.

Bad for business?

Dell is not interested in playing in the sub-$1000 market; the company's lowest-priced Inspiron sells for about $1449. Assembling a $999 product simply entails too many compromises, says Phil Ventimiglia, manager of Inspiron product planning and marketing. For example, Dell won't sell a notebook with a passive-matrix display, he says.

Still, Dell's prices are dropping. Last year its cheapest notebook cost $1799.

Market leader Toshiba dabbles in the $1199 price range with its least-expensive Satellite. Toshiba uses its own passive-matrix display technology called Color Bright to help drive down the price of its low-end models.

"We could put out a decent product for $999, but it wouldn't be as good as our $1199 products," says Steve Andler, vice president of marketing for portables. Toshiba still has no immediate plans to play at that price point, although it does sell some end-of-life products for less than a grand.

It's a grand old notebook

Notebook buyers hell-bent on staying below $1000 have a few options besides the Compaq Presario 1200. In addition to snapping up an end-of-life machine from a top-tier supplier such as Toshiba, you may find a $999 deal from a smaller vendor (for example, EMachine's ESlate).

But finding such vendors is becoming harder.

Winbook, for instance, offered a $999 notebook online back in 1998. The company sold plenty of units, but recently discontinued the product because of erratic component prices, according to a spokesperson.

Rebate redux

To get a sub-$1000 notebook from Winbook now, you must sign up for a rebate. Its lowest-priced notebook costs $1199, but you can get a $200 rebate for joining E-Trade or a $400 rebate for signing up with MSN. The E-Trade deal requires a $1000 account deposit; the MSN deal requires 36 months of loyalty at $21.95 monthly.

Compaq and Hewlett-Packard's Web sites also offer MSN rebates on notebooks. Also, national retailers such as Circuit City continue to offer rebate deals with various Internet service providers.

IDC's Giusto says "rebate fever" has cooled in the desktop market because most people already have Internet service at home. But it's heating up in the notebook market, because many people buying low-end notebooks are students, or the parents of students. If you're moving away from home to go to college and you need a new ISP anyway, a rebate can make sense, he says.

Cheap Transmeta machines?

Down the road, new players also may change the pricing equation. In particular, thin and light notebooks based on Transmeta's new power-saving Crusoe chips might hit the sub-$1000 mark, thanks to a less-expensive processor, a smaller form factor and display, and a cheaper battery, says Giga's Enderle.

Transmeta representatives say notebooks with its chip will hit the market in the second half of this year, although no vendors have announced products.




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