Are you ready for the $200 PC?

Summary:Just when big PC makers are dropping prices below $500, a few small guys are readying stripped-down PCs for as little as $200. And consumers might buy them.

Don't look now, but a $200 PC may be in your future.

While PCs from eMachines Inc. and others now sell for less than $400, ZDNN has reviewed documents for new, more eye-pleasing designs aimed at even lower price levels. Some analysts think that the availability of these lower-cost models is not far off.

"Probably toward the end of next year, (the $200 PC) will represent a significant portion of the retail space," said Matt Sargent, an analyst at ZDNet (NYSE:ZDZ) affiliate InfoBeads Inc.

Right now, that market is limited to smaller companies, but Sargent expects that eventually, "people like eMachines and HP -- these guys who are the leaders in the low-end retail space -- are going to get into this market."

Tatung takes its cuts
One of the first PC makers to step up to the plate will be Tatung. The company is developing multi-hued, low-cost consumer PCs that will start at about $299, according to documents reviewed by ZDNN.

But a stripped-down version of the same PC will be available for as low as $200. This box won't have a CD-ROM, will use Linux in place of Windows 98, and is based on a Cyrix chip.

At this point, component prices don't necessarily add up to a $200 PC that companies can make money on without taking advantage of a rebate program or some innovative financing.

Tatung also plans more conventional PCs with Windows 98 and an AMD K6-2 processor starting at around $400.

But lower price points are clearly driving the retail PC market. InfoBeads says that between August 1998 and August 1999, U.S. retail PC sales rose from 474,000 units to 718,000 units, and 47 percent sold for $600 or less.

Skeptical greeting
Still, several analysts were skeptical that PCs will really fall as low as $200.

"I think they can propose such a price, but I don't think it's sustainable, even with alternate processor technology (to Intel Corp.)," said Roger Kay, an analyst at International Data Corp.

"These days, the sort of imputed value of a PC is $400," he said. "(However,) if in fact you want to propose a monthly fee arrangement, you can propose the initial price at whatever you want."

Stephen Baker, an analyst at PC Data in Reston, Va., was equally dubious.

"I wonder how (a PC vendor) can get to $200 with Windows 98. But if they can do it, that's a real PC -- that's a breakthrough," he said.

Now entering TV land
Analysts do agree, however, that they expect low-cost PCs to become the second, third or perhaps even the fourth unit in households.

This is "one of the things that's driving (retail) volume now," Baker said. "What you'll see is what people do with televisions. Not every room gets a 35-inch Sony; some rooms get a 19-inch Samsung. It's not unreasonable to think that people will do the same thing with PCs that they do with TVs."

New PC players have defied conventional pricing wisdom in the past.

For example, eMachines Inc., which debuted last November, figured out a formula that would allow it to purchase components and still undercut competitors such as Hewlett-Packard Co. (NYSE:HWP), IBM (NYSE:IBM) and Compaq Computer Corp. (NYSE:CPQ) on the retail shelves. eMachines is now among the top five U.S. PC retailers.

Topics: PCs, Hardware, Hewlett-Packard, IBM, Windows

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