EMachines bucks PC downturn

It may not be the best time to unveil new PCs, but the company is doing it anyway

Slowing PC demand? It's the economy, stupid! So says eMachines chief executive Stephen Dukker, who Thursday announced details on several forthcoming small-business PCs and a new strategy to attack the market.

Given plunging stock prices and Wall Street analyst downgrades of top PC makers, Dukker outlined his plans on possibly one of the worst days possible to launch new PC products.

But the eMachines chief executive is not surprised that the consumer PC market is cooling off. He said he sees it as an indication that the Federal Reserve's recent spate of interest rate rises is slowing the economy. Coupled with high fuel prices and a falling stock market, Dukker said, the rate rises make it natural for consumers to tighten their belts.

"Computers have nothing to do with Home Depot announcing it's going to miss its numbers," Dukker said. "What's happened is that consumers, in general, have begun to check out of the market place. This is the soft landing [the Fed] has been talking about."

Unfortunately for the PC industry, the landing might not be very soft, Dukker predicted. "Next up is corporations missing their numbers," Dukker said. That means that they are likely to reduce spending, which would reduce demand for corporate PCs.

However, although he doesn't see any improvement in the current situation until at least the third quarter of next year, Dukker expects that controls on the economy will be relaxed, which should bring back consumer confidence and allow the economy to expand again. "I don't think [the Fed] wants a recession," he said.

Analysts agreed with Dukker's assessment.

"When the economy slows down, I don't think people are saying 'I'm not buying anything'. Instead, most people won't upgrade what they already have [such as a PC]," said Stephen Baker, an analyst with PC Data. "We're seeing solid growth in a lot of categories, such as home networking, MP3 players ... and CD-RW drives."

So why did eMachines choose now to unveil a host of new products, including a brand new push in the business PC market?

"Because it's time for us to start diversifying our distribution strategy," Dukker said. "We've established our brand. The way for us to grow is to add additional products."

Starting in the new year, eMachines will add a new line of PCs aimed at small businesses. The first two PCs, dubbed eTower 700net and eMonster 800net, will start shipping next January. Prices will start "well below $600", Dukker said.

The new PCs are configured with Windows 2000 Professional Edition and include a network card. Dukker claims that, in many cases, the new eMachines PCs will be priced less than a reseller, such as Ingram Micro, could sell its own brand of white box PCs for.

The eTower 700net, based on Intel's 810 chipset, will couple a 700MHz Celeron chip with 64MB of RAM, a 48X CD-ROM drive, a 10GB hard drive, and a network interface card. The eMonster 800net will offer an 800MHz Pentium III chip and a 30GB hard drive. eMachines tops them off with Windows 2000 Professional Edition.

The company's existing retailers and several new value-added resellers, including Ingram Micro, will carry the new PCs.

EMachines has a good chance of finding success in small and medium business market if it can adhere to its traditional PC sales formula. That formula consists of offering better PC features for lower prices than competitors.

"There's a certain demand in those markets for a low-cost alternative that has decent features," Baker said. "I'd like to see eMachines be very focused on being a price leader. That could be something that could give [eMachines] some presence there."

By the end of the first quarter of next year, eMachines will launch a new line of eSlate notebook PCs with prices ranging from $999 to $1,999. The PC maker will launch three new notebook models, including the three-pound eSlate S, with a 12.1-inch display. Joining it will be the five pound eSlate N, with screens up to 15-inches, and the all-in-one eSlate W.

The company also announced plans for a new all-in-one PC, called e3. Designed for children and students, e3 integrates PC capabilities with a radio and television receiver and high-quality audio.

Pricing on the new machine, which strongly resembles a notebook PC, will start at $1,000.

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