PC sales jump thanks to 'Free PC' trend

And July is expect to be bigger. "(PC makers) will be adding a lot of interest to a month that is relatively uninteresting," said Stephen Baker, director of hardware analyst for the Reston, Virginia firm.

In fact, the so-called "free" PC is shaping up to be the major driver for the PC market, as leasing options and massive rebates become commonplace. "This is the new way to sell PCs," said Bob Anderson, director of business development for Lan Plus Inc., whose ePCDirect division offers a new PC payment plan. "Really, PCs are rapidly becoming just Internet access devices."

The direct PC maker announced on Thursday that it had teamed up with chip maker Advanced Micro Devices and credit card underwriter First USA to offer a $650 (£396)computer-on-credit deal. Included in the purchase: three years of Internet access through the Microsoft Network.

Thanks to such schemes the average price of a Windows-based PC has plummeted to $890, selling far faster than the year before, said PC Data's Baker. Unit sales for June leapt 31.8 percent over a year ago. In total, sub-$1,000 PCs accounted for a stunning 70.9 percent of all Windows computers sold, with sales of sub-$600 computers jumping eight-fold to account for 26 percent of all Windows-based PC sales.

It's true that with lower prices come smaller margins, but the high volumes are finally paying off -- revenues for June actually jumped 6.1 percent -- a rare occurrence so far in 1999. Companies are finally figuring out how to make money in the low-cost market. Lan Plus's Anderson thinks Lan Plus has a good model. "We make money on the entry-level models as well," he said. "This is not an unprofitable venture."

In addition, the exec hopes to grab additional revenue by using the sale to garner customers for Lan Plus's upcoming e-commerce site. Lower costs also raise the potential of profits, and an ongoing battle between AMD and its rival, Intel, are helping bring chip prices down. While both PC chip makers are vying for the upper hand in the low-cost market, to date, AMD has held its own, despite Intel's aggressive price cuts.

Still, the embattled chip maker lost its lead in the sub-$1,000 retail and mail-order market for the first time since last July, according to PC Data's numbers. Intel topped 45.4 percent in June, while AMD fell to 43.2 percent. While AMD's K6-2 remained the leading processor, according to PC Data, Intel's Celeron is catching up, grabbing 34 percent of the market in June.

Apple has not been left behind, either. The company maintained its No.-3 position in June, posting a market share of 11.2 percent, despite the company's $500 premium over the price of Windows-based PCs. The company's sales were topped only by those of Compaq Computer Corp. (at 29.1 percent) and Hewlett-Packard Co. (24.7 percent). IBM Corp. and Emachines Inc. rounded out the top five, each with just under 10 percent of the retail and mail-order market.

By including computer sales by resurgent Apple, the June increase jumps from 31.8 percent to 35.4 percent.