US Report: Sub-$1,000 PC market cooling off

The sub-$1,000 (£613) PC revolutionised the consumer desktop market in 1997, but now it seems as if its torrid growth has abated.

That section of the market seems to have stabilised at about 40 percent of the retail market, according to research conducted by ZD Market Intelligence. (ZDMI is owned by Ziff-Davis, parent company of ZDNet News.) That's down from a peak of 49.4 percent in February.

"Based on the sales data of individual models [tracked by ZDMI], it's become clear that the sub-$1,000 PCs have hit the wall in terms of share of market and potentially growth as well," said ZDMI analyst Aaron Goldberg.

"It has stabilised to a more mature market," said ZDMI analyst Matt Sargent.

Some of the rise in average prices is due to the release of Microsoft's Windows 98 operating system and Intel's Pentium II processor, he said.

"As more people demand those products, it pushes the average price back up above $1,200 (£736)," he said.

A Hewlett-Packard spokesman, said that, along with price stabilisation and the Win98 factor, it is largely a matter of customers "buying up."

"I was in a Circuit City on Saturday, and I stood there for an hour and half. I saw four people be sold on" higher-priced PCs. "For anyone who's a reasonably experienced computer user, it's not that hard to sell them a more expensive machine," he said.

The changes have hit home, he said. "My son has a 15-inch multimedia monitor. I can't even look at it anymore. Clearly, 15-inch isn't going to cut it anymore."

Consumers upgrading to $1,200 PCs and up doesn't surprise one analyst.

"Win98 probably does not run all that well on some of (the sub-$1,000) machines," said Louis Mazzuchelli, with Gerard Klauer Mattison. "You can expect some consumer backlash" against the weaker machines, but he says it may only be a transition period.

"I think there's always going to be a place for low-priced devices," Mazzuchelli said. He said he expects the sub-$1,000 trend to go back up around back-to-school and the holidays.

Another factor is that companies -- particularly Compaq has slacked off somewhat in the fierce competition for that market, Sargent said.

Compaq wasn't the first company out with a sub-$1,000 PC, but it built the segment by virtue of its dominance in the PC market.

But with the release this week of new systems from IBM starting at $799 (£490), the pace may pick up again.

"It appears to have stabilised in the time being. But I expect that will change as Compaq realises it has to take on IBM and HP," Sargent said.