IBM home computer clones stream in with quality, low prices

By , Staff writer of The Christian Science Monitor

This Christmas season, computermakers might warble a few verses of ``Jingle Bells.'' But ``Send in the Clones'' would be more appropriate. High-quality copies of the IBM PC - mostly made in Asia - are flooding the market. Prices are tumbling.

Hyundai, the South Korean maker of one of the hottest and cheapest compact cars on sale in the United States, is beginning to hawk its Blue Chip Computer in more than 500 discount stores nationwide. The unit is compatible with the IBM PC-XT.

At $788 (including monitor, 512K RAM, and one floppy disk drive), the basic Blue Chip machine costs less than half what a comparable IBM XT sells for at computer stores.

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With another disk drive ($129), the Blue Chip still undercuts the more established IBM cloners such as Tandy (which dropped prices last month), Compaq, and Leading Edge Model D (made by Daewoo, also of South Korea).

But Blue Chip's price may be under some pressure soon. Amstrad Consumer Electronics PLC plans to unveil a comparable IBM copy (plus software and a mouse control device) for $600.

It will have a debut in Europe this month and in the US in January. Sears, Roebuck & Co., which sells Amstrad's word processor here, has an option to carry the computer in its stores.

Why the clone deluge?

Almost anyone can build one. The National Association of Accountants is offering $1,090 IBM clone kits to the build-it-yourselfers among its 95,000 members. The same parts that IBM buys from suppliers are readily available and getting cheaper.

Clonemakers don't have IBM's overhead, research costs, or high-profit-margin requirements. Foreign manufacturers get the benefit of a favorable currency- exchange rate, too.

``The IBM is no longer an engineering machine,'' says a Hyundai official. ``It's a commodity machine, just like radios, TVs, and stereos.''

Hyundai figures its Blue Chip should be sold the same way.

The US distributor, Blue Chip Electronics of Chandler, Ariz., is selling the computer through Target Stores, Caldor, Venture Stores, Federated Group Stores, Fedco Stores, and selected Walmart and Toys ``R'' Us outlets.

Most analysts estimate that clonemakers now have 40 percent of the market share of all IBM-type PCs sold and say that share could grow to 50 percent by next year.

``Price works magic,'' a Target spokesman says. Target is selling the Blue Chip right off the shelf; no salesman, no demonstrator model. Target provides an unlimited money-back guarantee.

``Based on our tests, there are lots of customers with sufficient knowledge about computers for there to be a market for this system,'' the spokesman says.

But the home computer market is brutal, as Texas Instruments, Coleco, and Timex/Sinclair can atest.

If the Blue Chip does sell well, the primary mass-merchandise competitors, Atari and Commodore, ``will be stung,'' says analyst Joe Cross at Future Computing, a Richardson, Texas, market research firm.

Mr. Cross doesn't think the computer store chains, which are starting to slap their logos on IBM clones, will be hurt by Blue Chip.

``I don't see Businessland or ComputerLand selling as stripped down a model [as the Blue Chip]. That gets them into the commodities market, where margins are too thin.''

Michael Millikin, associate editor of the Seybold Office Systems Report, disagrees. The dealers will ``lose some of their low-end business - the home sales'' to people looking to replicate their office computer.

The competitive crunch is likely to be felt next year as the offshore cloners move upscale. Hyundai plans to introduce a clone of the IBM AT model shortly.

Another South Korean producer, Samsung, has an AT (with 10 megabite disk) selling for $2,100. And Mitac, a major Taiwan cloner, has a basic IBM AT copy priced at $1,695.

These deep-pocketed Asian companies are the main threat to existing players, since they can afford to sell computers at a loss to buy market share. Exchange rates and poor marketing have hindered the Japanese cloners, with the exception of Epson.

But nibbling at the edges of the IBM PC market are hundreds of basement mail-order firms which sell the PC knockoffs. As sales by smaller firms grow and Asian players forge ahead, even the more sophisticated clonemakers, which have established reputations for quality and service in corporate America, are likely to drop their prices.

``Some companies are getting very excited about the prospects for lower-priced hardware,'' Mr. Millikin says. ``When you can save a thousand bucks on each work station, that's a good deal.''

IBM was reported to have a low-priced ``clone crusher'' in the works. But IBM chairman John F. Akers has said he will not take Big Blue into the thin-margin ``commodity-like'' business.

Cross at Future Computing expects IBM to try to slow the cloners by ``putting in more proprietary elements and little things that will make it harder to imitate.''

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