Cheaper Chips Spawn Low-End Computers

Computer prices are breaking through the $1,000 barrier thanks in part to lower-cost chips.

Memory-chip prices are at record lows. Meanwhile, companies are designing chips specifically for the new low-end market. Last week, Intel introduced the first of its new Celeron chips.

These microprocessors - the chips where the action happens on a computer - are based on Intel's state-of-the-art technology but don't have all the power of the company's higher-end offerings.

Intel faces pressure. National Semiconductor says it has a chip technology that will dramatically lower prices. By the middle of next year, it plans to put all the functions of a personal computer (PC) on a single chip. The integrated superchip would replace the dozen or so special semiconductors found in most systems today.

Whether these new low-cost machines will dominate the market is unclear.

Stephen Baker, senior hardware analyst at PC Data, sees a big change in retail stores. Instead of getting the latest and greatest technology, he says, consumers are asking: "Why do I really need a 400-megahertz processor? How much of a hard drive do I really need?" So instead of buying a $2,000 PC, they're buying a $1,200 one.

But retail stores don't tell the whole story.

Experienced computer users are more likely to buy from mail-order companies. And there, leaders such as Dell Computer are ignoring the sub-$1,000 market.

Despite this, Dell's latest quarterly sales doubled from the same period last year, says T.R. Reid, a company spokesman. "We don't think it's the kind of sea change that some people would try to characterize."

Instead, some industry officials say, the low-end machines are a market niche: a fast-growing one, yes, but only part of an increasingly segmented PC market.

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