Some in the industry fail to see the trend toward low-cost PCs as a serious threat to the economic outlook of PC makers and chip manufacturers. Analyst Mike Kwatinetz at Deutsche Morgan Grenfell outlined several factors that bear out his bullish stance in a conference call on Monday. Kwatinetz says that although average selling (ASP) price of PCs is being led downward in the desktop sector, it is only a mild degradation in price point, with ASP having declined only 4% since 1995. And while ASP on desktops may be falling, sales of notebooks, workstations and servers have been steadily on the rise in that time period, leading the product mix toward the higher end – a positive sign for most vendors. Chipmakers will also benefit from this product shift, as increased sales of multiprocessor systems with high-end chips bode well for profitability. Kwatinetz also described what he feels is merely a temporary down period in the industry, with people waiting for Windows 98, more favorable Pentium II pricing and the introduction of new peripherals such as flat panel displays and rewritable DVD drives – all factors that will soon create a more robust market from a pricing standpoint. Another plus for the general PC market is that the sub-$1000 boom is creating new demand, with the majority of purchasers in this segment being first-time buyers. It’s not good news for all the major vendors, however. Although new reports from International Data Corp and Dataquest Inc show the likes of Compaq Computer Corp and Hewlett-Packard Co increasing shipments by more than 50% in the quarter, Compaq and HP aren’t gaining share in servers and consequently their ASPs are declining more rapidly than the industry average. Further out, Kwatinetz sees a solid Christmas season, with spending okay and feels that in general ASPs will stabilize by next summer. Thus he feels that now is a perfect time to buy into good names in the market while people are scared, selling off and taking profits when nothing has really changed.
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