Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!news.media.mit.edu!americast.com!americast.com!usa-post Newsgroups: usa-today.bonus From: usa-post@AmeriCast.Com Organization: American Cybercasting Approved: usa-post@AmeriCast.com Subject: bonus Thu, Jul 9 1992 Date: Thu, 9 Jul 92 05:13:14 EDT Message-ID: 07-09 0000 BONUS: Computer price plunge continues USA TODAY Update July 9, 1992 Source: USA TODAY:Gannett National Information Network Gordon Moore is chairman of Intel, the world's No. 1 maker of microprocessors, the fingernail-size chips that run personal computers. But even he doesn't know whether people should buy PCs now - or wait. "That's the trouble with this kind of product," Moore says. "There's always a better PC" - and a cheaper one - coming down the pike. HOW MUCH HAS THE MARKET CHANGED? In the latter 1980s, PCs were like BMWs: A high-price model in your den had yuppie cachet. Today, "they resemble pieces of meat that might as well be sold by the pound," says Dick Shaffer, publisher of Computer Letter, a computer newsletter. Consider this: Last year, average PC prices plummeted 25%; this year, another 30%. Now a state-of-the-art, fully equipped model - run by Intel's 486 chip - can be scooped up for as little as $1,600, and that figure could tumble below $1,000 by year's end. HAS QUALITY SUFFERED? Despite their rock-bottom price tags, today's desktop PCs are rip-roaringly powerful. "I have at home a PC that is more powerful than the big mainframe we had at our company a few years ago," says Ian Ross, president emeritus of AT&T's Bell Labs, which invented the transistor in 1947. Eye-popping advances in technology have played a leading role. The computer industry continues to demonstrate an unmatched ability to churn out steady increases in performance at steadily declining costs. HOW MUCH HAVE THINGS PROGRESSED? A 486 chip can search through the entire Encyclopedia Britannica in 4 seconds - three times faster than its predecessor, the 386, and 400 times faster than the Intel 8088, the chip that ran the original IBM PC. Moore says that if the auto industry had accomplished what the computer business has since 1960, today's Rolls-Royce would cruise 1 million miles per hour and get 500,000 miles per gallon. And it would be cheaper to buy than parking downtown. WHAT HAS FUELED THE PRICE WAR? To an extent, the Great PC Price War is simply a story of high-intensity capitalism. Five hundred companies have entered the business since 1987, undercutting IBM, Compaq and Apple with low-cost PCs, some of them built in garages. In recent months, PC makers have been playing a deadly game of one-upmanship: Hours after Compaq slashed prices 30% June 15, NEC and Dell Computer followed suit. ARE SOME FIRMS CUTTING CORNERS? As in any price war, manufacturers are taking liberties with advertising. Advanced Logic Research says it already has a 486 PC list-priced for $1,000. It's really selling a box containing only a central processing unit. The price doesn't include a monitor or a hard-disk drive to store data. Compaq's ProLinea is list-priced at $900 and features Intel's 386 chip and an internal drive. A monitor boosts the price to $1,300. WILL PRICES CONTINUE TO FALL? Even with such sleight of hand, PC prices seem destined to head in one direction - down. That's because the companies making the key parts of a PC - microprocessors, disk drives, memory chips - are locked in their own price-cutting battles. WHY ARE MICROPROCESSORS AND DISK DRIVES GOING DOWN IN PRICE? Advanced Micro Devices, Texas Instruments and other companies have found ways to clone Intel's most popular microchip, the 386. Its price has dropped 43% since 1988 to $119. Since 1990, Intel has slashed the price for its ultra powerful 486DX chip 62% to $406. Last year, disk-drive makers produced 15 million more 40-megabyte drives than customers wanted. And the price that PC makers pay for 40-megabyte hard drives has tumbled almost 50% to $160. HOW CHEAP ARE CHIPS? Prices PC makers pay for 4-megabit memory chips - the state-of-the-art component that helps a PC manipulate information and run programs - have dropped a staggering 91% since 1989, from $123 to $11 apiece. Chipmakers have made phenomenal improvements in the ultra complicated process used to make memory chips as well as microprocessor chips. Basically, chips are made with machines that etch nearly invisible wires onto slivers of ultra pure silicon Those wires form transistors - tiny amplifiers or switches that when packed tightly together on a microprocessor let PCs make up to 20 million calculations per second. HOW FAR HAS CHIP TECHNOLOGY PROGRESSED? When Intel began making the 386 microprocessor in 1985, the minimum width of the wires on a chip was 1.5 microns. A human hair is about 100 microns wide. After making the 386 for a while, Intel was able to narrow the wires to 1 micron. The smaller the wires on a chip, the more transistors you can pack onto it, letting it do even more things. In 20 years, the number of transistors on a microprocessor chip has jumped from 2,300 to 1.2 million, increasing the processing power of desktop computers a staggering 520%. IS EVERYONE HAPPY WITH THE PRICE CUTS? While great news for consumers, the drop in PC prices disturbs many industry experts and investors. These days, PC makers are lucky to eke out profit margins in the 4% to 5% range - roughly half what they earned in the go-go 1980s. That leaves little money to invest in critically important areas such as employee training, equipment and research and development. Ross worries that as the PC price war intensifies and profits dwindle, some PC makers will abandon the business entirely. WHAT COULD FOLLOW? PC makers suppliers, including U.S. chipmakers, would lose the capital to invest in $500 million, state-of-the-art chip -production lines. "It used to be that radios and TV sets were highly profitable," says Ross. "But as these types of products become commodities, it takes a great deal of fortitude to stay in business. ... As you get out of them, you lose the leading edge in technology. That's a reality of the game you have to play." Bonus Editor: Ed Kelleher. (1-919-855-3491) Making copies of USA TODAY Update (Copyright, 1992) for further distribution violates federal law. This article is copyright 1992 Gannett News Service. Redistribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM