January 25, 2000 5:30 AM PST

Emachines' next challenge: making money

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Emachines, which shook up the retail PC market in 1999 with rock-bottom prices, is hoping to start the new year by translating its high sales volumes into profits.

The company said it plans to launch new PC models priced from $399 as it strives to maintain the No. 3 spot in retail PC sales it garnered in 1999, according to results from researcher PC Data. All of the new machines feature Intel processors, and DVD drives will be available in systems priced as low as $599.

An unknown name just a year ago, Emachines' aggressive pricing has landed the company a spot among the top five consumer PC makers in the United States, mostly because when combined with ISP rebates, some Emachines systems sell for $1 or less. The company said it shipped 600,000 systems in December, and 2 million since its inception in late 1998.

For Emachines, the good news is that keeping its ranking should be a tad easier in 2000. Last year, IBM and Packard Bell both said that they would exit the retail market for PCs. Much of Emachines' gains came from Packard Bell, in particular, which had pioneered the retail and sub-$1,000 market before succumbing to mounting losses. Now, other vendors may try to stick to higher ground to keep from following the same path.

"They have another opportunity to pick up a chunk of sales with Hewlett-Packard and Compaq trying to push the low end up again," said Stephen Baker, principal hardware analyst at PC Data. Baker thinks the top two PC retailers will stick to offering PCs priced at $599 or more, leaving the bottom end of the market that Emachines pioneered--the sub-$500 segment--to the Irvine, Calif.-based company.

While there's still plenty of demand to keep sales up, Baker said, making a profit will be the challenge for Emachines in 2000.

Early indications are that the company's pricier systems may be doing better than expected. Its top offerings, the Emonster series PCs, were among the top 15 best selling computers for December, said Baker. The Emonster machines are priced starting at $899 with mail-in rebate, and the top five selling PCs for the month were all priced at or under that mark, Baker said.

Emachines' revised Emonster systems, a key to generating larger profit margins from sales, will now carry a 550-MHz Pentium III processor and DVD drive. A system that adds a rewritable CD drive will go for $1,099.

The company is also hoping to make a dent in the retail market with its first notebook offering. The $999 eSlate 400k is offered with a 400-MHz AMD K6-2, and just started to reach sales channels earlier this month.

The company is ultimately planning on taking a slice of e-commerce revenues as a way to beef up its razor-thin margins. The company announced a merger with another new PC industry presence, Free-PC.

The merger, which a representative said was completed earlier this month, will incorporate Free-PC's advertising and e-commerce deals into Emachines' systems. The fruits of the combined companies are not expected to be seen on Emachines PCs any earlier than the second quarter of the year, when revised systems are expected to be announced.

With the merger completed, the company is now looking to get back on track with its initial public offering, which was first announced in August of last year. Executives have said previously that the offering would go forward by the end of the first quarter.

Among Emachines' new offerings:

 The eTower 466is, priced at $399 (after $75 mail-in rebate), has a 466 MHz Intel Celeron processor, 32 megabytes of memory, a 4.3 gigabyte hard drive and CD-ROM.

 The eTower 500id, priced at $599 (after $75 mail-in rebate), has a 500 MHz Intel Celeron processor, 64 megabytes of memory, a 10 gigabyte hard drive and DVD-ROM drive.

 The 533iR, with 533 MHz Celeron processor, has a rewritable CD-ROM drive and is priced at $799 (after $75 mail-in rebate).

 

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