July 12, 1999 1:30 PM PDT

Packard Bell chimes in with $499 PC

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Packard Bell NEC today launched a new fleet of cheap computers, including one of the first sub-$1,000 Pentium III systems, but observers warn that even aggressive price cuts may not improve the company's dire circumstances.

Packard Bell NEC has been hard hit by a trend it once embraced: cheap PCs. The company seemed to be on the verge of a comeback last year when it dominated the sub-$1,000 retail market.

But in the last six months it has lost both shelf space and market share to upstart companies like Emachines, as well as established players such as Compaq Computer, which have entered the cheap PC market with a passion.

Packard Bell has struggled to differentiate its offerings amid increased competition at the bottom of the market; unfortunately for the company, history has weighed down that effort. Packard Bell has been dogged for years with a reputation for poor product quality and service, analysts say.

Add to that recurring financial losses, companywide layoffs, changes in management, and shrinking market share and it all leads to industry speculation about the future of the Packard Bell brand name.

"Things have not been going well with Packard Bell recently," said Stephen Baker, PC Data analyst. "They were the king of the low end, and they let that slip by them."

The systems introduced by the company today will broaden the low-cost offerings in the marketplace. The Packard Bell 883 with 366-MHz Celeron processor, 32MB of memory, and 4.3GB hard drive goes for $499. The Packard Bell 8975 with 450-MHz Pentium III, 64MB of memory, and a 10.2GB hard drive will retail for $999.

Still, today's announcements did not deter some analysts from harsh predictions.

"It's way too little, way too late," said Matt Sargent, senior industry analyst with Infobeads. "If you just look at Packard Bell's market share, its really, really tanking. NEC is stable and doing OK, so you really wonder how long the Packard Bell brand name can survive. I don't see how it's helping the overall NEC picture."

Packard Bell has been steadily losing market share since late 1997, PC Data's Baker pointed out. The company is currently ranked 6th in the retail and mail-order desktop market, behind Apple Computer and Emachines.

"They've always done a good portion of their business in the low end--they just haven't been able to grow as that market has grown," Baker said.

Since the merger with NEC, the combined company has struggled to communicate the strategy of the two brand names to consumers, Baker added. Packard Bell has long struggled to shake its reputation of low-quality products, while NEC has had problems establishing itself as the higher-end label.

"Packard Bell still has a reputation as being poorly made, which is probably not fair. Because they've always been the cheapest, they've always had the most uneducated, least sophisticated buyers," Baker said. "They've had an issue with how do they keep Packard Bell from contaminating the NEC name."

Service becomes more important
Even the low-end consumer still expects a level of service that is expensive to provide. As retailers like Best Buy and CompUSA have launched discount-computer programs for customers who sign up with specific Internet service providers, PC makers have had to up the array of services offered with their PCs. In addition, low-end box makers such as Microworkz have begun offering Internet service with their systems.

Buyers of low-end PCs expect a variety of Web services to be included with the price of the system, said Schelley Olhava, a PC analyst with International Data Corporation. "Consumers hate when they need to call support and can't get decent service," she said. Olhava pegs Packard Bell's U.S. desktop market share at 5.1 percent for the first quarter of 1999.

Although the company has made some moves to bolster its higher-end offerings, including the new Pentium III system announced today and the introduction of the Z1, an integrated LCD all-in-one computer, analysts believe that the company's reliance, and subsequent struggles, in the low-end of the market may spell its demise.

"I expect that Packard Bell is going away," Olhava said, adding that the NEC brand name may expand to include all consumer systems.

The struggle in the market place coincides with internal turmoil. Last September, the company appointed Alain Couder to become its chief executive following the resignation of founder Beny Alagem, who had been locked in a dispute with the board over the strategic direction of the company.

Couder's main goals have been to make the company profitable and then take it public. The financial picture, however, is bleak. On average the company has lost $500 million over the past three years, according to various estimates.

In October, the company announced it would lay off approximately 1,000 employees. For 1999, the goal is to reduce operating costs by $100 million more in 1999. As part of that goal, the company laid off 200 employees in June.

News.com's Jim Davis contributed to this report.

 

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