As the Microsofts of this world think of increasingly ingenious ways to soak up available computer resources, users still keep chasing more bang for their bucks in an effort to keep their systems ahead of the gameIn the past few years, the software companies have succeeded in driving the demand for more processing power along at a furious pace. However, the failure of Windows 95 to make a serious impact in the corporate market has been accompanied by a temporary hardware downturn with users in that sector readying themselves to move straight to the NT platform. The slowdown in worldwide PC sales in the past two quarters would seem to indicate at least a temporary shift by the user community away from the "out with the old and in with the new" mentality and towards a more considered component-based approach to upgrading systems.
One of the bigger chunks of the PC marketplace is the 75 million or so 486 systems throughout the world being used in the corporate, government and SOHO sectors. In many cases, these machines are performing their tasks well enough to rule out justification for a complete system replacement but are still ripe for an upgrade in one or two areas.
Companies like US-based Kingston Technology, which has built a $US2 billion business chiefly on the supply of memory, are presently experiencing boom times. The managing director of the local subsidiary, Keith Hamilton, told Australian Reseller News that, in addition to memory sales, the company is currently having success in the processor upgrades market. "While processor upgrades was never a focus of ours, it was always a very good cross-sell for our memory," he said. "Today we have one particular product that is proving to be very popular, which was released about two months ago, called the Turbo Chip 133. It is an upgrade for any 486SX, 486SX2, 486DX or 486DX2 up to a 586 level, giving performance equivalent to somewhere between a Pentium 75 and Pentium 90 for $289 retail including tax. "We are selling about 300 of those a day in the US at the moment and we have just signed a deal here for 1,000 to a large corporate through our distribution channel."
Hamilton believes the popularity of Kingston's processor upgrade product, which is based on an AMD chip, is indicative of a huge market of 486 users who are content to continue with their tried and tested workhorse systems but need just a little extra grunt. "We offer only a P75 to P90 performance and yet it's been popular because a lot of 486 users have the hard disk and memory capacity they need and all they lack is a bit more processing power," he said. "In reality, a P90 is really quite adequate to handle today's most demanding number-crunching software while you're running with, say, three applications open at the same time.
"In addition, many of these 486 users will eventually upgrade their entire systems but are waiting for the Pentium Pro to come down in price. This makes the processor upgrade option a good interim measure for both corporates and the small end-user market. We are also finding that resellers are using this product as a very good opening to sell memory and other peripherals in a systems integration deal. For example, a large reseller in Melbourne purchased 1,000 units from us for a State government deal and they tagged on 1,000 Seagate drives as part of their value-add."
The Australian business development manager for chip maker Advanced Micro Devices (AMD), Terry Lim, holds a similar view to Hamilton, believing that a major reason behind the slowdown in PC sales in the last two quarters is the fact that processing power has outstripped software capabilities. "What's the point of having a Ferrari that runs at 200MHz when the roads are not there yet?," he said. "The current hardware standard of most users' systems is more than enough for the applications they use. If you are realistic enough to understand that your 486DX-100 still gives you the functionality and the speed that you need then you don't need to worry about missing the boat.
"Windows 95 didn't gain the popularity that Microsoft hoped and what that means for AMD is that there are a lot of people who have still got their 486 at home who are waiting for the time when the performance of their system suffers enough to force them to change. When they do change, they will probably change to a Pentium 100 because it is affordable and this will involve an entire motherboard upgrade. Otherwise, we can offer users who have a 486DX4-100 system a CPU replacement option called the AMD X5 for about $40 retail. This will give them the equivalent performance of a Pentium 75 while keeping their 486 motherboard. Unfortunately, we can't do the same thing for 486DX2-66 systems because it becomes a little messy. Also we can have an upgrade option for Pentium motherboards called the K5, which simply means replacing one Pentium CPU with another faster Pentium CPU."
As far as motherboards are concerned, the new ATX motherboard from Intel will do a lot to reduce the complexity (and presumably costs) of end-user upgrades in the future, according to Avril Danes, national marketing manager at Melbourne-based distributor, NJS Technology. "The cleaner design makes it very flexible to upgrade individual components within a PC and it's almost possible that end-users will be able to do their own upgrades," Danes said. "Because Intel has rotated the new ATX motherboard 90 degrees, systems will need different casing and it's not backwardly compatible with AT architecture."
While all this will mean much easier component upgrades once the ATX has become established in the marketplace, existing users will be forced to ditch their current systems if they want to upgrade on the new platform. The massive drop in memory prices due to the worldwide oversupply of PCs, according to Hamilton, has not adversely affected Kingston's main line of business and in fact has been beneficial. "The memory upgrade market is extremely exciting at the moment and very volatile as we all know," he said. "There is a tremendous amount of excess inventory out there which has caused prices to fall by up to 50 per cent. This means that to get the equivalent revenue we achieved at the same time last year we have to sell twice as much memory. In fact, however, we are selling more than twice as much - our revenue is up and our profits are up. One of the reasons is that for corporates and end-users there has never been a better time to buy memory. Prices are way down, they can't fall much further, but they could certainly go up. One thing that you should be aware of is that the memory industry is very cyclic. When the demand picks up on PCs and the next memory-hungry killer applications come out the market is going to tighten and prices could be where they were six months ago."
Accompanying the software-driven demand for more memory has been a corresponding requirement in the marketplace for larger amounts of disk storage. Hard drive suppliers have responded to the demand in spectacular fashion over the past 12 months, driving down the costs per Mb by a factor of almost 400 per cent. Jackie Nagy, the marketing coordinator for Seagate distributor ACA Pacific Pty Ltd, believes there has been an almost overnight transition in the hard disk marketplace - once again because of resource-hungry software applications. "In the past couple of months we have seen our shipments of drives increase in capacity dramatically," she said. "Whereas in the recent past our main bread and butter was in the 540Mb market, in the past couple of months the 1Gb and 1.2Gb market has just been phenomenal. We're shipping thousands of these higher-capacity drives each month and the demand is coming from growth in both the consumer and business markets. The uptake of multimedia has been one of the major factors driving the demand for more storage. The bulk of our product is being shipped to OEMs with a smaller percentage going to resellers and the majority are 1.2Gb IDE drives."
Nagy said the increased production of high-capacity IDE drives has led to a decrease in demand for the higher-quality SCSI products. "Since Seagate has brought out the 1.6Gb and 2Gb IDE drives, people are choosing those ahead of the premium priced SCSI drives," she said. While there has literally been a doubling of storage capacity in the popular markets over the past 12 months, Nagy said ACA data indicates the upward trend is continuing. "The 1.6Gb range was introduced in the last six months while the 2Gb was brought in two months ago and we are actually seeing the 1.6Gb starting to pick up now," she said. "At the moment the price premium is inhibiting 2Gb acceptance but we believe that, as prices fall, demand will increase with a corresponding drop off of 1.2Gb products. Last year our ex-tax reseller price for a 1.2Gb Conner drive was $425, while a 540Mb was $265. Today a similar 1.2Gb drive is $240 and a 2Gb is $350." Nagy's predictions for the coming year include the opening up of 3Gb and 4Gb markets with 2Gb becoming the standard consumer choice by June 1997.
While the pace of change in the monitors market may not be as spectacularly obvious as in other peripheral areas, there has nonetheless been a noticeable shift towards higher-quality product, and 15-inch flat screens have become more affordable in the past 12 months. Multimedia monitors with inbuilt amplifiers and speakers have also made an appearance. The managing director of Mitac Australasia Pty Ltd, Frank Sheu, holds the view that users are increasingly opting for 15-inch monitors because of the general all-round drop in the price of PCs rather than a drop in the price of the monitors. "For a fixed price of say $2,999 in the past, a vendor could not include a 15-inch monitor but now that they can, our 15-inch sales have increased by about 30 per cent in the first two quarters of this year," he said. "While the demand for 14-inch monitors is still strong because of a very low price point, based on our shipping records I personally believe that by the end of this year we will be shipping roughly equal numbers of 15-inch and 14-inch monitors."
Sheu also sees 17-inch monitors as a big growth area, although at present they represent only 10 per cent of Mitac's monitor sales. "At the moment the retail price of our 17-inch monitors is about $1,200 or more but by the end of September we will retail a high-resolution multimedia 17-inch monitor for an end-user price of under $1,000," he said. "The 17-inch will start to occupy the space that 15-inch used to occupy because, for example, the cost of an NEC 15-inch monitor is probably around the $700 to $800 mark today. If they had a multimedia monitor it would probably be about $1,000. If we can supply a multimedia 17-inch monitor with a built-in amplifier and stereo speakers for less than $1,000, then we will definitely capture a lot of the 15-inch market. Currently our retail price for 15-inch multimedia monitors is about $650 and by the end of September we expect that to drop to $600. However, I believe that eventually the 17-inch monitor with 100 per cent view area will be the product of choice for all desktop PCs."
Other trends identified by Sheu include friendlier user controls, including on-screen displays and plug and play features. "A further point that I want to drive home is that multimedia will become a must for all monitors within 12 months," he said. "In our range at present we only charge resellers an extra $20 for a multimedia monitor with stereo speakers and a 3-watts RMS amplifier. We only introduced our multimedia range three months ago and they already represent 30 per cent of our sales." There is no doubt that the momentum that Microsoft is building in the corporate market with Windows NT will soon offset any perceived downturn in the PC market. When NT moves onto the client desktop in a big way - and indications are that this should happen within 12 months - then this resource-hungry 32-bit environment will force corporate users into a big-time revamp of their hardware, with the catchcry being: "more of everything please".