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PCs going back to school
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August 7, 1998: 4:12 p.m. ET
Computer makers are hoping more alternatives will increase sales
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NEW YORK (CNNfn) - As students across the country are preparing to go back to school, the nation's leading computer makers are hoping their products will go with them.
Next to Christmas, the back-to-school season is the busiest time of the year for computer makers.
What has traditionally been a strong time of the year is being helped by the fact that Internet connections in college dorms are becoming common. Parents of younger children also are turning to the computers and the Internet as a learning tool.
Variety of choices available
Both groups are helped by the fact that the price of computers is dropping steadily. Parents willing to part with just over $1,000 now have a variety of choices from PC makers, including Apple Computer Inc.'s newest entrant, the iMac.
Mark Sargent, PC analyst with market research firm Computer Intelligence, said 1998 brought a large push into low-cost computers and education has been a big part of that.
"I think 1998 is definitely going to see a push into the low-cost area. There will be additional bundles in household education. There will also be low-cost portables for high school and college students who see that as a necessary component," he said.
The main reason prices are coming down, Sargent said, is lower component costs. The biggest factor in that drop is that processors made by Intel Corp. and competitors Advanced Micro Devices Inc. and Cyrix Inc. are continually getting cheaper.
"The component costs are coming down, partly because AMD and Cyrix are gaining strength and forcing Intel to lower its costs," he said.
Adam Hanin, manager of higher education for Compaq Computer Corp., (CPQ) said there has been a dramatic increase in PC sales in the back-to-school time frame.
"We usually start seeing an increase in late July and the beginning of August because that's when students really begin to think about what they need," he said.
Cheap PCs may not be for everyone
Hanin said although sub-$1,000 computers are very popular, a little more money will often get you a lot more.
"There are a number of things to think about. An entry-level machine is great for a variety of users, particularly connecting to the Internet. But on college campuses, particularly if a student's moving to a dorm, they need [network] capabilities. Those come in just over $1,000," he said.
Although any new computer will enable users to connect to the Internet with a modem, hooking up a dedicated Internet connection requires special network cards that add just under $100 to the price.
"One thing that I hear over and over from students, parents and campus stores is that entry-level is attractive, but when people think about what they need, they want to be well prepared for the future. That's a four- or five-year period, on average," he said.
Apple, which for a long time had the educational market practically wrapped up, is making a renewed push in that sector with the iMac, which will hit store shelves Aug. 15.
The iMac will retail for $1,299, although students will receive a $50 discount and teachers a $100 discount.
John Santoro, an Apple (AAPL) spokesman, said the iMac's built-in-networking capability reflects the fact that the Internet is one of the biggest trends in education.
"Major universities are doing a huge portion of their transactions with students over the Internet, such as signing up for classes. At many Ivy League schools, every professor has a home page and every student is connected to e-mail. So how well your computer deals with the Internet is a key issue," he said.
Colleges give iMac nod
Several universities including Dartmouth College and the College of Wooster, are specifically recommending the iMac to students. Yale University also recently added its recommendation and Stanford University also recommends the iMac for its students who prefer a machine other than a PC.
Dartmouth is one of the few colleges in the United States that require its students to have a computer.
The iMac's unique design includes a closed case, which means no additional expansion slots are available. It also has no floppy disk drive, although Santoro said the low cost of portable storage like Iomega Corp.'s (IOM) Zip and comparable devices from Syquest Corp. (SYQT) make that less important.
For computer makers, one drawback to the popularity of low-cost computers is lower margins. That translates into less profit from each machine sold.
Not surprisingly, computer makers were unwilling to address margins and pricing policies. However, they insist they can compete and still make money.
Apple's Santoro said the absence of expansion slots and other design differences in the iMac help that product's margins.
"The Apple brand's strength and reputation for ease of use also helps. We're in a position where we can command a higher margin. On the PC side, prices are as low as $700. They're taking established technology and trying to squeeze sales out of it. We're selling tomorrow's technology in the iMac," Santoro said.
Hanin downplays Apple's tie-ins with specific colleges and universities, saying such arrangements have always existed in the education market.
He said the market is very decentralized, with professors and others free to select whatever machine they want.
Hanin said Compaq has marketing efforts targeted specifically to students as well as competitive pricing policies in the education space.
"We've created special promotions that really differentiate us. We're probably most creative in the education space," he said. 
-- by staff writer Cyrus Afzali
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