Like mainframes, PCs are here to stay, experts say

By Chris DriscollGCN StaffDo sub-$1,000 PCs, thin clients and handheld computers stand a chance of toppling the PC from its king-of-the-hill position on federal desks?Radical changes have been under way for some time in manufacturing techniques, sales strategies and device types sold to the government. As chips drop in cost, the heavy downward pressure on desktop PC prices has left some leading makers with low to no profits.So far, however, thin-client alternatives have attracted little federal interest, said Jim Kerrigan, president of Colmar Inc., a Reston, Va., company that tracks federal computer spending.'I did a [thin client] study a couple of years ago, and at the time most government people didn't know what I was talking about,' Kerrigan said. 'It's gotten a little better now, but I haven't seen any significant move.''' Kerrigan said the so-called free PC phenomenon, under which several online providers have begun giving away full desktop systems with long-running Internet service contracts, is similar to the thin-client situation.'' 'It's certainly possible that [free PCs] could come along in the government,' he said, 'but there are significant communications costs. Whether it will catch on to a large extent depends on the cost of communications vs. the cost of PCs.'Kerrigan said the thin-client network computing model pushed by IBM Corp., Oracle Corp., Sun Microsystems Inc. and others does offer cost advantages but fails to fit the needs of most government users.'Sun and IBM aren't going to be happy with me, but I just don't see it happening,' Kerrigan said.Federal users prefer the freedom to store files locally, transfer them to disk and carry them around, he said.Based on Kerrigan's surveys, he estimated the federal government in fiscal 1998 spent $1.3 billion on PCs and $528 million on workstations. Kerrigan's preliminary fiscal 1999 projection is a slight rise to $1.37 billion for PCs and $554 million for workstations.'' In comparison, his fiscal 1996 estimate was $1 billion for PCs and $440 million for workstations, and in fiscal 1997, $1.2 billion for PCs and $630 million for workstations.'' Despite the rise in total spending, federal suppliers such as IBM, Compaq Computer Corp. and Micron Electronics Inc. of Nampa, Idaho, are all struggling with lowered revenues from PC sales. Dell Computer Corp., the leading direct seller, finds that its government and other customers turn increasingly to online buying channels to get lower prices, said Danny Young, Dell's director of marketing for OptiPlex products.Dell recently cut some OptiPlex prices by as much as 17 percent, bottoming out at $798, and Compaq made 11 percent across-the-board cuts for all its desktop PCs on General Services Administration Information Technology Schedule contracts.How long can PC makers go on this way?Intel Corp. chairman Andy Grove has predicted that many of the big PC makers will survive, but not as PC makers. He and others see servers and communications devices becoming the focus of future business.For the present, the biggest price cuts are for off-the-shelf components and less expensive models, said Mark Amtower, president of Amtower & Co. Federal Direct Marketing of Ashton, Md.The price cuts, Amtower said, 'are not for the cutting-edge stuff. Is the government going to get lower prices out of it? Sure. Are the channel players going to have to play the same game? Probably, but they don't have as much flexibility in lowering prices as Micron, Gateway or Dell,' the three top direct marketers.Kerrigan said he agrees with Amtower's belief that the government is turning away from high-priced, cutting-edge computers to the sub-$1,000 range. 'A clerical worker who needs word processing and a spreadsheet and Internet access doesn't need a Pentium III,' Kerrigan said.Less costly microprocessors such as Intel's Celeron and clone processors from Advanced Micro Devices Inc. of Sunnyvale, Calif., and Cyrix Corp. of Richardson, Texas, are winning federal confidence, he said.The king-of-the-hill PC still has its staunch defenders. Speaking at PC Expo in June in New York, Dell chairman Michael Dell said, 'People have been predicting the demise of the PC for years, and they've been wrong for years.'The PC's significance, Dell said, will grow with the proliferation of computing appliances for wireless communications, paging, schedule management and basic Internet access. In a networked world, he said, the PC is at the hub, and the Net will increasingly drive demand for computers of all types.'' 'As broadband service becomes more pervasive, the only remaining logjam between users and an incredibly rich online experience will be on the desktop,' he said. 'I'm convinced that huge numbers will upgrade their PCs over time to fully exploit the technology.'