Some say at $599, price points have bottomed out and engineers will now move back to a more familiar scenario of bundling ever more features into new models at the lower price points. Others foresee the dawn of a family of even lower-cost dedicated information appliances on the near horizon.

"The demand for lower prices is slowing and that's good for all of us," said Jan Janick, vice president of development for IBM's client PC systems. "There are less and less places where you can take cost out of a PC."

Janick should know. IBM made hay this year with a $599 consumer PC. It hit its low price point largely by building in trailing-edge components such as a Cyrix M II processor, a 3.2-Gbyte hard drive, using fewer expansion slots and by integrating audio and modem circuitry. "There's not a lot left on the board," Janick said. "The price points are here to stay, but now we will start putting new capabilities into these price points. That's the new trend."

Simon Lin, president and chief executive officer of Acer Inc., based here, agreed to a point. He sees the functionality of the PC as more important now than strictly price. However, Acer has long been a proponent of the idea of sub-$400 dedicated-use machines. "Our 'XC' machines will be in the marketplace in the late first quarter, early second quarter of 1999," said Lin. "Our focus for these $300 machines isn't so much cost, but performance."

Acer's XC program envisions dedicated machines for specific tasks like commerce, education and entertainment. In fact, Lin foresees a limited future for the standard PC. In the future, he said, it is "quite possible" that PCs as we now know them will not be a viable product.

Acer is considering using Windows CE or another operating system in its XCs, said Rick Lei, general manager for Acer's Consumer Products/Information Products Groups, but otherwise the hardware will be fairly standard, if streamlined, PC parts.

"We will use different mainboard form factors as well as different software and component configurations for each of the different XC products, said Lei. "Significant costs can be saved by using small, bare-bones mainboards with just the necessary components.

"Our entertainment XC will have a mainboard with only the necessary CPU, graphics functions, an x20 CD-ROM and game-controller I/O," said Lei. "The CPU . . . will not be an unusual component, but rather a standard X86 CPU."

By contrast, Acer's commercial XC — a network terminal — will use Ethernet and possibly a smart-card interface. An education XC may build in a floppy drive and a low-cost, low-power 25-watt power supply.

At the $500 level and below, Acer's Lin sees ease of use being an important feature. "Ease of use plus the functions offered are key," said Lin. "Price is the third consideration. For the OEMs the ability to cut the cost of sales and service is essential. That means that the PCs must be easy to use."

Acer was one of the first to pioneer the $500 PC. "Two years ago, when we introduced the Acer Basic at $500 we had to sacrifice functions," said Lin. "Now it is possible to offer a full-function product at that price point. It's not the price point that is so important. What is important is that full functionality can be met at a low price point."

Acer does not make a sub-$500 PC for any of its OEM customers, but First International Computer (FIC) does. And that company suggests there are significant trade-offs — including profitability — to be made at such a low price. "Our basic bill of materials is about $350," said Jason Kuo, OEM sales manager for FIC. "That's $100 for a motherboard with on-board audio and video, $100 for a hard drive, and $150 for a Cyrix MediaGX and 32 Mbytes of memory. An AMD K6 is too expensive, much less an Intel solution."

Other CPUs like those from IDT and Rise are not yet popular here. Kuo said that FIC is not using IDT's CPU "yet." Some smaller Taiwanese PC vendors are, however. "We do have some customers who are using IDT's CPU with our MPV3 or MPV4 core logic," said Sean Davidson, marketing manager at Via Technologies Inc. "Both core logic chip sets support any company's Socket 7 CPU. The difference is that the MPV4 has integrated hardware video and software audio and modem support."

CPU price is now but one factor for would-be sub-$500 PC makers. "As the OEM squeeze us on price, we must go back to all of our vendors," said Kuo. "We are spending more time developing suppliers now. We are relying more and more on components from mainland China."

The move below $400 is now the level where major trade-offs need to be made. "At below $400, a Windows 9X solution just isn't possible," said Kuo. "You have to begin then looking at Windows CE." At least one major CPU vendor agrees. "Any PC below $400 has to go to CE," said Stan Swearingen, vice president of marketing for Cyrix Corp. "At that price level, Windows 98 is the most expensive component."

A top engineer at another U.S. PC company took a different view. He said the real business crunch for PC makers these days comes not so much from the limbo dance on prices for the low-end systems, but from the collapse of prices for high-end consumer systems. "Last year our top-of-the-line system cost $2,700, but this year the high-end model sells for $2,080," said the engineering manager, who asked not to be named. "Our overall ASPs [average selling prices] went down 150 percent in the last two months, and we in the direct market haven't seen the end of this yet."