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March 2, 1999

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Subject: Re: Where are all those DELL chirpers now?
Author: Flavius

Let's step back for a second and look at bigger trends. The power of the computer is no longer the driving force behind sales, it's price.

Remember when the Pentium came out, the criticism was that no one was going to need that kind of power because the 486 could easily run Windows, spreadsheets and word processors. But multimedia, games and Windows 95 drove people to buy Pentium-based machines because 486s choked on these killer apps. That additional demand opened up the opportunities for the box makers to create more powerful machines so that they could run more demanding applications more efficiently. And the masses wanted that power.

"...right now, the killer app is the Internet and instead of more processor power, the masses really want faster access."

But right now, the killer app is the Internet and instead of more processor power, the masses really want faster access. Microsoft knows this. Heck, even Intel knows this and that's why they're trying to build IDs into chips (with much backlash). Intel knows you don't need a Pentium III to surf the web, but their trying to give people a reason to justify spending the extra money to buy one. Now, bandwidth is more important than processor power, and that means the masses want faster modems with bigger pipes. Whatever comes down those pipes can easily be handled by a Pentium II 200. So the money flows to network equipment, bandwidth and servers and right into Cisco's (and Sun's) pockets. For the box makers, they are commoditized. All they can do is compete on price which will continue to drive down costs and, as has already been pointed out, will increase Net traffic -- cheaper computers means more people on the Net.

"So the money flows to network equipment, bandwidth and servers and right into Cisco's (and Sun's) pockets."

So for the box makers, the future looks grim and until the next PC-centric killer app comes out that will make people upgrade and justify higher prices, the cost of PCs will continue to plummet (and so will profit margins). Until then, buy and hold as much CSCO as you can.

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