EMachines Goes Public, Will It Survive?

BOSTON (03/24/2000) - Low-price desktop PC vendor eMachines Inc. went public today, trading on the Nasdaq exchange under the symbol EEEE.

After getting off to a slow start, mid-day trading volume in eMachines surged to 11 million shares, with the share price hovering just below the US$9 offering price, according to the NASDAQ Web site. The company's initial public offering (IPO) is for 20 million shares of common stock.

The retail market for low-price PCs has been a hot one, but some companies have already bailed out of the market or been acquired. EMachines itself announced in February that it was halting its free Internet access offer, meant as an inducement to consumers.

But analyst Bruce Stephen of International Data Corp. (IDC) in Framingham, Massachusetts, expects that eMachines will survive.

"First of all, they've established a good position in the retail channel," he said, adding that IBM Corp., Acer Inc. and Packard-Bell NEC Corp. all have pulled out of selling in the U.S. retail market.

The company also hasn't had "quality knocks against them," although eMachines has faced lawsuits from Compaq Computer Corp., alleging patent infringement, and Apple Computer Inc., alleging unauthorized use of the iMac computer design.

By and large, consumers don't care about such legal matters, Stephen noted.

"There has been no consumer backlash against them," he said of eMachines.

While there has not been a concerted consumer campaign against the company, various IDG publications have reported on individual complaints including problems with warranties. [See, "Cheap PCs Come Under Fire," Sept. 14, 1999, PCWorld Online and "Column: The Gripe Line: What's Behind a Free PC," Sept. 18, 1999, InfoWorld.]Whatever problems some consumers might have reported, eMachines has climbed in its rank among retail PC vendors and further has continued to ship more units each quarter, based on figures tracked by IDC. In the fourth quarter of last year, eMachines shipped 610,056 units in the U.S., compared to 150,000 units in the comparable quarter a year before.

The company has "a potentially interesting business model because it's not about their potentially thin margins," Stephen said. "They've got a lot of other potential revenue sources."

The vendor strikes Internet advertising and marketing deals with other companies, leading to a new kind of hardware business model in an industry in which models are rapidly changing.

"I think the bottom line is they will be around," Stephen said.

EMachines is a joint venture between South Korean PC maker TriGem Computer and display maker Korean Data Systems Co. It has offered computers, without monitors, for as low as $399.

EMachines, based in Irvine, California, can be reached at +1-714-505-5001 or http://www.e4me.com/.

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