In 2006 The PC Industry Shrunk and Prices Went Up

$8,885 For A Gaming PC With Old Hardware?

Its getting around that time of the year where we look back and reflect on the things that happened during the previous. One year ago to the day I posted an editorial that talked about being a smart consumer and to keep the ‘electronics envy’ bug under control. For the most part I hit the nail on the head with 2006 being a really expensive year for enthusaists and a number of products were released that were worth skipping. I even pointed out that key players were leaving ATI, but I missed the signals of the impending merger that would happen this past year. A number of big changes have taken place in the hardware industry in 2006 and I have had the honor to be on the sidelines and watch them happen. Twelve months ago I wrote that 2006 would be an expensive year for enthusiasts and I think I was spot on, but that raises the question is that are the prices getting too high?

Is it just me or does it seem that prices on computer hardware seem to be getting out of hand? With $800 video cards, $600 power supplies, $650 memory kits and $1000 processors, building a top end gaming system with all the latest technology will easily set you back $5,000 doing it yourself! If you want that computer built for you then you better be willing to cough up at least $8,000 for the same system in a fancy case that has some clear coated automotive paint on it. This leaves the true gamers and enthusiasts high and dry because Joe Gamer cant afford to spend $5,000 to $10,000 on a gaming system. If these numbers seem too high to believe run over to Dell and price out a loaded-to-the-gills XPS 710 Desktop PC and you’ll be amazed just how high the price goes. I forgot to add in a printer and all the networking hardware to my dream machine and still managed to piece together a system at $8,885 that had a preliminary ship date of 3/9/2007! Isn’t that over two months away? By then, the already dated pair of GeForce 7950 GX2 will be old news! To make matters worse, a pair of the NVIDIA GeForce 8800 GTX graphics cards aren’t even an option! So for $8,885 you can get a system in two months that has a set graphics cards that can’t hang with a pair of 8800 GTX’s as we showed in our review of them. For that much money it better come with the best of the best and have some killer features.

I know that I cant speak for everyone, but my day revolves around sitting in front of the PC from the time I get up till the time I give up on the list of things to do and crash on the couch. Ive found myself playing console games more and more because its different and something I can do laying on the couch without a screen two feet in front of me. Another bonus of console gaming is the fact that the hand movements for console gaming are different than PC gaming, which is a plus for those that get joint pains from working on the PC (we arent getting younger). After looking at the price tag on a high end gaming system, a $300 Microsoft XBOX 360 and the $250 Nintendo Wii dont seem too expensive after all, plus they offer online play and dont need hardware updates like PCs. What am I talking about… I’m a PC gamer, but that doesn’t mean I can’t play everything.

Not only are the prices getting higher, the number of players in the industry has drastically shrunk in 2006. Take the system integrators, for example. Privately run system integrators like GamePC, Alienware, Falcon Northwest, All American Computer, Monarch Computer and VoodooPC have all either bought up or closed their doors. On September 28, 2006 VoodooPC founder Rahul Sood announced that HP would be acquiring VoodooPC for an undisclosed amount. This came just months after Dell agreed to purchase Alienware on March 22, 2006. After two of the three leaders in custom built gaming systems were sucked up, Falcon Northwest was the last one standing. Falcon Northwest is now crowned the best-known indie PC vendor here in North America. While Alienware, Falcon and VoodooPC did well in 2006 it seems that GamePC, All American Computer, and Monarch Computer didnt.

While All American Computers and Monarch PC locked the front doors of their shops for the last time the companies that were swooped up are far from hurting. Alienware has access to Michael Dell’s deep checkbook and Voodoo has the keys to the HP R&D kingdom, so where does that leave the other companies trying to survive? In all honesty it looks like they are in a jam. All American Computer was albeit a small system builder, but they designed some of the best gaming computers that I have seen. They designed their own computer chassis and for years have even built the display systems that companies like AMD and ATI use for trade shows like the Consumer Electronics Show (CES) and dozens of LAN parties in America. Even with all the backing and shows having their systems on display they had to close their doors last week. In a day and age where the big companies are selling systems for less than the parts cost consumers to build on their own, it seems the days of start up system builders are over. That doesnt mean Dell and HP are having a good year as Dell and HP is down for the year on the stock market.

When it comes to the hardware industry it seems to mirror the system integrators for the most part. Other hardware companies that play a role in the market that are also down in 2006 were Creative, Gateway, Lenovo Group Limited, Marvell and Sony. AMD, ATI, Intel and NVIDIA have been the big four for years, but after AMD purchased ATI it seems the big four is now the big three. How have the big three done this year on the stock market? While AMD has often been in the news and just plunked down $5.4 billion for ATI they are down ~29% for the year. Intel has had a tough couple years when it comes to enthusiast processors, but even with core 2 duo and core 2 quad kicking serious AMD ass they are down ~16% for the year. It seems that AMD and Intel would like to forget 2006 and the price war that they are currently fighting. NVIDIA on the other hand has had a very good year and ended 2006 up over ~80%!

With AMD buying up ATI the number of players in the chipset industry just got smaller in a time where motherboard components are becoming more integrated. AMD’s announcement of Fusion (CPU/GPU on a single piece of silicon) paints a picture where future computer systems will have more and more things taking place on a single piece of silicion. With ATI being purchased by AMD and Intel doing their own integration internally it leaves NVIDIA all alone to do as they please. Seeing how NVIDIA’s stock gained big ground in 2006 (~80%) it seems like shareholders are glad by the news. With the GPU and CPU becoming one, what does that leave? It leaves the NIC, audio and RAID controllers left for motherboard makers to choose what can be used. That means tough competition between the motherboard makers and the possibility that those controllers will someday be integrated together if snatched up by one of the big three!

What fortunes or hardships will 2007 bring? Only time will tell, as no one correctly predicted all the events that happened in 2006! My guess is that the consolidation trend continues and there is a slight rebound in the market thanks to Microsoft finally releasing Vista. This will ‘force’ many consumers to upgrade out-dated PCs that they bought when Windows XP came out over four years ago. Oh, and in case you didn’t notice, Google is starting to take over everything software based and it’s highly likely that they will continue the trend in 2007!

Hope 2007 is off to a great start!