Is the $100 PC, Monitor Included, On the Way?

(MoneyWatch)  Given current street prices on low-end PC components, manufacturers could probably build and sell a $100 PC, including a monitor, shattering the current PC price floor. Chances are that it will happen within the next 18 months.

The first part of this realization stemmed from an observation by Marty Winston, long-time industry insider and editor of Newstips, a newsletter that goes to thousands of reporters. I was chatting with Marty and he mentioned that it was possible to put together a computer for about $200 retail -- under $300 if you wanted to include a monitor. Marty was wrong: it's cheaper. Here are his specs, plus one addition:

• Intel D945GCLF2/D945GCLF2D with Atom processor: $82.
• Winsis Wi-01 Mini-ITX case and power supply: $39
• Seagate Barracuda 7200.11 SATA 3Gb/s 160-GB Hard Drive: $40
• PNY 2GB (2 x 1GB) 240-Pin DDR2 SDRAM DDR2 667: $22
• LITE-ON iHAP122 22X DVD±R: $21
• White box keyboard and mouse: $6 + $4
• CHIMEI CMV 633A Black 16" 8ms Widescreen LCD Monitor: $85
• Ubuntu OS and applications: $0

Total of $278, or $193 for the PC only. And Marty hadn't even included a DVD in his original list. Granted, these aren't necessarily your first choice in parts, and you wouldn't necessarily get great performance, but the idea is to see just how little it can cost for the average person to put together a complete computer.

If consumers can piece together a machine at this price, how much better can PC vendors do? Common sense suggests an answer of significantly. More specifically, Joanne Friedman, CEO of analyst firm ConneKted Minds says that markup on retail parts is at least 200 percent to 300 percent. So for the $266 PC with monitor, the vendor cost is probably under $90. Add a ten percent markup, which would be high for the industry, and you've got a $99 computer, with monitor. There are a few conclusions to draw.

• Prices will continue to drop. Friedman says that consumers could be seeing the $100 PC "within 18 months," though she thinks that inexpensive but powerful mobile units will eventually rule the consumer's attention.
• Even adding a Microsoft operating system, the cost to the vendors would be, what, $150? To say this differently, manufacturer margins as a percentage of price for low-end PCs may be a whole lot higher than people have generally thought, as in double-digits.
• Microsoft is going to feel increasing pressure on pricing and even the perceived need to have Windows on PCs, because its OS will end up becoming the single most expensive component, and one that is increasingly replaceable.

Cash register image via stock.xchng user bakuninja, standard site license.