H-P and Dell Playing Lowball Poker With PC Prices

"We've come out with a lot of synergies from the merger with Compaq, and we can pass the savings on to the consumer," says Mark Sanchez, H-P's vice president of consumer computing for North America. "The bottom line is that the consumer benefits from the fact that we have economies of scale from the folks we buy from."

He declined to comment on a comparison of the two companies' operating expenses.

It's worth noting some analysts have a more positive stake on H-P's hardware prospects. "I firmly believe H-P will be gaining share in Q3 and Q4 in the PC market, and doing quite well in back to school as well as enterprise," says Lehman's Dan Niles. "I don't see [the back-to-school promotion] as a big profits issue." Lehman has done recent banking for H-P.

The $499 deal is likely most useful in simply attracting potential customers to retail stores, he says, noting that the computer offered is a relatively bare-bones model. "It will get a lot of customers thinking, then maybe they'll get into stores and get upsold," says Niles.