Unlike their contemporaries in the software market, for example, hardware manufacturers must contend with the tangible barriers of the physical world. PCs are made from things like plastic, silicon and metal. By contrast, a software developer theoretically could get by with a couple of floppy disks and an Internet connection. If all the components are in heavy supply, it is possible to make a buck or two above costs, he said. Companies can sell Internet appliances for less by chopping off drives and using outdated and often discontinued processors, but the cost of true PCs just isn't going down, he said.
Components improve Rather than a continuing spiral in price, consumers get better parts.
What has changed is the speed. Today, the cheapest chip is a 500-MHz Celeron. A year ago, the cheapest chip was half that fast. Because a 266 MHz costs nearly as much to make as a 500 MHz, according to analyst reports, Intel merely terminates the slower models. The list price doesn't necessarily reflect what companies are paying.