Passage Two ( 10 points ) I.B.M. and Dell Stake Out the Little Picture in PC's How can manufacturers survive the personal-computer price wars? Fight smaller battles. The strategy, called market segmentation, is the current fashion in the industry, as companies selling look-alike boxes for the mainstream desktop market try nonetheless to carve out distinctive niches. By tailoring computer offerings to different customers at different prices, the theory goes, the skillful producer can narrow the field of competition and eke out a profit. Today, in separate announcements, the International Business Machines Corporation and the Dell Computer Corporation will make their latest efforts to slice off profitable pieces of the personal-computer market. I.B.M. is starting a stand-alone subsidiary, the Ambra Computer Corporation, that is to design and market computers for sophisticated customers eager for the latest technology. Ambra's management calls these customers "enhanced buyers," who have seven years or more experience using computers and represent more than 20 percent of the PC market. “Ambra is the furthest extension of I.B.M.'s market-segmentation strategy in personal computers that began last year,” said Richard Zwetchkenbaum, an analyst with International Data Corporation of Framingham, Mass, another Step in Rebuilding. Last fall, after extensive market research, I.B.M. overhauled its troubled PC business by forming a separate entity, the IBM Personal Computer Company, that was then split into units, each focusing on different markets from home offices to various types of corporate customers. Ambra takes the small-company management model a step further. Its headquarters in Raleigh, N.C., will have a staff of just 60 -- a small team of planning, design, marketing and finance experts. It will buy components and products from Intel, Acer and Wearnes Technology, as well as from the parent I.B.M. Manufacturing will be farmed out to SCI Systems of Huntsville, Ala. Customers will order Ambra machines by calling an "800" number, and Merisel Inc., a Los Angeles-area telemarketing specialist, will handle sales and process orders. The 16 models being introduced today range in price from $999 to $4,999, with the most expensive machine equipped with two of Intel's new Pentium chips, enabling the computer to do three-dimensional modeling for animation or product design. Ambra intends to upgrade its product lines every three or four months, instead of the typical six-month intervals. "That's setting a new pace for the industry," said David Middleton, Ambra's president, who was recruited from NEC, where he served as an American marketing executive. I.B.M. has used the Ambra brand name in Europe and Canada for nearly a year, on budget computer products. The American company, selling the computer industry's equivalent of "muscle cars," is separate from the foreign business. Gateway 2000 Inc., a direct seller of personal computers based in North Sioux City, S.D., has done particularly well with PC sophisticates. And Ambra, says Bill Ablondi of BIS Strategic Decisions, a research firm, is I.B.M.'s attempt to "hit Gateway between the eyes." Dell Casts a Wider Net Dell is introducing three lines of desktop computers that represent its version of a market-segmentation strategy, also based on customer research. Despite the recent problems with notebooks, Dell is doubling its sales of desktop machines this year. But the new offerings are an effort to more closely tailor machines for specific customers -- from standard office workers on computer networks to the technical wizards. The idea, Dell managers explain, is to give different customers what they want, no more and no less, at the price they are willing to pay. The assumed payoff for fine-tuning sales is a further increase in volume, while making a few dollars more profit on each machine sold. "We're using marketing know-how to build a business strategy that is not just based on cutting prices every few months," said Rob Howe, a senior vice president for marketing. The new Dell products range in price from $1,349 to $3,749, including high-powered machines equipped with compact-disk players that are aimed at the same computer sophisticates being sought by Ambra. Market-segmentation tactics, some industry experts say, may help bolster manufacturers' profits slightly, but will provide little real relief from the industry price war. “The fact is there's very little a company can do to differentiate its products from others,” said Seymour Merrin, a consultant in Palo Alto, Calif., “and any differences won't last more than a few months.”