The One Laptop Per Child (OLPC) group said Thursday that it had raised the price for its hundred-dollar laptop to US$175, but were still confident they would collect enough orders to begin volume production by September.
OLPC now has orders for 2.5 million units, but needs to reach 3 million units by May 30 in order to give its suppliers enough lead time to fill the pipeline with parts, said OLPC founder Nicholas Negroponte in a meeting with analysts in Cambridge, Massachusetts on Thursday.
"We are at the most critical stage of OLPC's life," he said. "A year and a half ago, we were selling a dream, but it's easy to sell dreams if you're passionate and can share that passion with other people. But that was dreams, and now we've got to launch. We need three million units to trigger the supply chain."
The goal of the OLPC project is to create a durable, power-efficient notebook PC that is cheap enough for developing nations to use as a common classroom tool.
OLPC has distributed about 200 beta versions of its XO laptop to each of the seven countries that have committed to making bulk orders so far: Brazil, Argentina, Uruguay, Nigeria, Libya, Pakistan and Thailand. The group has also sent nearly 2,000 laptops to software developers around the world.
Negroponte did not say where the remaining orders could come from, but did say that Peru and Russia may join the group. He also said that he had fielded inquiries from the governors of 19 U.S. states including Florida and Massachusetts, a demand that has softened his previous resistance to selling the PCs in U.S. markets from "never" to "maybe."
If the group meets its sales goal, it will quickly boost production, reaching levels of 400,000 per month almost immediately after the September 20 launch date. Manufacturer Quanta Computer of Taiwan would produce 1 million laptops by the end of 2007, and 3 million within nine months of the launch, said Mary Lou Jepsen, the chief technology officer of OLPC.
Once they reach that volume production, the price will soon begin to fall again, since OLPC is a non-profit organization and has recently struck a deal with Citigroup's Citibank to handle the administrative side of the business, Negroponte said.
"The manufacturing cost of these laptops is $175. We'll charge maybe $176 to cover the cost of these offices. Usually 50 percent of the cost of a laptop is sales and marketing, distribution and profit, but we don't have any of those things," he said. He also pledged that OLPC would readjust the price every business quarter, leading it to drop about 25 percent within a year.
The price of most electronics drops about 50 percent every 18 months, Negroponte said he has learned from his experience on Motorola's board of directors. In response, most vendors add new features, hoping that consumers will pay at least the same price next year.
"But what happens with laptops especially is that you end up with a bit of bloat. My laptop has never been less reliable than it is now. It crashes three or four times a day, and I'm getting tired of the little sign saying 'Do you want to tell Microsoft about it?'
In contrast, OLPC designers will keep the XO design trim, holding its average power consumption between 2 watts and 4 watts. Instead of selling more expensive PCs, the group's business model relies on large scale sales, rising from 3 million to 5 million units produced in 2007 to a range of 50 million to 150 million in 2008.
Large PC vendors are growing nervous as OLPC nears its launch date, Negroponte said, pushing Microsoft to offer a US$3 version of Windows Vista and pushing Intel to create the "Classmate" notebook PC design for developing nations.
"Bill Gates said 'Get a real laptop,' but when your house doesn't have electricity, two watts is a real laptop," he said.