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Gateway CEO wrestles Intel over chip

CEO Ted Waitt's comments highlight conflicts the chip giant faces in bringing out Celeron.s

Gateway chairman Ted Waitt sees at least one obstacle in the path of greater success for the low-cost Celeron processor and, oddly enough, it's Intel--a paradox that highlights the conflicts the chip giant faces in bringing out a cheap processor that performs as well as its premium line.

Intel announced new and improved Celeron chips just last week but must reconcile this latest release with the chip's checkered past and the current line of Pentium II processors.

"They don't want to position Celeron as being too good because they want to maintain the premium for the Pentium II," Waitt is said to have told a group of Wall Street analysts yesterday in a mid-quarter conference call. "It is the best value out there for the $1,500 price range."

Waitt's comments reflect changing market opinion about the much-maligned Celeron technology as well as the dilemma Intel confronts in marketing the new chip. Several analysts have previously pointed out this dilemma between the Celeron and the Pentium II, but Waitt is one of the most notable high-tech executives to put his finger on the problem.

In a nutshell, the 300-MHz and 333-MHz Celeron chips perform roughly on par with higher-end Pentium II chips running at the same speeds. The bone of contention for users and PC manufacturers alike is that despite this speed equivalence, the price gap between the processors is significant.

The 333-MHz Celeron, for instance, sells for around $100 less than its Pentium II counterpart, while the 300-MHz Celeron comes at a $60 discount.

During the call, Waitt said that Gateway has been "fighting somewhat of a battle" with Intel over marketing the product. In Waitt's eyes, the chip represents a strong value for consumers. The 333-MHz Celeron, he said, outperforms the 300-MHz Pentium II. Because the chip sells for less than Pentium II 300, however, Intel has been less enthusiastic about putting its marketing muscle behind it.

An Intel spokesman disputed Waitt's comments, stating "we have been promoting Celeron quite a bit" with computer vendors, retailers, and customers. "Is it a great processor? Absolutely."

Other sources pointed out that the equivalent Pentium II processors are being phased out by Intel, so little competition between the Pentium II and Celeron lines actually exists. In addition, Intel will improve the Pentium II next year by implementing the same changes it just made to the Celeron.

The Santa Clara company will also release a series of faster standard Pentium II chips. Currently, the fastest Pentium II runs at 450 MHz.

Nonetheless, Gateway is capitalizing on Intel's apparent ambivalence. The company has taken one of its 300-MHz Pentium II computers and turned it into a 333-MHz Celeron machine, but has not dropped the price.

Celeron's history has been colorful. Last fall, Intel announced at its analyst meeting that it would release a chip based around a Pentium II core to serve the exploding low-end computer market. In April of this year, Intel debuted a 266-MHz Celeron processor, which the company followed with a 300-MHz version.

Although fast in terms of clock speed, the performance of these chips was hampered by a lack of secondary "cache" memory. Cache is essentially a small data reservoir that helps ensure the processor has a continual stream of data. Standard Pentium II chips have always come with extra cache memory.

Without any cache, the first Celeron chips performed relatively poorly compared to Pentium II and even Pentium MMX chips.

Intel cured the problem with the new Celerons by including 128K of secondary cache integrated into the same piece of silicon as the processor. While smaller than the amount of cache on Pentium II chips, integration makes it twice as fast.

In the end, various analysts have said that the integrated Celerons perform almost as well as Pentium IIs running at the same clock speed. MicroDesign Resources stated in a recent report that only a five percent performance difference exists between 333-MHz Celerons and 333-MHz Pentium IIs.

Intel executives estimated a ten percent delta exists.

Intel is an investor in CNET: The Computer Network.