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Intel cuts chip prices up to 40%

The leading chip maker slashes Pentium II prices up to 24 percent and Pentium prices up to 40 percent.

Intel (INTC) announced price cuts on its processors ranging up to 40 percent, pushing high-end PC pricing down to the middle of the market and further intensifying competition at the low end.

Effective today, the price for a Pentium II, Intel's premier chip, running at 266 MHz will fall 21 percent from $669 to $530. Some consumer systems with this chip are already approaching the $2,000 level.

The 233-MHz version of the Pentium II, already beginning to show up in a number of systems below the $2,000 price mark, tumbles 24 percent to $401 from $530. Based on today's cuts, pricing for 233-MHz Pentium II systems will continue to fall.

Intel processor price drops
Processor % decrease
266-MHz Pentium II 21%
233-MHz Pentium II 24%
233-MHz?MMX Pentium 22%
166-MHz MMX Pentium 23%
200-MHz Mobile MMX Pentium 20%
166-MHz Mobile MMX Pentium 22%
133-MHz Mobile MMX Pentium 40%
Source: Intel

This brings personal computers with Intel?s top-of-the-line chips below the $2,000 price point in record time. Previously, this took years to occur: With the Pentium II it has happened in a matter of months.

Intel?s fastest chip, the 300-MHz Pentium II, is now priced at $738, down from $851. Like all other Pentium II processors, it comes with 512K of cache memory built in, to speed system performance.

Pentium Pro pricing did not change.

Price cuts for Intel's venerable Pentium chip line were also aggressive.

The desktop PC version of the 166-MHz Pentium with MMX technology plummeted 23 percent to $112 from $145. This should further accelerate price competition in the sub-$1,000 PC market, one of the hottest market segments today.

The price of the desktop version of the 233-MHz MMX Pentium declined 22 percent to $300 from $386.

The new extra-low-power 120-MHz MMX chip for mini-notebooks is priced at $106. Mini-notebooks are a new category of ultrasmall portable computers from companies such as Toshiba and Mitsubishi.

The 200-MHz MMX Mobile Pentium for notebook PCs fell 20 percent to $423 from $530, while the mainstay mobile 166-MHz MMX Pentium was reduced 22 percent to $273 from $348.

The mobile 133-MHz Pentium with MMX dove 40 percent to $106 from $177, making the chip a likely candidate for sub-$1,500 and sub-$1,200 notebook PCs.

The 133-MHz "classic" Pentium (without MMX) is priced at $85.

Intel has been aggressively trimming chips prices this year: Pentium II prices have dropped over 20 percent since the first quarter while Pentium MMX prices have dropped over 60 percent.

Avg. desktop price declines, May-Aug.
Pentium II: 36%
Pentium Pro: 4%
Pentium MMX: 13%
Pentium: unchanged
Source: Computer Intelligence
In addition to the explosion of the sub-$1,000 PC market created by Compaq and Packard-Bell, high-end computers with the newest and fastest chips--historically costing well over $3,500--are being pushed down to below $2,000 in some cases.

The phenomenon demonstrates a radical shift in PC pricing. Increasing customer demand for cheaper computers, combined with improved manufacturing efficiency, competition over market share, and accelerating processor price cuts from Intel and others are conspiring to raise the performance-price bar on a weekly basis.

The good news for consumers: it's likely to continue.

While price cuts aren't new to Intel, discounting has clearly accelerated the trend in comparison to previous generations of Intel chips. At major, top-tier PC vendors, it took the 486 chip about three years to get into sub-$2,000 computers and about two years for the Pentium to finally make its way to sub-$2,000 systems, noted an Intel spokesman. Amazingly, with the Pentium II, Intel's newest chip, this has happened in less than six months.

"The $2,000 price point is kind of a driver" for the Pentium II market, said Jeff Moeser, vice president of the desktop group at Micron. "You will see some pricing on action on [266-MHz Pentium II and 300-MHz Pentium II] machines coming up."

On one end of the spectrum, vendors such as Compaq, Hewlett-Packard and Digital have been cutting prices to get both business and consumer computers under $1,000.

Intel in an investor in CNET: The Computer Network.