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New Xeon, price cuts for fall

The release of the latest version of Xeon will be followed by price cuts on Intel's server and desktop chips slated for October 25.

A cavalcade of workstations and workgroup servers based around 450-MHz Xeon processors from Intel will be announced the week of October 5 when Intel releases its latest chip, but buyers might want to hold off on any impulse purchases.

The release of the latest version of Xeon, expected to be announced on or around October 6, will be followed by price cuts on the company's server and desktop chips slated for October 25, according to various sources. Although only a few weeks old, the 450-MHz Xeon will be cut by close to 20 percent, said some.

Intel cutting chip prices, again
Processor Sept./Oct. '98 price Oct. 25 price
450-MHz Xeon 2MB cache $3,690 $3,690*
450-MHz Xeon 1MB cache $2,675 $1,980
450-MHz Xeon 512KB $1,060 $825
400-MHz Xeon 1MB cache $2,675 $1,980
400-MHz Xeon 512KB $1,060 $825
450-MHz Pentium II $659 $559
400-MHz Pentium II $482 $375
350-MHz Pentium II $299 $210
333-MHz Pentium II $234 $175**
333-MHz Celeron $192 $160**
300A-MHz Celeron $149 $139**
* 450-MHz Xeon not released until Oct. 6. 2MB version not available until next year.
** estimates. Sources: Various

In any event, the price cuts at the end of October will cap a wild year for processor discounting. The Pentium II cuts will mark the sixth price cut for Intel's mainstream desktop processor for the year, two more than usual. The low-end Celeron and higher-end Xeon chips, both of which were introduced in 1998, have also been aggressively discounted.

The faster pace of the price cuts has stimulated growth in the PC market, although several sources say PC growth will be in the 10-12 percent range this year, down from historical highs of 16-18 percent growth. (See related story)

The discounts also reflect the release of the Katmai desktop chips coming in the first quarter of 1999.

"This makes room for the 450-MHz and 500-MHz Katmai processors," said Kelly Spang, an analyst at Technology Business Research, a Hampton, New Hampshire-based consulting group. The 450-MHz Katmai will start at under $600 in volume quantities, Spang estimated.

Price cuts, however, haven't come without a price. Processor and PC manufacturers now have to sell more products to achieve the same profits from a year ago. Intel's revenue is expected to increase slightly in the third quarter over revenues for the same period the year before, for example, but earnings will likely be lower, according to First Call estimates.

The fast pace of development has also been difficult to sustain. Two separate bugs with the 400-MHz Xeon processor, rolled out in June, have hindered the volume release of the chip.

While one bug has been fixed, the other is still an issue when the chips are used in four-processor servers. Testing can detect the problem. Chips that exhibit the bug work fine in one- and two-processor systems, but Intel is testing all Xeon chips to maximize the number that can be used in four-processor units.

This screening and testing process has slowed down availability, said sources. As a result, Xeon systems have not been easy to find, especially the four-processor servers.

Substantial volumes of the chip are only expected later this month or in October, according to executives at Compaq and other companies.

"It should be hitting high volumes in the next few weeks," said Keith McCullough, vice president of corporate servers at Compaq.

"I'm not seeing many on the market," said an executive at another worstation vendor.

Dell, for example, can currently ship four-way Xeon processor servers within 25 days of a customer order, according to Scott Weinbrandt, director of server brand marketing at Dell. Typically, Dell can turn a server order around in five to seven days. Xeon supplies are expected to increase "at the end of September or sometime in October," he said.

Susan Frankle, a server analyst at International Data Corporation, called the four-way server crunch "a crisis."

Still, Peter Foulkes, workstation analyst at Dataquest, said that most vendors are in the midst of preparing machines around the new Xeon and so far have not given strong indications that they have changed their road map.

Intel officials have attributed any perceived shortage to simply strong demand.

Intel is expected to release the 450-MHz Xeon processors on October 6. One version will contain 512KB of secondary cache memory while another will come with 1MB of cache memory.

Intel is an investor in CNET: The Computer Network.

CNET's Brooke Crothers contributed to this report.