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Cloudy future for Intel's new chip

The initial version of Intel's low-cost microprocessor will receive a cool reception because its performance is a step backward.

Intel (INTC) will introduce its first microprocessor specifically designed for low-end computers next month under a curious new brand name: "Celeron."

But while a few vendors such as NEC Computer Systems will immediately release business PCs built around the chip, the initial version will likely receive a lukewarm reception.

Resistance to the processor, the first in the new Celeron family, owes to its design. The 266-MHz chip is essentially a Pentium II shorn of its extra high-speed cache memory.

Removing the memory decreases the chip's performance, said Peter Glaskowsky, an analyst at MicroDesign Resources

In addition, the chipset, motherboard, and other parts required for the Pentium II put the Celeron design at a price higher than a more standard solution based around high-end Pentium MMX-style chips.

"It's about an extra $50 bucks for the chipset, motherboard, voltage regulator," he said. "For that you get performance that is not as good as a 200-MHz Pentium MMX...I would rather have a Pentium MMX or AMD K6 3D or Centaur WinChip."

"There is absolutely zero reception for the chip among vendors," said Ashok Kumar, semiconductor analyst with Piper Jaffray. "Only NEC-Packard Bell and Sony have signed on."

Interestingly, both IBM and Compaq will release sub-$800 computers based around Intel's market fallout 200-MHz Pentium MMX chips at roughly the same time as the oddly titled Celeron is announced. Compaq, however, is said to be developing a consumer computer using one of the Celeron family chips.

Celeron processors to be introduced in the third quarter, running at speeds of 266 and up, will be better because they will contain the extra cache memory, sources said. There are no plans to bump the speed on the "cacheless" version of the chip that's due out next month.

Celeron is expected to be announced April 15. Machines will cost about $900 or less and contain 16MB of memory and 2GB hard drives.

Intel will also use the occasion to release 350-MHz and 400-MHz versions of the Pentium II that contain a faster 100-MHz bus. Currently, chips on the Intel platform use a 66-MHz system bus. These new, higher-end chips will be accompanied in all likelihood by system announcements from the major vendors.

These chips will mark the first wave of a brand segmentation strategy from Intel. The Celeron chips will be targeted at the "Basic PC" segment, or PCs and computing devices that cost less than $1,000.

A second, unannounced brand name will come out later in the year, targeted at servers and workstations. Like the Celeron, these chips will be based around the Pentium II core but optimized for their respective markets.

The Pentium II brand name will remain for chips targeted at high-end desktops.

While Intel has been successfully making chips for servers and workstations for some time, the budget segment is a new challenge for the company.

The shift to low-cost processors is inevitable due to the popularity of low-cost computers, commented Kevin Hause, an analyst at International Data Corporation. Last year, consumers flocked to sub-$1,000 PCs. Now, corporations are taking the bait.

As a result, computer vendors as well as Intel have to come up with ways to accommodate corporate buying trends. "It was only a matter of time before the dominos fell," he said.

Intel is an investor in CNET: The Computer Network.