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Fastest PCs, Intel chip get cuts

Intel's fastest Pentium IIs are now found in systems costing as little as $1,360, while a price cut on the 333-MHz chip is expected later this month.

Intel's fastest Pentium II chips are now being found in systems costing as little as $1,360, while a price cut on the fastest of Intel's processors is expected later this month.

The low price points highlight Intel's announcement that earnings and revenues will be below expectations for the first quarter. (See related coverage)

Softer than expected demand for computers this quarter combined with increasing computer inventories lay at the bottom of the decline in processor sales, various analysts said. Consumers are also increasingly focusing on price as a determinant in purchasing.

In this environment, lower prices are inevitable.

Retail giant CompUSA has begun to advertise a 333-MHz Pentium II computer marketed under its own "American" house brand for $1,859. The American mini-tower contains a 333-MHz Pentium II, 64MB of memory, a 6.4GB hard drive, and a 32X CD-ROM.

But the biggest bang for the buck comes with its 300-MHz system. An American mini-tower with a 300-MHz Pentium II, 64MB of memory, and a 2.1GB hard drive sells for $1,359.

While the CompUSA systems appear to be the current low-price leader, high-end systems from top-tier vendors aren't far behind. A Hewlett-Packard Pavillion mini-tower with a 300-MHz Pentium II and a 6GB hard drive is selling for $1,499 on electronic sales sites. Meanwhile, an IBM GL 300 with a 300-MHz Pentium II and a 4.3GB hard drive sells for approximately $1,750 on the pages of electronic resellers.

Compaq's Presario 4850 with a 300-MHz Pentium II, 48MB of memory, and a 6.5GB hard drive sells for $1,999 through Compaq's own Web site or various retailers.

Prices will probably continue to decline, at least for the first half of the year. Intel is expected to cut volume prices on the 333-MHz version of the Pentium II later this month, bringing that chip down from $722 to the $600 range, according to industry sources familiar with move.

Across-the-board price cuts are also expected in the second quarter. Both Intel and Advanced Micro Devices reduce processor prices every three months. The savings typically get passed to the customer through lower computer prices.

While most computer price stories have focused on the low end of the market, lower processor prices, tougher competition among computer makers, and other factors have taken their toll on the market for high-performance machines too, said Nathan Brookwood, an analyst at Dataquest.

While consumers are getting more technology for their dollar than ever before as a result, software vendors are not coming up with applications that will motivate people to buy cutting-edge machines. As a result, people are gravitating toward low-end and mid-level systems.

"Even if you don't buy a sub-$800 PC, you will not buy a $2,500 PC. You will buy a $1,500 PC," he said.

Intel is an investor in CNET: The Computer Network.