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Intel cuts Pentium III prices

The chip giant shaves between 2 to 7 percent off the price of its Pentium III processors, a relatively modest discount for the holiday shopping season, but more cuts are coming.

Intel shaved between 2 to 7 percent off the price of its Pentium III processors, a relatively modest discount for the holiday shopping season, but more cuts are coming.

The move to reduce the cost of chips for desktops, workstations and servers is likely the last discount in what has been one of the more aggressive years for pricing actions. Intel trimmed processor prices 13 times in 1999, while rival AMD typically matched or exceeded Intel's cuts with discounts of its own.

Today's discounts were largely inspired by heightened competition between the two companies. With the cuts, the wholesale cost of a 733-MHz Pentium III drops 3 percent, from $776 to $754, while the 700-MHz version drops 3 percent from $754 to $733 in volume.

Although the price cuts are relatively shallow, lower chip prices typically mean cheaper PCs. Additionally, more discounts are expected during the first quarter of 2000 because more advanced products are on the way.

New Pentium III notebook chips running at 600 MHz and containing better power management technology are coming out in January, while Pentium IIIs for desktops running at 800 MHz will be out in the first part of the year, according to various sources.

Likewise, AMD will release an Athlon running at 800 MHz in the first part of 2000. As the year progresses, AMD plans to release new, faster versions of the K6-2 and K6-3 chips for desktops and notebooks. Both companies have vowed to release 1-GHz (1,000 megahertz) chips for standard commercial systems in the second half of 2000.

Increased competition between Intel and AMD has meant a banner year for consumers. Faced with eroding market share in the cheap PC segment, Intel launched into 1999 with a series of aggressive cuts on its Celeron line. By March, the company began to gain back lost ground from AMD.

To compensate for the price cuts, Intel changed the packaging on its Celeron chips to reduce manufacturing costs. Analysts and even Intel executives said that the company also used its more expensive Pentium III line to subsidize the Celeron discounts. Now, only one version of Celeron, the 500-MHz version, sells for more than $100 in volume.

Intel cuts Pentium III prices
Chip giant discounts "Coppermine" Pentium IIIs.
Chip, in MHz Oct. 24 Dec. 12 % change
733 $776 $754 3
700 $754 $733 3
667 $605 $583 4
650 $583 $562 4
600 $455 $444 2
533 $305 $284 7
Source: Intel
AMD countered with the Athlon, a high-performance competitor to the Pentium III. When Athlon was released, many predicted that the price war would slow down. Instead, both companies have accelerated their product plans to get out faster chips at a more rapid rate. Price cuts also have continued.

AMD did not cut prices on the Athlon line today. The company, however, cut prices on Nov. 29 when it released a 750-MHz Athlon.

The number and frequency of the price cuts also come as a result of a deliberate strategy shift at Intel, said Charles Glavin, semiconductor analyst at Credit Suisse First Boston. In the past, the company would cut prices once per quarter. While predictable, the cuts caused problems in the market because they prompted immediate, and more drastic, cuts on PC prices. Severe price cuts also created inventory problems.

"Intel used to cut prices on the first Monday of the second month of a given quarter?It would cause huge disruptions," he said. "Now Intel has spaced them out on a much more frequent basis."