The cuts dropped desktop Pentium III chips by up to 31 percent, laptop Pentium III processors by up to 34 percent, and mobile Celeron processors by up to 44 percent. Intel cut the prices of two Xeon processors, used in servers and workstations, by up to 29 percent.
Over the next few weeks, AMD will introduce its low-end Duron chip and its high-end "Thunderbird" processor for performance PCs. Intel will come out with more Celerons and introduce its 815 chipset, companion chips that connect the processor to the rest of the PC. The 815 chipset is expected to be popular, as it allows PC makers to take advantage of faster graphics technology and other speed improvements without having to adopt expensive Rambus memory.
An Intel representative reiterated that the company expects supply to be tight throughout the second quarter but said the company hopes to catch up later this year as it completes the transition to its new 0.18-micron manufacturing process. The weekend price cuts were part of Intel's regular adjustments to its published menu of chips and are not necessarily reflective of the prices paid by Intel's larger customers.
Gateway said last week that it is increasing orders from Intel rival AMD amid continued shortages of Intel parts.
"Certainly the hardest chips to get are the above-800-MHz parts, but the Pentium III in general seems to be in short supply," said Linley Gwennap, principal analyst at the Linley Group. "I think we're going to see shortages for the next couple of quarters."
Nonetheless, Gwennap said Intel must cut its prices to meet its long-term commitments to customers.
AMD spokesman Drew Prairie said his company is not making changes to its pricing.
"It was an expected price move, and our pricing is still competitive," he said.
Intel cut its desktop Pentium III line by 20 percent to 31 percent, with no drop for the still-scarce 1-GHz chip and the recently introduced 933-MHz processor. The cuts include a 24 percent drop on the 866-MHz chip, a 25 percent cut on the 850-MHz processor, and a 31 percent fall for the 800-MHz offering, though all three are said to be hard to come by.
Intel made more modest cuts on its low-end Celeron line, with prices down by 5 percent to 19 percent.
On the mobile side, Intel cut its three fastest Pentium III chips by 31 percent to 34 percent, leaving unchanged the prices for laptop chips at 500 MHz and below. Intel's steepest cut came in its Celeron line for notebook computers, which saw cuts of up to 44 percent on the 550-MHz variety, which drops to $96. The 500-MHz and 450-MHz varieties fell by 33 percent and 18 percent, respectively.
Intel lowered the price of its 866-MHz Xeon processor by 23 percent to $612, and its 800-MHz Xeon was cut by 29 percent to $435. It recently introduced a 933-MHz version at $794, and that price remains unchanged.
The chipmaker's rate of price cuts appears to have slowed some from the furious pace of last year, but Gwennap said that may be the short-term effect of high demand.
"Right now, the whole market is undersupplied," he said.
Gwennap noted that while prices may not be falling as quickly, Intel has moved aggressively to reduce the costs of making its chips, a combination that could spell higher profits.
"It's not necessarily good for customers, but it's good for Intel's bottom line," he said.
The price cuts serve as a prelude to upcoming Celeron processors and the 815 chipset.
Memory designed on Rambus specifications boosts overall PC performance, its proponents say. Detractors argue the benefits are minimal, especially in light of the extra cost. Rambus memory costs four to six times more than regular memory at retail and more than twice as much at the wholesale level. As a result, many computer makers have avoided adopting it.
Accommodating computer makers that want to avoid using Rambus but still want to take advantage of the latest in Intel chipset technology has been a problem for the chipmaker. Earlier, the company released a part called the memory translator hub that allowed computer makers to adopt standard memory and the 820 chipset. The part, it turns out, doesn't work perfectly, and it has been recalled. Close to a million PCs have been affected by the recall.
Among its advantages, the 815 chipset will come with a 133-MHz system bus, faster than the current 100-MHz system bus found on other non-Rambus Intel chipsets. In addition, the chipset comes with an integrated graphics chip that can be disabled. PC makers will have a choice of making boxes with cheaper, integrated graphics or of adding high-performance graphics chips.
Although some analysts believe that PCs based on Rambus will begin to carve out a substantial niche, others believe that computers built with products such as the 815 chipset are going to be popular.
"There is a lot of pent-up demand" for the 815," said Dean McCarron, principal at Mercury Research. "In serving the mainstream market, this is going to be a lot more cost effective of a solution."
News.com's Michael Kanellos contributed to this report.