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Intel revs it up

The chipmaker may boost Pentium speed, make further price cuts.

Intel (INTC) will likely release a 266-MHz version of the Pentium MMX processor toward the end of the year or early next year, which could spawn fast Pentium systems costing $1,500 or less by the first half of 1998.

In the meantime, the Santa Clara, California-based chip giant has slated another round of price cuts for November on top of the cuts that will be imposed in August.

The new 266-MHz Pentium would top the current 233-MHz chip.

The new chip, like the price cuts, would further cement Intel's dominance over Advanced Micro Devices (AMD) and Cyrix (CYRX).

Combined, the new chip and the price cuts will make neither of the alternative processor vendors terribly attractive to consumers or major computer makers, said sources.

"The 266 becomes a good Trojan horse against AMD and Cyrix [MMX chips]," said Ashok Kumar, an analyst with Southcoast capital, a marketing research firm based in Austin, Texas.

Intel's actions will accelerate price-performance in the PC marketplace, said Kumar. By the first half of 1998, 233-MHz Pentium MMX chips will be found in computers costing $999 and below, while the 266-MHz Pentium MMX chips will become the chip of choice for computers in the $1,000 to $1,500 range, he said.

By then, computers based on the 233-MHz Pentium II processor, which is more advanced and generally offers better performance than the Pentium chip, will exist in the sub-$2,000 market.

"Classic" (non-MMX) Pentiums are already being phased out, Intel has said.

Pentium pricing
Chip Current 3Q Est (8/1) 4Q Est (11/1)
Pentium II processor
PII 300 n/a $795 $740
PII 266 $725 $624 $554
PII 233 $595 $495 $425
Pentium processor with MMX
P55C-233 $555 $335 $305
P55C-200 $465 $235 $200
P55C-166 $255 $135 $115
Classic Pentium (without MMX)
PP-200 $240 $115 $99
PP-166 $195 $100 $85
PP-133 $125 $85 $75
Overall, the price cuts go down 24-80 percent from Q1 to Q4 for the year. Pricing based on quantity purchases by OEMs.
Source: Southcoast Capital

The emergence of a new Pentium MMX chip comes as a mild surprise to some sources. Intel has not publicly discussed the processor before. Furthermore, AMD is not much of a threat and has made relatively little headway in getting computer manufacturers to build systems for its K6 processor, which is the company's answer to MMX chips.

Digital is the largest U.S. manufacturer to use the K6. It adopted the chip in May, just before filing a patent infringement suit against Intel. Last week, Digital announced price cuts on those systems.

A 266-MHz Pentium processor would also prolong the life of a market where AMD and Cyrix can compete directly with Intel, said Tony Massimini, chief of technology at Semico Research, a Phoenix-based semiconductor research outfit, calling the move into some doubt. The newer Pentium II, by contrast, connects to a PC in a different manner than the Pentium, which clone chip makers cannot duplicate at this point, giving Intel potentially more of a competitive advantage.

Nonetheless, Massimini added, Intel is more than willing historically to fill any market gap. "Right now, I can see a price gap opening up between the Pentium II and the 233 MMX that might warrant a new chip."

Massimini also speculated that a manufacturing issue may be pushing the decision. If Intel is getting higher than anticipated yields from its 266-MHz chip manufacturing, it could come out with the new chip without spending much.

Intel did not comment on the 266-MHz Pentium MMX chip. However, a company spokesperson said that it would not be out of line with past practices. Whenever possible, the company pushes the performance barrier.

On the price-cut front, the second round of price cuts slated for November will cut existing chip prices from 7 to 15 percent from the August prices, which were discounted between 14 to 52 percent from current prices, according to Southcoast Capital. Combined, the two price cuts mean that prices on existing chips will have dropped 24 to 79 percent during the year, said Kumar.