The price cuts, which are fairly large compared with recent discounts, likely emerge from two distinct motives: to stoke consumer demand and to keep the heat on rival Advanced Micro Devices.
Low PC prices have boosted demand in recent months beyond earlier expectations, especially in the consumer market. Processor discounts invariably lead to lower prices for PCs, which typically leads to increased consumer purchases. Hewlett-Packard, for instance, will cut prices on Monday by up to 17 percent on its Pentium III PCs and workstations.
Second, and perhaps more important, Intel wants to keep the pressure on rival AMD, which recently released its speedy Athlon processor. Athlon-based PCs are just reaching the market and AMD has no plans to cut prices yet, a spokesman said.
The Athlon has been greeted with rave reviews and has outscored the Pentium III inseveral benchmark tests, but some analysts are unsure whether AMD can produce the chip in significant quantities.
"While AMD may have won this performance battle, the war is far from over," wrote Keith Diefendorff in a recent edition of The Microprocessor Report.
Under Intel's new pricing schedule, the 600-MHz Pentium III, which was released at the beginning of the month, will stay at $669, according to sources.
The 550-MHz Pentium III will drop 26 percent to $487 from $658. The 500-MHz version will sink 41 percent, to $251 from $423.
Lower down the speed scale, Intel is dropping the price of the 450-MHz Pentium III and 450-MHz Pentium II to $183 from $230, a 20 percent discount.
By comparison, the 650-MHz version of the Athlon, the fastest PC chip on the market, is priced at $849 and the 600-MHz version is $615. The 550-MHz Athlon sells for $449 and the 500-MHz chip is $249.
Intel's discounts are larger than expected. According to a price sheet sent to dealers and distributors in May, the 550-MHz Pentium III was expected to be cut to $520, $43 more than the actual cut. The 500-MHz version was to be cut to $299, $48 more.
The new prices apply to volume wholesale purchases. Retail prices for single chips will vary and typically will be higher.
In addition to the price cuts, Intel will introduce new versions of its Xeon processors for servers and workstations on Monday. To coincide with the new chips, several manufacturers will release eight-processsor Xeon systems.
The company cut prices on the Pentium III line in July by between 12 percent and 14 percent. On August 1, Intel introduced the 600-MHz chip and cut prices on the Celeron line by roughly 20 percent.
The month, however, isn't over yet for the PC chip market. AMD will release 500-MHz versions of the K6-2 and K6-III for the discount PC market before the end of the month. Price cuts on notebook chips are expected soon.
The discounts will be imposed Sunday. PC makers will likely announce price cuts on their systems shortly afterward.