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Intel slashes prices across board

Aggressive Pentium price cuts, now official, should keep Intel well ensconced as the processor supplier to the world.

Intel (INTC) officially reduced the prices on its chips today, a move that will likely keep the Pentium maker well ensconced as the processor supplier to the world.

Confirming an earlier report by CNET's NEWS.COM, Intel slashed the price of Pentium II and Pentium MMX processors by 10 to 50 percent. The Pentium II is Intel's newest microprocessor, used mostly in expensive PCs and powerful workstation computers. The MMX Pentium is Intel's mainstay processor and the chip of choice in consumer and business PCs sold worldwide.

In addition, for the first time, Intel pushed the price of 133- and 150-MHz "classic" (non-MMX) Pentiums below $100. Both versions will now sell for $95.

The 300-MHz version of the Pentium II will get the heftiest cut, falling from its current prohibitive pricing of more than $1,900 to a more reasonable $850, according to the official Intel price list. The 233-MHz Pentium MMX will also plummet from just shy of $600 to $386, according to Intel.

Intel prices are for 1,000-unit quantities and therefore pricing is slightly higher compared to those prices offered to major vendors that buy in larger volume.

The new pricing should allow major PC vendors to bring out consumer PCs in the $1,000-and-under price range with 166-MHz MMX Pentium processors and 200-MHz classic Pentiums, according to Ashok Kumar, an analyst at Southcoast Capital, a market research firm based in Austin, Texas.

At the high end, Pentium II systems with the 233-MHz version of the processor will fall into the $2,000 to $2,500 range, depending on the feature set, he said.

Intel Processor Pricing
Processor Previous price Aug '97 price % Decrease
Pentium II Processor
300 MHz $1,981 $851 57%
266 MHz $775 $669 14%
233 MHz $636 $530 17%
Pentium Processor Desktop
233 MHz w/ MMX $594 $386 35%
200 MHz w/ MMX $492 $252 49%
200 MHz $257 $125 51%
166 MHz w/ MMX $270 $145 46%
166 MHz $209 $106 49%
150 MHz $150 $95 37%
133 MHz $134 $95 29%
Pentium Processor Mobile
166 MHz w/ MMX $498 $348 30%
150 MHz w/ MMX $326 $241 26%
133 MHz w/ MMX $284 $177 38%
150 MHz $230 $125 46%
133 MHz $166 $95 43%

The aggressive pricing won't make it easy for Intel's competitors Advanced Micro Devices and Cyrix, which have little to bring to the table aside from comparable chips at prices lower than Intel's, Kumar said.

AMD will also announce new pricing today. Currently, AMD and Cyrix offer dirt-cheap, low-end Intel-compatible processors, as well as competitively priced high-end chips.

All of this slashing may slow PC sales as buyers wait for the price cuts to percolate from the chips to the systems themselves. "In the last few weeks of July we don't expect much in sales because of the price cuts," Kumar said. Afterward, he added, "you will see more richly figured computers at lower price points," which will drive demand.

One growth area will be machines priced at less than $1,000, said Andy Neff, an analyst at the investment firm of Bear, Stearns. With the price cuts, Intel will be offering MMX chips that can likely find a home in sub-$1,000 PCs with a full set of features.

For the remainder the year, the company wants to position Pentium MMX chips as the processor of choice for entry-level computers and the Pentium II as the processor for midrange and high-end desktops.

Intel also remains committed to improving the Pentium II to enhance its value as a server chip. The company earlier this month rolled out a Pentium II with new memory technology, making it more suitable for servers.

Major PC manufacturers such as Compaq Computer and Dell Computer have already announced new servers with the Pentium II chip. Analysts also state that Intel will make the chip more scalable next year so that computer makers can roll out servers with four processors or possibly more.

The coming shift in its processor portfolio is reflected in the company's manufacturing plans. The Pentium II will likely expand from 25 percent of the unit mix in the fourth quarter of this year to 55 percent in 1998, according to reports from Southcoast. Manufacturing costs for Pentium IIs will also drop by as much as 35 percent in the second half of the year, providing more room for Intel to maneuver.

In terms of Intel sales overall, Kumar said that in the second quarter sales were up over the second quarter of 1996, although they were weaker than sales from the previous quarter. With the price cuts, however, the second half of the year will likely turn out to be as strong as the first half of the year.

Interestingly enough, although Intel has to write off inventory of so-called classic Pentiums during the quarter, the stalwart chip proved to be one of the more popular in that period as users turned to increasingly cheaper computers, according to research from Computer Intelligence, "The No. 2-selling chip in the dealer channel for May was the 133-MHz Pentium," CI's Matt Sargent said.

Intel is an investor in CNET: The Computer Network.