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Intel to offer PC makers rebates for using Rambus memory

With the Pentium 4's release just around the corner, Intel is working hard to ensure that cost won't be a barrier to its acceptance.

With the Pentium 4's release just around the corner, Intel is working hard to ensure that cost won't be a barrier to acceptance.

The Santa Clara, Calif.-based chipmaker will give PC manufacturers rebates for incorporating Rambus memory inside computers containing Pentium 4 processors, according to sources close to the company.

During the fourth quarter, PC makers will receive $70 for each Pentium 4 computer containing Rambus that they manufacture and $60 during the first quarter of 2001, according to an article that Inquest Market Research released today. The rebates will then get phased out.

The plan is to ensure that manufacturers will be able to sell Pentium 4 computers for as little as $2,500, said Bert McComas, principal analyst at Inquest. The Pentium 4 is expected to emerge in October.

"They have to seed the market, and they are worried about cost issues," he said.

Intel executives declined to comment on prices or rebates. The company, however, has said that the chip will emerge in limited quantities in the fourth quarter.

Rebates on Rambus will target what has been a sore spot for the company. Although the price has been coming down, memory based on designs from Rambus still costs much more than standard PC memory, called SDRAM. The high price has been one of the reasons that many memory manufacturers and PC makers have veered away from broadly adopting Rambus.

For Intel, that's a problem. Until the middle of next year, Rambus will be the only type of memory that will work with the Pentium 4. Intel, among other companies, has already announced chipsets for cheaper memory for the middle of 2001, but that's a long way off.

"They don't want Rambus-based Pentium 4 systems to be at an economic disadvantage to (Advanced Micro Devices) systems," said Nathan Brookwood, an analyst at Insight 64. "For the first nine months, Rambus is the only solution?The last thing Intel wants to do is screw up the ramp for Pentium 4 because of Rambus pricing."

The Pentium 4 also will not be a cheap chip to make initially. As reported earlier, the first versions of the Pentium 4 will have an area of 217 square millimeters, more than twice the size of the latest Pentium III chips.

As a result, the Pentium 4 will cost about four times as much to produce as the Pentium III, said Kevin Krewell, an analyst at MicroDesign Resources.

The added costs will essentially come from two factors. With larger chips, the chances for defects increase, so the number of bad chips per wafer rises, raising costs. In addition, there is an increase in basic manufacturing costs. The testing, packaging and materials cost of a Pentium III is below $40, Krewell said. The initial manufacturing cost on a Pentium 4 will come closer to $100. The cost will go down toward the middle of 2001 when Intel shrinks the chip.

"A lot of the cost is the die. It is a much bigger die," Krewell said. The die is the silicon center of the chip.

Despite the high costs, Pentium 4 chips will also be priced fairly aggressively, McComas and Brookwood said, although the final price remains the subject of debate and speculation among analysts.

Currently, rival AMD sells a 1.1-GHz Athlon for $853 in volume quantities. Both companies are expected to cut prices around the time the Pentium 4 comes out, sources said.