The new chip, to be released in the latter half of 1998, will also present new competitive challenges to Advanced Micro Devices and Cyrix, because the new chip may speed the migration away from the older Pentium chip architecture.
Intel is lowering the cost on an upcoming version of the Pentium II by removing the "Level 2" (or L2) cache memory, said Nathan Brookwood, semiconductor analyst at Dataquest. L2 cache is a separate memory "island" integrated into the processor module. Its use speeds the amount of data that can be fed to the processor, thereby improving overall system performance.
The Pentium II 's L2 cache consists of 512K of additional memory, and adds approximately $20 per chip to Intel's manufacturing costs. In all, Pentium II chips cost between $80 to $100 to produce. Pentium IIs eventually sell to computer vendors for between $400 and $700.
To get to the low end of the market, Intel needs to bring the Pentium II's price down to $75 to $100, so that it's comparable to the current Pentium MMX chips. To do that, manufacturing costs have to drop to between $50 to $60.
Intel's move to its advanced 0.25 micron production technology, which is currently underway, will remove some costs, and the rest will be achieved through eliminating the secondary cache.
"It will eventually make it to the sub-$1,000 market. It is unclear whether it will do that in 1998," Brookwood said.
Both AMD and Cyrix, he added, will likely be affected. The two companies currently make chips on the older Pentium "Socket 7" architecture. Intel recently adopted a new architecture called "Slot 1" for the Pentium II that is incompatible with older computers and circuit board designs. While a number of analysts have said that Slot 1 chips can achieve higher clock speeds, they have also always been more expensive.
Now, that advantage could be slipping. "They [Intel] are doing this so people have an upgrade path to Pentium II," said Brookwood. "In the past, [AMD and Cyrix] have said, 'We can be lower cost than Intel because they have to put in all those cache processors.'"
One question that remains open, however, is how well the new Pentium II will perform when stripped of its memory. "There are some programs where performance will be better than MMX [processors] and some places where performance could be abysmal," Brookwood said. The processor could be challenged by analytical programs, he said, before adding that users of low-end machines typically aren't running such programs.
Intel did not comment on the strategy.
Intel is an investor in CNET: The Computer Network.