The price cuts, which range from 10 to 29 percent, are targeted at the desktop market and, as usual, will likely lead to discounts across the industry.
Although processors are much cheaper than they were three years ago, microprocessors--which can range in price from $69 to $647 in volume quantities--are still one of the more expensive components inside a computer. Chip price cuts, therefore, typically reduce PC prices, or at least counteract inflationary costs caused by rising prices of other parts.
Intel's price cuts, announced yesterday, will also likely be followed by similar chip cuts from archrival Advanced Micro Devices, as the two are locked in a battle for market share across all desktops segments.
In addition, both companies will use price cuts from this week to pave the way for chip introductions. In the past, Intel would introduce new chips and cut prices on the same day. Lately, the company has been hailing price cuts and then introducing new, faster chips a few weeks later.
Later in the first quarter of this year, which means March, Intel is slated to introduce 850-MHz and 866-MHz versions of the Pentium IIIs, followed by a 933-MHz version in the second quarter, sources have said. Celerons, meanwhile, will go beyond 600 MHz in the first half and 700 MHz in the second half, according to Intel senior vice president Albert Yu. The Celeron line will also graduate to the more advanced 0.18-micron manufacturing process as part of the speed boosts, Yu said.
The discounts come as Intel recovers from a chip shortage that has partially throttled both Intel and PC manufacturers for months. Last October, Intel released the "Coppermine" generation of Pentium III processors. A combination of low inventories, high demand and some earlier manufacturing issues, however, caused a shortage of both high-end Pentium IIIs and low-cost Celerons. PC maker Gateway, among others, complained about chip shortages denting sales.
"In (the first quarter) we will catch up on everything," said Pat Gelsinger, vice president of Intel's desktop products group.
The chip shortage will mostly be cleared up by the end of the first quarter, Intel executives recently said. First-quarter demand is also slightly higher than expected, according to Intel executives and Robertson Stephens analyst Dan Niles. Still, recent earnings disappointments from Dell Computer and others have created some uneasiness in the market about PC demand. The market's acceptance of the Windows 2000 operating system, which generally requires faster PCs, will likely have a large impact on demand this year, according to many analysts.
Some of today's discounts are as follows:
The 800-MHz Pentium III was dropped 24 percent form $851 to $647, while the 750-MHz went down 29 percent from $744 to $530 and the 733-MHz went from $594 to $455, a 23 percent drop. The 700-MHz Pentium III dropped 25 percent from $449 to $337. The cheapest Pentium III, the 500-MHz version, sells for $193.
The 533-MHz Celeron dropped 24 percent from $167 to $127 while the 500-MHz went from $128 to $93, a 17 percent drop. The cheapest Celeron is the 433-MHz, which is priced at $69. All prices are for volume quantities. Actual retail price may vary.
The company did not cut mobile processor prices, which were cut last month with the introduction of new Pentium IIIs for laptops.