How low can PC prices go?
John Hamlin, VP, Dell
Recent sales forecasts show Intel's cutting-edge Pentium 4 lagging well behind expectations, with some analysts predicting the chip leader will sell only half the 20 million Pentium 4 chips it anticipated this year.
Analysts say that's because consumers are taking a closer look at price tags and determining that last month's processor is more than adequate for their needs.
"You could make the argument right now that any system is too powerful today," said analyst Dean McCarron of Mercury Research. "Any (application) you want would run fine" on a PC that is not equipped with the fastest processor.
As a result, many consumers are increasingly unlikely to pay a premium for pumped-up processors, and that could affect the sales of some products expected to hit the market this year.
Intel recently introduced a 1.7GHz Pentium 4 and has plans to offer a 2GHz version in the third quarter, while AMD is set to announce a new 1.4GHz desktop Athlon chip this month, followed by a 1.5GHz chip next quarter.
Meanwhile, buyers are focusing on PCs with considerably less punch. The majority of corporate and individual PC buyers are selecting machines in the $800 to $1,200 range, according to researchers, where processors range from about 800MHz to 1.1GHz.
That means consumers are putting their budgets ahead of speed ratings, according to analysts. Megahertz or gigahertz--which measure the clock speed, or number of instructions per second the processor can execute--have been ingrained in the minds of PC buyers as the measure of overall PC performance.
"I believe they're buying on price," said Kevin Krewell, senior analyst with MicroDesign Resources.
PC buyers are paying more attention to features such as a DVD or CD-RW (CD-rewritable) drives or a certain amount of memory, Krewell said. "Then they take whatever processor comes in it," he said.
However, if given the opportunity to buy a PC with a 1.7GHz chip for $900, consumers most certainly would make the purchase, Krewell said.
"It's not like they're going to give some (speed) back," he said. "Most people want a level of comfort along with the performance, and that comes with some price."
"Comfort" comes with the feeling that a PC will be able to handle future software upgrades, such as the new Windows XP operating system from Microsoft.
McCarron agreed. "Certainly in the consumer space, megahertz is what sells," he said. "That's one of the reasons vendors are excited about (Windows) XP. That could give Pentium 4 (PCs) a bump."
The $1,000 PC of the moment is a beefy machine, generally offering a DVD or CD-RW drive and a 900MHz or 1GHz processor, along with large helpings of RAM and hard-drive space.
As a result, some consumers see no reason to spend more money, a problem when it comes to marketing faster and faster processors, especially in the current economic environment.
"We're in a little bit of an unusual market situation," McCarron said. "In the old days, it was a situation where you could use more performance" for the applications you're running. Now "you can't buy a PC today that's too slow."
Intel's Pentium 4 is a good example of some of the liabilities that come with the clock-speed focus that has dominated the chip industry, analysts said.
Watching the clock
Intel designed the chip to offer high clock speeds--it is now up to 1.7GHz. But when used in an everyday setting, such as office applications, tests have shown that initial versions of the chip, running at 1.4GHz and 1.5GHz, offer only a slight performance improvement over Intel's much cheaper 1GHz Pentium III chip.
Because of the way it divides up the work it handles, spreading it out more than the Athlon or Pentium III chip, the Pentium 4 performs less actual work every clock cycle.
This is because the pipeline--a structure inside processors that serves to break tasks into a number of small pieces to process them more efficiently--is longer than in the two other chips. The Pentium 4's pipeline is made up of 20 stages, each of which does a small amount of work per clock cycle.
Though the Pentium 4 is designed to eliminate some of the effects of a long pipeline, it can experience what some analysts call the "long-pipeline tax." That means the chip must run at a higher clock speed to perform the same amount of actual work.
Intel says the Pentium 4 wasn't designed to improve performance on office applications.
"We designed (Pentium 4) for where you needed the (extra) performance, areas such as MP3 encoding, video encoding, multitasking...and advanced Web technologies like XML and Java," said Intel spokesman George Alfs. "That's where it's tuned, to bring you the performance where you need it."
Ultimately, the Pentium 4 should be able to perform more work through a raw speed advantage. However, Pentium 4 chips that run a few hundred megahertz faster than a Pentium III or Athlon are not necessarily much better performers, McCarron said.
Another measure of performance is clocks per instruction, which calculates the actual amount of work a chip performs per clock cycle.
"You'll find that a Pentium 4 has a lower number than an Athlon does," McCarron said.
This means that though the Pentium 4 will hit very high clock speeds, the Athlon chip should be able to keep up in terms of actual performance.
The Pentium 4 will likely hit 2.2GHz or 2.3GHz by the end of the year and step up in 200MHz to 300MHz increments to 3.4GHz by the end of 2002, Krewell predicts.
Meanwhile, the Athlon is expected to reach 2GHz in the first quarter of 2002.
With clock speed betraying actual performance, what should consumers look for?
"Megahertz is one factor," Krewell said. "The idea is what do you want to do with your PC. Do you want to just surf the Web and do Excel spreadsheets? Then all you should care about is having 128MB of (memory) and four USB ports."