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PC prices coming down

Personal computer makers are expected to cut prices in their mainstay product categories as PCs continue to get cheaper and cheaper.

Personal computer manufacturers are expected to cut prices in their mainstay product categories as PCs continue to get cheaper and cheaper.

Amid the boom in sub-$1,000 PC sales in the consumer market, the expected emergence of new low-priced Net PCs for business, and increased price competition in the Intel-compatible processor market, PC prices are dropping faster than they have in years.

Moreover, demand for higher-end Pentium-based PCs has declined, forcing Intel and PC manufacturers to lower prices posthaste, according to Southcoast Capital, a marketing research firm based in Austin, Texas.

"The purchasing faucet has been turned off in Europe, and the Taiwan motherboard business has fallen off the cliff," said Ashok Kumar, an analyst at Southcoast.

Intel (INTC) is expected to kick off this downward trend with drastic price cuts on its MMX Pentium processors, which could begin to reach PC manufacturers as early as this month, Kumar added.

For example, the mainstay 166-MHz MMX Pentium processor will dive from $255 to $135, according to Southcoast. The 200-MHz version will plunge from $465 to $235, while the recently introduced 233-MHz MMX chip will fall from $555 to about $350.

"Classic" non-MMX Pentium processors are also expected to see fairly steep cuts. The 200-MHz version will fall from $240 to $115, while the 133-MHz chip will drop from $125 to $85.

Intel would not confirm the exact price cuts, but a company spokesman did state today that reductions will be aggressive. "We talked to PC manufacturers about [price cuts ] on June 9," he added. (Intel is an investor in CNET: The Computer Network.)

Matt Sargent, an analyst with Computer Intelligence, said PC prices are unseasonably low right now with an average system retailing for below $1,500. That price is about 30 percent below what someone was paying for the average system one year ago.

However, he added that "Intel usually lowers prices in order to raise overall prices of PCs by drawing people up to higher [processor] levels. It's hard to tell what these price cuts will do because there is some momentum in sub-$1,000 PC levels."

Advanced Micro Devices (AMD) is also expected to cut prices deeply in August, according to industry sources.

Because of Intel's cuts, Kumar noted that AMD and Cyrix (CYRX) may be forced to price their processors at close to cost in some cases--a move that may cut into their earnings.

The bottom line for users is cheap PCs. Kumar thinks that the so-called average unit price for manufacturers such as Compaq Computer, Dell Computer, and Gateway 2000 will fall a few hundred dollars this summer.

For instance, Compaq's average price could fall from about $1,800 to between $1,500 and $1,600 and Gateway's from about $2,300 to $2,000. Pricing for a typical $1,500 Pentium PC at retail stores today, for example, could fall to $1,200.

Computer Intelligence tracks U.S. channel sales only, but Sargent said that, while there has been concern about slower European demand, there aren't indications that the U.S. market is having the same problems.

Intel is trying to move the market to the new Pentium II processor, which like all new Intel chips is priced quite high. This summer, it will be found in systems above $2,000 and, more often, above $2,500.