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Pentium 4 could face summer slump

Intel, which told financial analysts in January that it expected to sell 20 million or more chips this year, might fall far short of that goal, analysts say.

Intel's new Pentium 4 chip may find itself caught in the summer doldrums.

The chipmaker, which told financial analysts in January that it expected to sell 20 million or more Pentium 4 chips this year, might fall far short of that goal, thanks in part to a slow summer for the PC market, analysts say.

Based on current slowdowns in both the consumer and corporate PC markets, analysts say it's unlikely Intel will come close to its intended mark this year.

The transition to the Pentium 4 chip--Intel's newest desktop processor--is critical to the company's bottom line.

"Even though there has been some pretty steep price declines, the adoption (of Pentium 4) has been slow in the enterprise," said IDC analyst Roger Kay.

Mercury Research, which tracks PC processor sales, estimates Intel shipped about 1 million Pentium 4 chips in the first quarter of the year and will ship about 2 million Pentium 4 chips in the second quarter. At that rate, Intel will ship about 14 million chips for the year, according to Mercury Research. Intel's average sales are between 30 million and 35 million chips per quarter.

Some financial analysts' projections for the Pentium 4 have been even lower. Thomas Weisel Partners analyst Eric Ross predicted earlier this month that Pentium 4 shipments would total only 10 million for the year--half of Intel's goal.

The Pentium 4's consumer troubles have to do with its price. Like any new chip, the Pentium 4 came in at the high-end of the market and commanded steep price premiums when introduced.

Intel quickly cut prices on the chip. However, Pentium 4 PCs are still much more costly than those based on Advanced Micro Devices' Athlon chip or Intel's Pentium III. As a result, Pentium 4's higher price has yet to allow it to make a large dent in the retail market.

Pentium 4 PCs accounted for 3.57 percent of the U.S. retail PC market in April, down from 3.96 percent in March, according to research firm NPD Intelect.

Consumers are not buying machines that cost much more than $1,200, said Stephen Baker, an analyst with NPD Intelect. The $800 to $1,200 range is where the action is, he said.

Despite deep price cuts made by Intel at the end of April, most Pentium 4 PCs, such as those from Compaq Computer and Hewlett-Packard, still cost more than $1,200.

The introduction of Windows XP later this year could help spur purchases of more powerful PCs, however. The new version of the Windows operating system requires significantly greater resources than current versions, which analysts expect to help persuade PC owners to upgrade.

Meanwhile, Pentium 4 PC sales to businesses have also been slow, analysts say.

And Intel's choice of memory technologies has hurt it in the corporate market, analysts agreed.

Corporations grew wary of Rambus memory due to Intel's initial problems with it. RDRAM based on Rambus designs is the only memory available with Pentium 4 processors.

Intel plans to offer "Brookdale," a Pentium 4 chipset that will work with more common synchronous DRAM (SDRAM), in the third quarter of this year.

"I think corporations are aware of that transition, and they don't want to do this two times," Kay said. "There's probably going to be a lot more volume after Brookdale."

Intel would have "been better off if it was more up front about promoting SDRAM," said Kevin Krewell, senior analyst at MicroDesign Resources. Intel "should have an SDRAM solution today. It's too long in coming.

"It's a tricky thing that (Intel) is doing right now in that it has got to promote Pentium 4 without killing Pentium III," Krewell added. "It's a balancing act. My personal feeling is that they've outrun the market...people think that 1.7GHz and 2GHz (due in the third quarter) is more than they need.

"I would say that there is a risk that they won't hit the numbers of Pentium 4s that they want to. I thought they would easily crack 20 million this year. I thought that would be a no-brainer."

Even with Pentium 4 price cuts and SDRAM-compatible chipsets, Pentium 4 faces the slowest PC market in some time.

A new report to be released soon by IDC will show the U.S. PC market "underwater," Kay said, with negative growth for the year.

"There's still some activity in corporate, but it's pretty anemic," he said. "We're looking for seasonality in (the third and forth quarters), but it's going to be a gentle curve," meaning growth will return, but not to previous levels.

Despite the down market and the memory missteps, analysts have not written off Pentium 4 just yet.

"It was our sense when we were developing the forecast that not having the SDRAM solution until the second half is holding them back," said Dean McCarron, principal analyst at Mercury Research. "Once that's in place towards the end of the year, sales should pick up considerably. But it does not bode well for the summer."

Intel executives did not immediately respond to requests for comment.