Prices on older Pentium II processors have inched up in the past two weeks as Intel begins concentrating production on faster versions of the Pentium II and on new low-cost Celeron chips.
The chips affected are the older 233-, 266- and 300-MHz Pentium IIs that are found in the midrange segment of the market, where systems are typically priced from about $1,000 to $1,800. Faster 350-, 400-, and 450-MHz chips are now coming to market in volume to take their place.
Prices of other components, such as memory chips, also have been inching up due to decreasing supply. In turn, this could moderate recent dives in PC prices.
"The last 18 months have been a banner period," said Roger Kay, an analyst at International Data Corporation. "Maybe the rate of the decline will slow for a while."
The recent price history of the 300-MHz Pentium II provides the clearest picture of the trend for Intel chips.
Toward the beginning of the year, a gray market in "remarked" 300-MHz Pentium IIs was reported in Europe and North America. Shady dealers were pawning off 233-MHz and 266-MHz Pentium IIs as 300 MHz chips because a 300-MHz shortage existed.
That changed rapidly. By the end of May, demand for the chip faded. Intel's official wholesale volume price for the chip was $375. Retailers, however, were selling it at retail for $247 to $270, 36 percent less than wholesale. Excess quantities lay behind the discrepancy.
But now the situation is reversed and the chip is again a hot item. The chip sells for $209 in wholesale and $359 in retail, when it is available. "We don't have anything at 300 MHz and below. The [computer vendors] have scooped them up," said a representative at CMP Express, a computer retailer.
Prices on the 266-MHz Pentium II have gone through similar gyrations.
Other retailers have said that the 300-MHz, 266-MHz, and 233-MHz chips have been difficult to find, as have any Pentium MMX chips.
Some analysts believe that Intel may be preparing to phase out these slower Pentium II chips for desktop PCs to emphasize faster, pricier 350-, 400-, and 450-MHz Pentium II chips which also include high-performance "bus" technology for speeding up the rate at which data is fed to memory from the processor.
Intel earlier also announced that it stopped manufacturing Pentium MMX chips for desktops.
An Intel shutdown in July may also have some correlation to the current price fluctuation. The company shut down two plants for nine days in July to clear up inventories of chips made on the 0.35-micron process, an older manufacturing process. Chips at 300-MHz Pentium II and below are made on the 0.35-micron process.
An Intel spokesman noted that the company has dropped processor prices regularly on its chips since the beginning of the year, but the company's price cuts do not correlate to the recent fluctuations. If anything, Intel's prices have been going down during this period. Intel cut the price on the 300-MHz Pentium II in June from $375 to $305 and then again in July to $209.
The jump in prices, however, will not mean that Intel will once again find itself outside of the sub-$1,000 computer segment. The company will cut prices again in September and October. Increased competition from Advanced Micro Devices will also help to keep processor prices down.
In addition, Intel will release two new versions of its Celeron processor on August 24. The new Celerons will run at 300 MHz and 333 MHz and contain integrated high-speed cache memory. The chips are expected to cost $179 and $139 in volume quantities, according to Ashok Kumar, an analyst with Piper Jaffray.
AMD, in fact, could gain market share during this period, said one computer dealer, because its chips are well below Intel's in price. A 300-MHz K6-2 sells for around $155, the dealer added.
Intel is an investor in CNET: The Computer Network.