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Pentium prices drop prior to official cuts

Intel plans to cut prices on its Pentium 4 chips soon, but many dealers are already lowering prices as a way to clear out inventory.

Intel plans to cut prices on its Pentium 4 chips soon, but many dealers have already lowered prices on the processors as a way to clear out inventory.

Retailers are selling Pentium 4 chips for less than Intel's official wholesale prices, meaning consumers can pick up chips, or complete computers, at early, low prices. Intel sells the 2.5GHz Pentium 4, for example, to manufacturers for $637 in 1,000-unit quantities. Retailers on Pricewatch, however, are selling the chips for between $400 and $500 apiece. Pentium 4s running at 2.4GHz and 1.9GHz sell at a similar discount.

Some retailers are even booking orders for the 2.8GHz Pentium 4, due to launch Aug. 26, offering the chip for $578 to $588. Intel declined to comment on any pending discounts. Sources, though, said the company plans to release four new processors, with 2.8GHz being the fastest, and follow up with price cuts.

The pricing discrepancy is likely a sign that excess inventories exist in the market, said Dean McCarron, principal analyst at research firm Mercury Research. Typically, Intel chips at retail sell for more than their posted wholesale prices.

During slow sales periods, however, some distributors and PC manufacturers will sell off their component surpluses in the "gray," or unofficial, market, sometimes at a loss. These discounts are then reflected at retail.

"If there are excess parts in the channel, people want to sell them off," McCarron said. As for Intel's official wholesale prices, he added: "It would not surprise me that OEMs (computer manufacturers) are paying more than retail prices."

After a fairly strong first quarter, the PC market has been stuck in neutral, with component manufacturers and computer makers racking up less-than-expected sales and warning of a hazy outlook. Also, a scramble to make up for first-quarter shortages of memory and flat-panel displays, combined with the subsequent drop in PC sales, has led to gluts and price declines.

Extraordinary discounts tend to pick up right before a major price cut as a way for companies to get rid of soon-to-be discounted parts. Intel has not cut Pentium 4 prices officially since June. The September cuts, moved forward from October, are expected to be deep. Still, anticipatory discounting is relatively unusual for Intel parts. "Traditionally, Intel keeps better control over their channel inventory," said McCarron.

AMD chips often sell for less than their official wholesale price, partly because of gray-market activity and special negotiated pricing offered to large customers. The Sunnyvale, Calif.-based company is expected to come out with new Athlon chips and price cuts of its own soon.