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Processor prices plunging for summer

Many speed grades of Intel and AMD processors are already selling substantially below posted prices due to a surplus in the market.

Processor prices will plunge 15 to 20 percent in July as Intel and rival Advanced Micro Devices make deep cuts, part of an ongoing market share battle that will lead to more powerful and less expensive PCs.

Many speed grades of both companies' processors are already selling substantially below posted prices due to a surplus in the market. In turn, this is leading to strong discounts on "white box" or house-brand computers.

"Supply is overshadowing demand. It's not as dramatic as the DRAM [memory chip] situation, but it's known to be there," said Mark Giudici, director of the microprocessor supply and pricing service at Dataquest.

Intel's 300-MHz Pentium II, for instance, officially sells for $375 to wholesale customers in volume. Several retail chip dealers, however, are offering the chip to consumers for $247 to $270, a 36 percent discount. 266-MHz Pentium IIs are selling for $223, $23 below the $246 volume price.

AMD's K6-2 chip, which was only released yesterday, is already available over the counter for more than 30 percent below the volume wholesale price. At Once, an AMD reseller, is selling the 266-MHz K6-2 for $127 in single lot quantities, $60 under AMD's posted wholesale price of $187 On June 8, At Once will begin to sell the 300-MHz version of the K6-2 with a fan for $172, a company sales representative said, more than $100 below the posted wholesale price (without fan) of $281.

"It's a good time to be a buyer," Giudici. "You can find a $600 computer with monitor that two years ago was at the top-of-the-line."

"We wouldn't exactly say it's an oversupply, but pricing has been pretty soft," added Dean McCarron, principal at Mercury Research.

Intel will cut the price of its mainstream microprocessors (Pentium II processors and below) by around 20 percent in July, said Ashok Kumar, semiconductor analyst at Piper Jaffray. This will mean that the 300-MHz version of the chip will sell to computer vendors for around $195.

AMD will keep its processors at a 25 percent discount below that, as the company traditionally pegs its chips at a 25 discount of Intel's processors. The 333-MHz version of the K6-2 will sell for $228, Kumar said, while the 300-MHz version will sell for $147.