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Intel, AMD to cut prices next week

Once Intel discounted its processors just four times a year, but these days price cuts come fast and furious.

Intel and Advanced Micro Devices will cut mainstream processor prices by roughly 20 to 30 percent next week in the latest, and perhaps last, round of price jockeying between the two companies for 1998.

Intel's cuts, set for October 25, will reduce prices on its Xeon processors for servers and workstations as well as its desktop Pentium II and Celeron lines, said numerous sources. AMD will follow the next day with reductions that will keep its K6-2 and K6 processor lines at 25 percent below the price of Intel chips running at the same speed.

As a result, consumers can expect to start seeing mark-downs and discounts on PCs for the holiday season. Full-featured, mainstream PCs powered by the 350-MHz Pentium II chip will begin to approach the $1,000 mark at retailers such as CompUSA.

The October surprise: Intel, AMD prices
Intel's October prices-wh.
Chip Speed (MHz) Sept. Price* Oct. 25 Price**
Xeon 400 $2,836 $1,980
Xeon 450 $1,124 $825
Xeon 400 $1,124 $825
Pentium II 450 $669 $560
Pentium II 400 $482 $375
Pentium II 350 $299 $213
Pentium II 333 $234 $180
Celeron 333 $192 $159
Celeron 300 $149 $138
AMD's October prices-ret.
Chip Speed (MHz) Sept. Price* Oct. 25 Price**
K6-2 400 NA--due in Nov. $269
K6-2 380 NA--due in Nov. $199
K6-2 350 $224 $150
Sources: CNET sources.
* Official price on September 13. Current prices are lower. ** Prices are estimates. Actual wholesale and retail prices will vary.

The 350-MHz class of Intel-based PCs should be well within the $1,000 to $1,400 price band. Currently, these systems range from $1,200 to $1,800. AMD- or Cyrix-based systems will cost even less.

1998 has been a watershed year for processor marketing. In previous years, Intel and its competitors would cut prices on a quarterly basis.

But intensified competition, combined with the rise of the sub-$1,000 PC, has accelerated price drops this year. Next week's cuts will mark the sixth cut on desktop chips for the year.

The companies are also now offering multiple, and occasionally overlapping, lines of processors for different price points. For desktops, Intel has both the Pentium II and lower-end Celeron lines. Similarly, AMD has the K6 and K6-2 lines as well as the upcoming K6-3.

After the dust settles next week Intel's 450-MHz Pentium II, its fastest desktop chip, will sell for around $560 in volume, a relative low, historically speaking, for a top-of-the-line Intel desktop chip. Meanwhile, AMD's fastest chip, the upcoming 400-MHz K6-2, will go for around $269. At the other end of the spectrum, both companies will be selling chips for under $100 at retail.

While the cuts represent a 20 to 30 percent drop from the wholesale chip prices the companies posted in September, the actual discounts that vendors and consumers will experience as a result of Monday's actions will vary and in many cases be smaller. The price paid by vendors, distributors, and eventually consumers varies on a daily basis depending on supply and demand as well as the volume purchased, according to computer executives and chip brokers.

A number of chip dealers, for instance, are selling the 350-MHz Pentium II and 333-MHz Pentium II for around $285 and $225, respectively. These prices are above the price cuts slated for Monday, but below the wholesale volume price posted by Intel last month. Similarly, AMD's 350-MHz K6-2 sold in retail at below the "official" wholesale price on the date the chip was released. At best, the cuts mean that consumers will start to see discounts on PCs in the weeks following the cuts.

While lower prices erode per-chip profits, the cuts have stimulated demand somewhat, say analysts. PC sales will grow in the 10 to 12 percent range this year and grow to over 13 percent next year as a result of cheaper systems, according to a recent report from International Data Corporation. Meanwhile, both Intel and AMD reported earnings which exceeded expectations in the third quarter.

The discounts also reflect the release of Intel's new Katmai desktop chips coming in the first quarter of 1999. These chips contain new MMX technology, sometimes referred to as MMX 2.

"This makes room for the 450-MHz and 500-MHz Katmai processors," Kelly Spang, an analyst at Technology Business Research, said earlier this month. The 450-MHz Katmai will start at under $600 in volume quantities, Spang estimated.

Intel is an investor in CNET: The Computer Network, publisher of