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Intel, AMD to trim prices for holidays

The companies will ring in the holiday PC-buying season by cutting desktop chip prices in the next few days. Lower PC prices are likely to follow.

Intel and Advanced Micro Devices will cut desktop chip prices in the next few days to usher in the holiday PC-buying season.

Intel will reduce the cost of its Pentium 4 desktop chips by between 7 percent and 35 percent on Oct. 26, with the most expensive chips receiving the biggest whack, according to sources close to the company. The 3.2GHz Pentium 4 will drop from $637 in volume quantities to $417, a 35 percent drop, while the 3.0GHz Pentium 4 with an 800MHz system bus will decline from $417 to $278, a 33 percent reduction.

Typically, chip price cuts lead to lower PC prices in the subsequent weeks and, generally, help boost sales. This year, PC shipments are again showing double-digit growth and exceeding analysts' expectations. Both AMD and Intel reported better-than-expected earnings for the third quarter.

Intel's discounts follow the pattern of a ziggurat, the step pyramid of the ancient Mesopotamians. When the company cuts prices, the highest-priced chip takes on the price of the second most powerful chip, and so on. The 2.8GHz Pentium 4 with an 800MHz bus, for example, is now priced at $278, the future price of the 3.0GHz, but will drop to $218, the price of the 2.6GHz chip with an 800MHz bus.

The price drops, which came to light in July, were originally intended to pave the way for Prescott, a new chip with a number of new features.

Now, though, Prescott likely won't hit shelves until February. Instead, the cuts will smooth the runway for the Pentium 4 Extreme Edition, a version of the Pentium 4 with 2MB of performance-enhancing cache.

The company added the 3.2GHz Extreme Edition chip, which is almost identical to a Xeon chip for workstations, to its lineup late in the summer. Dell, among others, is expected to release a gamer PC with the chip circa the Nov. 16 kickoff of Comdex, the Las Vegas trade show.

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AMD, meanwhile, will likely cut prices on Monday. "While we do not have unequivocal confirmation of this yet, it is pretty much standard practice for AMD to cut prices a day after Intel's price cuts," Clark Westmount, an analyst at Smith Barney, wrote in a report earlier this month.

The extent and effect of AMD's price cuts, however, are more difficult to track. Like Intel, AMD posts its prices publicly, but the company often gives extra, negotiated discounts to large distributors and PC makers, which in turn often pass on the additional discounts when they sell chips to dealers and smaller manufacturers. As a result, the "official" price is often higher than the street price.

Currently, the Athlon FX 51 sells for $733, while the Athlon XP 3200+ costs $433, and the Athlon XP 3000+ is priced at $278. Intel and AMD could not be reached for comment. Both companies maintain a policy of not commenting on future price actions.

ZDNet Germany's Kai Schmerer contributed to this report from Munich.