Tech Industry

450-MHz chip spurs price cuts

The reductions are the latest in this year's flurry of pricing activity by Intel.

A new round of price cuts arrived from Intel, while a 450-MHz chip--the fastest Pentium II yet--should hit the streets next month.

The reductions are the latest in this year's flurry of pricing activity by the chipmaking behemoth. The July round is the fourth desktop processor price cut in 1998, and at least two more are scheduled for September and October.

Both will likely be deeper than estimates from the early part of the year. In past years Intel cut prices four times in the whole year.

Intel maintains the cuts and

Intel price cuts
Chip June 8 Today Retail
450-MHz Pentium II n/a $665* n/a
400-MHz Pentium II $722 $589 $609
350-MHz Pentium II $519 $423 $437
333-MHz Pentium II $412 $316 $337
300-MHz Pentium II $305 $209 $234
266-MHz Pentium II $198 $159 $178
300-MHz Celeron $159 $112 $122
266-MHz Celeron $106 $86 $92
Sources: Intel, motherboard vendors.
* Not out until August.
last week's forwardly revised release date for new Celeron processors stem from better-than-anticipated results in rolling out its most advanced commercial production process, referred to as the 0.25-micron process, but various analysts have said that excess supplies of PCs and processors as well as slower demand have also conspired to drive down prices.

In addition, Intel is feeling pressure from Advanced Micro Devices, which has been rapidly gaining market share in the hot sub-$1,000 computing segment.

An AMD spokeswoman stated that, AMD can be expected to follow with cuts that will put its processors at 25 percent below equivalent Intel chips.

Expected sooner rather than later, the 450-MHz Pentium II will follow today's price cuts and appear in time for the "back to school" computer buying season, according to an Intel spokesman. Sources say that means a release in August.

The fastest Pentium II will come out at a price of $655 in volume quantities, according to the sources. Some retailers are already booking advance sales for the chip at $779 in single-lot quantities.

While this price will make the 450-MHz version the most expensive Pentium II, it will cost less than earlier anticipated. In the spring, the 450-MHz chip was expected to debut for a price of $776, according to an analyst at Technology Business Research. Last month, the debut price was estimated at $669 by the consulting group.

The debut price will also be lower than the historical premiere price of Intel's high-end chips. Just a year ago, the 300-MHz Pentium II was dropped from $1,900 to $850, for example.

The prices listed above apply to 1,000-lot quantities and are available to circuit board vendors and other wholesale purchasers. Prices are lower for large-volume computer vendors, with discounts reaching as high as 15 percent, according to some analysts' estimates. Ashok Kumar, an analyst at Piper Jaffray, expects the 450-MHz chip will probably sell for around $625 to vendors in large quantities. Single-lot retail prices for consumers, of course, will be higher.

Although cuts reduce revenue, the most recent round has stimulated demand. "The PC market picked up in June driven by Intel's price cuts and the release of Windows 98," Dan Niles, semiconductor analyst for BancAmerica Robertson Stephens said recently.

The stimulated demand, combined with the reduction of PC inventory and the fall's traditional seasonal uptick, could mean a good second half, Niles added.

Mark Edelstone, semiconductor analyst for Morgan Stanley, also remains bullish on second-half demand, stating earlier that price cuts boosted June demand and will likely continue their magic in the second half. Nonetheless, Morgan slightly lowered its 1998 and 1999 earnings estimates in June because the September and October price cuts may be deeper than earlier anticipated.

PC makers will see more sales from price cuts, but will have to fight for unit growth rates two to three times higher than the industry average to sustain total earnings, said Kumar. "Prices are dropping through the floor and it will only get worse," he said. By the first quarter next year, the 350-MHz Pentium II machine will be hovering close to the $1,000 price point.

Celeron prices are also being slashed in anticipation of two Celerons containing integrated high-speed cache memory that are now coming in August.

Intel is an investor in CNET: The Computer Network.