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Intel to cut Pentium II prices

The reductions will be the latest in this year's flurry of pricing activity by the industry's leading chipmaker.

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

The reductions will be the latest in this year's flurry of pricing activity by the industry's leading chipmaker. The July round would be the fourth desktop processor price cut in 1998, and at least two more are scheduled for September and October. In past years Intel has cut prices four times in the whole year.

Meanwhile, Intel has moved forward the release dates on its low-cost Celeron processors twice.

While Intel maintains the cuts and the shortened release dates stem

Intel price cuts
Chip June 8 Today July 26
450-MHz Pentium II n/a n/a $665*
400-MHz Pentium II $722 $633 $585
350-MHz Pentium II $519 $433 $420
333-MHz Pentium II $412 $333 $315
300-MHz Pentium II $305 $250 $210
266-MHz Pentium II $412 $209 n/a
300-MHz Celeron $155 $125 $104
266-MHz Celeron $106 $92 $80
Sources: Intel, Pricewatch, motherboard vendors.
* Not out until August.
from better-than-anticipated result in rolling out its most advanced commercial production process, referred to as the 0.25-micron process, 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 trying to boost sales and win market share from Advanced Micro Devices, which has been rapidly gaining market share in the hot sub-$1,000 computing segment.

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

The 450-MHz Pentium II will come out at a price of $655 in volume quantities, according to sources. The chip will follow the 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. 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.

Prices listed nearby will be available to circuit board vendors and other wholesale purchasers. Price cuts could be lower for computer vendors, according to Ashok Kumar, an analyst at Piper Jaffray. The 450-MHz chip for instance, will probably sell for around $625 to computer vendors in large quantities, while the 400-MHz Pentium II will go for $550. Single-lot retail prices, 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 new Celerons containing integrated high-speed cache memory that are coming in August. After the price cuts, the older 300-MHz version of Celeron without cache memory will sell for $104, said Kumar, while the 266-MHz version will drop to $80.

Intel is an investor in CNET: The Computer Network.