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New Celerons, systems coming Monday

Another salvo in the processor price war will be launched on Monday when Intel releases the latest edition of its Celeron processor, a 433-MHz version.

Another salvo in the processor price war will let fly on Monday when Intel releases the latest edition of its Celeron and computer vendors unveil machines based around the low-end chip.

Intel will release a 433-MHz version of Celeron at the beginning of next week, said sources close to the company and chip dealers. But computer vendors will try to maximize weekend sales by introducing consumer systems in stores and on Web sites on Sunday.

The latest Celeron will also inevitably prompt a new round of processor price cutting. The chip will cost around $160 or less in volume and around $180 as a retail product, and to clear the shelves, Intel will likely cut the prices of its current Celeron processors, which sell for between $133 and $63 in volume quantities, between 10 to 20 percent, said sources.

These cuts will then certainly prod archrival Advanced Micro Devices to cut the price of its K6-2 processors. The last two times Intel cut Celeron prices, AMD followed hours later with its own cuts. In volume, the K6-2 is now priced one dollar less than Celeron chips running at the same speed.

The processor price war has been one of the dominant issues in the computer industry this year. Intel steadily lost ground to AMD in the consumer PC market last year with the rise in popularity of sub-$1,000 computers. To combat the trend, Intel announced early this year that it was both stepping up price cuts and accelerating the road map for its Celeron processors.

"The two things customers look at are megahertz and price," said Mike Aymar, a vice president at Intel.

The 433-MHz chip coming out Monday was originally expected to come out in the second quarter at a higher price, according to sources. It will be followed by a 466-MHz Celeron and a chipset with integrated 3D graphics in the second quarter. A 500-MHz Celeron comes out in the first part of next year.

Despite the quickened pace, which company, if either, is winning the war is a subject of a debate. AMD beat Intel for retail market share in January, according to a study from PC Data: Nine of the ten largest PC makers now sell AMD-based computers. Recently, Intel stalwarts Gateway and Toshiba rolled out K6-2 based computers for the U.S. market.

Unfortunately, AMD also recently announced that it would report a significant financial loss for the quarter and lay off approximately 300 employees due to, among other reasons, pricing pressures inflicted by Intel. Further, AMD admitted that it has not been able to produce as many 350-MHz and 400-MHz K6-2 chips or K6-3 chips as expected. The shortfall has been attributed to AMD's inability to keep up with the advances to Intel's road map.

"It's not like AMD is a total screw-up," said A. A. LaFountain, semiconductor analyst at Needham & Company, said recently. "AMD picks up some market share, which leads Intel to become more aggressive on pricing. The only response on AMD's part is to accelerate the product development cycle...AMD is fighting a two-front war on technology and volume."

As a result of all the circumstances, AMD's slight lead in retail sales in January may have lapsed, speculated Linley Gwennap, publisher of MicroDesign Resources..

On the other hand, the price war has prevented Intel from exploiting all the potential profit advantages from its higher-end Pentium III and Xeon chips. These chips carry larger margins, but now that extra margin is being used to subsidize Celeron pricing.

"Xeon has been growing fast enough to keep our average selling prices flat," said Aymar.

Low chip prices have also been a double-edged sword for computer makers. Many vendors, especially the largest PC makers, are seeing an increase in the number of PCs they are shipping, but the low prices are depressing their revenue figures.

Although not officially released until Monday, certain resellers started selling the chip this week for between $180 and $190. These resellers are also selling the latest Celerons at retail at the upcoming discount prices. The 400-MHz version of the chip is selling for approximately $143 in the Socket 370 package and $168 in the Slot 1 package. The 366-MHz versions of the chip are selling for $99 and $111 while the 333-MHz is going for $78 and $79.

The 300-MHz Celeron, meanwhile, a favorite chip for "overclocking," appears headed for the scrap heap. Computer dealers say the processor is coming to the end of its natural life and is difficult to find.