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Pentium II notebook glut feared

The introduction of the first mobile Pentium II chip will trigger a flood of new notebooks--leading to fears of bloated inventories.

When Intel announces the first Pentium II processors for mobile PCs next week it will trigger a flood of notebooks from the likes of Gateway 2000 and Dell Computer.

But there's more to it than that. Some notebook vendors are already experiencing bloated inventory levels, and the situation could worsen as a raft of new portables with top-of-the-line mobile chips arrives in April.

"On the high end [systems with 233- and 266-MHz processors], there's not a whole lot of inventory. With the 166-MHz and 150-MHz systems there's tons of product in the channel, especially from IBM," said Scott DeTota, a manager with Insight (NSIT), a large reseller of computer products. DeTota expects aggressive price cuts on these older models by around May.

A notebook price war is hitting full stride as vendors try to sell off excess inventory, confirms to Josh Council, notebook PC analyst with Associated Research Services.

That situation could worsen as notebook vendors roll out more models with the new chips, causing people to pass over older systems with the Pentium MMX chips.

Undaunted, a host of vendors will join Intel (INTC) on April 2 in introducing their latest wares.

Intel will initially release 233-MHz and 266-MHz versions of the portable chip, according to sources. The chip will be part of the Deschutes family of Pentium II processors, meaning it will be produced on an advanced manufacturing process better suited to chips that go into portables.

Direct marketer Gateway 2000 (GTW) will introduce four new models, according to sources close to the company.

Heralding an age of ubiquitous extra-large notebook displays, the company has decided to go with 14.1-inch active matrix displays on all of its new models, including the midrange 5100 series. A 5100SE with 233-MHz Pentium II processor, 2GB hard drive, and 20X CD-ROM will be priced at $2,899, sources said, while a system with a 266-MHz processor, a 4GB hard drive, more memory, and a modem will be priced at $3,899.

Gateway will target the corporate market with two new models in the 9100 series. The 9100 SE will offer a 233-MHz Pentium II processor, 4GB hard drive, and a removable 20X CD-ROM/floppy drive for $3,499, while the 9100XL adds the 266-MHz Pentium II processor, extra memory, and a DVD-ROM drive for $4,899.

Dell (DELL) is expected to introduce at least three new models, including a Latitude notebook for corporate customers that will ship with a 266-MHz Pentium II processor, 13.3-inch display, and 3.2GB hard drive for less than $4,000, according to industry sources.

Dell will also offer two notebooks in its Inspiron line of consumer notebooks. A system with a 266-MHz Pentium II processor, a 13.3-inch display, and 3.2GB hard disk drive will be priced at under $3,300, while a 233-MHz Pentium II system will be priced under $3,000, sources said.

As previously reported, IBM and Hewlett-Packard will release new lines as well. The 1.5-inch-thick IBM ThinkPad 600 series will cost between $3,000 and $4,800.

Meanwhile, NEC Computer Systems will preview a Versa notebook that measures only 1.3 inches thick and weighs 4.5 pounds but can accommodate a disk drive and extra batteries, said sources close to that company. Typically, manufacturers do not include extra batteries and extra drives for their thinnest notebooks.

Other notebook vendors that will release notebooks, or at least preview coming models, include market leader Toshiba, Fujitsu, and Acer.

While 1998 is getting off to a slow start for notebooks, Mike McGuire, portable analyst for Dataquest, expects sales to pick up rapidly by the end of the year as users upgrade older systems as a part of a regular biennial cycle.

Still, analysts see profit margins shrinking in the notebook market, which traditionally has provided a haven from the more cutthroat desktop PC market. ARS's Council estimates that last year, manufacturers enjoyed on average a 12 to 13 percent margin; but this has shrunk to between 10 and 11 percent so far this year. The average selling price of notebooks sold to businesses declined from a peak of $3,088 in 1997 to just over $2,722 in February, according to ARS research.

Intel is an investor in CNET: The Computer Network.