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Price cuts spurred by Intel

Gateway, HP reductions anticipate coming Intel chip price cuts.

In the past two days, Compaq (CPQ), Gateway 2000 (GTW), and Hewlett-Packard (HWP) have all announced major price reductions on desktop and notebook computers.

At least in the case of Gateway and HP, the reductions appear to anticipate price cuts on Intel processors slated for the beginning of next month.

Set for November 1, the upcoming processor price cuts are expected to drop current processor prices from 9 to 22 percent for OEMs, according to Ashok Kumar, semiconductor analyst with Southcoast Capital.

Prices for the Pentium II 266-MHz chip are expected to drop from $610 to $555 while the Pentium II 233-MHz will likely sink from $480 to $415, reductions of 9 percent and 14 percent respectively, according to Southcoast.

More severe declines will be seen in the Pentium MMX family. The 233-MHz version of the Pentium MMX processor will drop from $370 to $315, a decrease of 15 percent. The 200-MHz version of the chip will go from $255 to $199, a 22 percent decline, while the 166-MHz version will sink from $135 to $115, a 15 percent decline, said Southcoast.

Meanwhile, a classic Pentium chip running at 200 MHz will sink to $99, down from $115, while a 166-MHz version of the chip will drop to $89 from $99. All quoted prices are for OEMs buying in bulk.

Intel has been aggressively trimming chips prices this year: Pentium II prices have dropped over 20 percent since the first quarter while Pentium MMX prices have dropped over 60 percent.

Presaging Intel's moves, Hewlett Packard yesterday dropped prices on its Vectra line yesterday by up to 16 percent, bringing the price of a Vectra VE with a 166-MHz Pentium MMX chip to $958. A Kayak workstation with a 300-MHz Pentium II, on the other end of the spectrum, is now $2,955.

Gateway yesterday dropped the cost of a high-performance E3110-1300 system with a 300-MHz Pentium II and a 19-inch monitor under $3,000. The company also said the E3110-1233 system with a 233-MHz Pentium II would be priced at $1,979.

The aggressive business system pricing mirrors Gateway's strategy in targeting the consumer PC market, where the company just last week announced a PC with 233-MHz Pentium II processor and a 17-inch monitor for under $2,000.

Intel in an investor in CNET: The Computer Network.

Jim Davis contributed to this report.