Intel may halve Pentium 4 prices

From...

By Matt Berger

(IDG) -- Intel is expected to cut the price of its fastest microprocessor by more than 50 percent, one financial analyst firm says -- and the move is likely to mean cheaper PCs for buyers.

Lehman Brothers Holdings analyst Dan Niles expects Intel to cut the cost of its Pentium 4 line of chips by as much as 54 percent by the end of August. The chip maker is preparing for the next battle in its ongoing price war with Advanced Micro Devices.

Intel controlled about 79 percent of the microprocessor market in the second quarter of 2001, compared with AMD's 21 percent market share, according to a research note from Lehman Brothers. AMD has continually grabbed market share from Intel for the past year, which has caused Intel to react, Niles says.

In the second quarter of 2001, AMD increased its processor shipments by 23 percent from the same quarter a year ago. Intel shipped 12 percent fewer processors in the same time frame.

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"We believe Intel is planning to detonate a price bomb on AMD," Niles writes in his research note.

Stalled consumer demand for PCs is also driving the price cuts, Niles says.

Intel "wouldn't be doing this if they didn't see a problem with the demand side of things," he adds.

An Intel spokesperson declines to comment, saying the company does not discuss future price moves.

Vendors May Act Fast

PC makers typically react as quickly as possible to price cuts, notes Rob Enderle, an analyst at Giga Information Group. In some cases, manufacturers such as Dell and Compaq who see price cuts on the horizon will actually reduce the cost of PCs before chip makers adjust their prices.

"The vendors are in the middle of this price war," Enderle says. "Any cut that Intel makes gets transferred almost immediately to consumers."

Lehman estimates Intel's current fastest processor, a 1.8-GHz Pentium 4, will fall in price from $562 to $260 (in 1000-unit volumes, as sold to manufacturers). The analyst expects slower Pentium 4 chips and Intel's Pentium III processors to fall in price by between 12 percent and 45 percent. By those estimates, the future price of a 1.7-GHz processor will match the current price of the 1.0-GHz Pentium III chip, which sells to manufacturers today for $193. Those price reductions will be followed by another round of cuts in late October, Niles predicts.

AMD is likely to respond with price cuts of its own, analysts say.

"It puts AMD under a huge amount of pressure," Enderle says. "I'm not sure they have any choice [but] to lower prices."