Intel Low-Balls Low-End Parts

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May 27, 1999 (12:00 AM EDT)

By Mark Hachman,

Intel Corp. will pull in the scheduled price cuts for its Celeron desktop microprocessors by a month in an earlyattempt to shoulder Advanced Micro Devices Inc. out of PCs designed for the holiday market.

The price reductions, originally scheduled for July and September, have been reset for June 6 and Aug. 1, respectively, while the discounts have deepened. The release date for the 500-MHz Celeron has also been moved up a month to Aug. 1.

By plying OEMs with chip discounts, Intel will try to pump up PC sales during the slow summer months, while demonstrating a renewed commitment to lower prices, industry sources and analysts said.

According to its revised schedule, Intel will drop its 466-MHz Celeron prices to $147 in June and to $137 in August, at which point it will introduce the 500-MHz Celeron at $177, industry sources said.

The price of a 370-pin "socketed" 433-MHz Celeron, meanwhile, will drop from $113 in June to $103 in August, and the 400-MHz version will fall from $93 to $79 in the same interval. The 366-MHz Celeron, however, will remain unchanged at $69, while the 333-MHz version will cost only $67 before Intel stops producing the chip in August. Those Celerons that ship in Intel's Single-Edge Processor Package (SEPP) will command about a 15% premium.

Intel will also lower the price of the 400-MHz Pentium II by approximately $20 in June, to about $173, sources said.

All prices reflect 1,000-unit quantities; Intel will offer an additional 8% to 15% discount on chips purchased in quantities of 10,000, industry sources said. A spokesman for the Santa Clara, Calif., chip maker declined to comment on any price reductions.

Mark Edelstone, an analyst with Morgan Stanley Dean Witter, San Francisco, said Intel has retained its strategy of adding high-end, expensive processors while quickly dropping the price of low-performance parts. "And it keeps AMD guessing," he said.

AMD confirmed that it has reduced prices across its entire microprocessor line in reaction to price cuts Intel made earlier this month. The Sunnyvale, Calif.-based company trimmed its 450- and 400-MHz K6-III tags to $220 and $185, respectively.

AMD also cut prices on its mainstream K6-2 processor line. High-end 475-, 450-, and 400-MHz K6-2's were reduced to $152, $112, and $82, respectively. AMD will sell its mid-range 380- and 366-MHz K6-2's for $71 and $61, respectively, while OEMs designing low-end PCs may purchase the 350- and 333-MHz K6-2 for $56 and $51, respectively.

AMD declined to say if it would follow Intel's lead and also lower prices in June and August. But a spokesman acknowledged that if Intel "does something unexpected, then it's something we'll have to react to."

With a cash infusion from the recent sale of its Vantis programmable-logic chip subsidiary as a buffer, AMD may have better protection than during past skirmishes. In February, AMD cut processor prices in response to Intel's own reductions, a move that contributed to AMD's quarterly loss of $128 million on sales of $632 million.

Even before Intel's latest round of reductions takes effect, the effects of its manufacturing prowess are forcing low-end PC microprocessor spot prices downward.

The recent discontinuation of National Semiconductor Corp.'s MII processor line could drive spot prices even lower if the company clears its inventory and saturates the market, according to some analysts. Moreover, AMD said last week that its processor yields are vastly improved; and analysts said it could ship more than a million additional chips this quarter.

Sandy Chen contributed to this story.