Intel will kick off aggressive chip pricing this weekend amid high PC inventories and slow sales.
The chipmaker, sources close to the company say, will cut prices by more than 40 percent on some desktop chips. Many chips in its mobile arsenal will fall by more than 30 percent.
Prices on the Pentium 4 will fall by more than 20 percent, pushing the chip deeper into the mainstream desktop PC market. That cut, along with Pentium III and Celeron discounts, will also bring Intel's chip prices more in line with those of rival Advanced Micro Devices. In recent months, prices on similarly configured AMD systems have been on average about $150 cheaper than their Intel counterparts.
Intel will reduce the price of its 1.5GHZ Pentium 4 chip by 21 percent, from $819 to $644. The chipmaker will cut its 1.4GHz Pentium 4 by 23 percent, from $575 to $440, sources said.
Meanwhile, sources added, Intel will slash the price of the 1GHz Pentium III chip from $465 to $268, a 43 percent reduction.
Although Intel continues to dominate the portable notebook segment, the upcoming discounts will likely help drive notebook sales, a more profitable product category for PC makers and for Intel. The move could also create a more difficult environment for AMD's first Athlon chip for notebooks, due out this quarter.
Although the two companies are engaged in what looks like a price war, it's not voluntary. PC prices began to slow last summer and then dropped off a cliff toward the holidays. Now, most PC makers have excess inventory, which means Intel and AMD have excess processors.
"There's a glut of everything in PC components right now. PC processors are plentiful, and AMD and Intel are butting heads at all levels, top to bottom," said Mike Feibus, an analyst at Mercury Research in Scottsdale, Arizona.
"There's a price skirmish going on," he added. But "I wouldn't call it a war yet. Neither company wants an all-out war in a period of [market] weakness."
Intel has predicted a tough first half in terms of demand. The company said in its most recent earnings statement that it expects a 15 percent drop in revenue for the first quarter.
In the face of the softening PC market, Intel vowed to use excess production capacity to move the Pentium 4 more quickly into high-volume production, accelerating the crossover from Pentium III into the latter half of this year.
Although the cuts come in reaction to the supply situation, both Intel and AMD are also concerned about losing any ground at major PC makers.
"There's pressure to hold on to design wins, and the best way to do that is with price," Feibus said.
Intel will also reduce prices on the rest of its desktop Pentium III and Celeron family. The 933MHz Pentium III, for example, will receive a 30 percent price cut from $348 to $241, sources said.
Lower prices on desktop Celeron chips will take shape in the form of a 34 percent shrink on the 766MHz, which will drop from $170 to $112, sources said. The 733MHz is set to drop 21 percent from $112 to $88.
Mobile price cuts, designed to make room for the introduction of new chips, such as an ultra-low-power Pentium III for notebooks, are expected to be at least 30 percent.
The 850MHz mobile Pentium III will, for example, fall 30 percent from $722 to $508, sources said. The 800MHz mobile Pentium III will drop 32 percent from $508 to $342. And the 750MHz Pentium III will fall 33 percent from $401 to $268, sources said.
Intel's mobile Celeron chips will see price drops of 30 percent or more, as well, with the 700MHz mobile Celeron falling from $181 to $123. Meanwhile, the 650MHz mobile Celeron will be reduced from $134 to $96 and the 600MHz from $96 to $75.
Intel will also lower the price on its 1GHz Pentium III Xeon chip with 256KB of level 2 cache. The chip will be reduced 17 percent to $425, sources said.
When it comes to reducing its own prices, an AMD spokesman said the company feels its most recent reductions are sufficient. AMD cut Duron prices with the introduction of its new Duron 850MHz chip earlier this month. The 800MHz Duron was reduced from $170 to $112, while the 750MHz Duron fell from $112 to $88.
Meanwhile, the market was already beginning to adjust somewhat to the new prices. Intel's 1GHz Pentium III, for example, could be found for as little as $308 on PC component pricing site Price Watch on Tuesday afternoon.
Retail-packaged AMD 1.2GHz Athlon chips could be found listed for as little as $269.
"There's always [price] movement on the week before an anticipated price cut," Feibus said.
News.com's Michael Kanellos contributed to this report.
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