Timna chip turns back the clock

Intel's new chip goes against the gigahertz-happy grain -- trying to balance price and performance. Can it revive the sub-$600 PC market?

Clock-speed isn't everything. And that reality is about to be driven home by Intel's forthcoming Timna chip.

Even if the chip doesn't succeed, Timna will map out a new course for PC processors and the machines they power. Instead of packing more clock-speed, the chip aims to balance performance with cost -- offering consumers a decent level of performance with integrated features that cut manufacturing overheads.

When it's introduced in the second half of this year, Timna will be a respectable 600MHz -- a long way behind the more expandable (and expensive) 1GHz Athlon and Pentium chips. If Timna takes off, though, analysts say the new chip might not only power Internet appliances and open up a new market of cheap small-form factor PCs -- it could revive the ailing sub-$600 (£396) desktop market.

"No one's going to rush out and buy a PC because it has a Timna chip in it," said Steve Baker, director of analysis at market researcher PC Data in a recent interview with ZDNet News. However, if Compaq or Hewlett-Packard could offer Timna-based PCs at $499 or $549, "that will help expand the market," he said. For instance, Timna could help a company like low-price leader eMachines, which retails desktops for an average of $566, drop its prices even more.

Timna, which sources say will be marketed as a Celeron chip, is a revealing departure for Intel. Besides the fact that it's the first time the chip giant has developed from the ground up a processor to suit the low-cost PC market, Timna reveals Intel's thinking about where that market is headed -- and that's towards integration.

Timna cuts manufacturing costs for PC makers by integrating a processor core, graphics engine and memory controller. (According to sources, Timna uses technologies pulled from a number of different places, including Intel's Pentium III "Katmai" processor core and 810 chip set for its graphics and memory controller.)

Of course, Timna is not the first attempt at an integrated PC processor. Cyrix lead the way with its Media GX, but that chip's success was limited by poor overall performance. One of the challenges for Timna will be providing similar performance to a discreet Celeron chip to be adopted by consumers. If the chip fails to perform it won't sell, even if it's cheaper.

For consumers, however, the bottom line remains that the chip's integrated features could lead to PCs that are cheaper than current models, which generally sell for between $700 and $800 before rebates and the cost of additional equipment, such as a monitor.

Of late, competition in the retail value-PC space has driven many vendors away. Where there were a number of players at retail, in the past 12 months Packard Bell NEC , IBM and Acer America have pulled out. With less competition and newly available market share to fuel growth, the remaining PC makers are less willing to "buy" market share with lower priced systems, analyst say. These market conditions, along with increases in memory prices, have essentially collapsed the market for sub-$600 PCs.

Of the three PC makers left at retail -- Hewlett-Packard, Compaq and eMachines -- only eMachines still regularly sells PCs with prices below $599 before rebates.

However, just because sub-$600 PCs aren't as readily available doesn't mean there's no demand. eMachines, which shipped 521,000 units in the second quarter of this year, estimates that about 70 percent of the PCs it sold in the first quarter of this year were priced below $600. eMachines reported a gross margin of only 4.7 percent and an average selling price of $566 for the quarter.

"Will Compaq and HP eventually come back to $399 and $499? Absolutely," said Stephen Dukker, president and CEO of eMachines.

In fact, they will have to he says, because "within a year and a half 90 percent of consumer PCs will be sold between $300 and $700."

"They have to (come down) not because the cost is coming down ... but because components are becoming so powerful that the customer will have increasing difficulty justifying the cost of high-end PCs," he said. "I'd bet you that in the first quarter of next year, a $399 PC will be 700MHz or faster with at least a 10GB hard drive and that a $599 PC will probably be over 800MHz, with more than 20GB of hard drive and a CD-Rewritable drive."

Case in point: eMachines, sources say, will offer as its entry level at the end of this year, a 600MHz PC with a 10GB hard drive, priced at $399.

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