A Year Ago: Intel steps up price cut pace

Intel is about to initiate a breakneck round of price cutting for its processors, pushing down the cost of PC systems across the board.

The company's latest pricing actions reflect the company's strategy to serve several markets with different chip architectures. As a result, Intel is moving from its traditional quarterly, across-the-board price cuts to monthly price cuts on individual product categories, such as mobile, desktop or server processors, sources said.

Intel has lowered prices on its Pentium II Xeon processor before the new chip has even shipped. Intel had originally set Xeon prices as high as $4,500 (£2,745) drawing criticism from OEMs. But when the top-of-the-line Xeon -- a 450MHz processor with 2MB of cache -- ships next month, it will be priced at $3,690 (£2,250) sources said.

In some cases, Intel will drop prices of 450MHz Xeon chips to the same level as 400MHz processors, presaging a short shelf life for the 400MHz chips and machines built around them. As a result, several workstation makers are waiting until early Autumn for the 450MHz version before they release their first Xeon-based systems. "Why should we come out with a 400 [MHz system] when Intel's going to phase [the chip] out in favour of the 450MHz version three months later?" said an executive with a major computer company, who requested anonymity.

The Pentium II Xeon architecture is strategic to Intel's push to standardise and lower the price points for symmetric multiprocessing servers, said Paul Otellini, executive vice president and general manager of the company's Architecture Business Group. "Xeon will enable four-way and above servers. PC-based economies will be brought to bear," Otellini said in an interview at PC Expo in the U.S. last week.

Intel is targeting other segments for price cuts as well. For portables, the mobile version of Intel's 266MHz Pentium Processor with MMX Technology will drop from $350 (£213) to $160 (£97) in September; the 233MHz Pentium II will drop from about $390 (£237) to $205 (£125), sources said.

In the higher-end "performance desktop" segment, Intel will cut prices on the 350MHz Pentium II four timesover the next several months, dropping from its initial $621 (£379) to about $210 (£128) by October, sources said. At that time, the 333MHz Pentium II will also cost about $210, which means it will be phased out shortly thereafter.

The 400MHz Pentium II, which today costs about $720 (£440), will drop to $375 (£230) in October after price cuts in midsummer and September, sources said. Although Intel does not set system pricing, it expects systems using the 350MHz or 400MHz Pentium II and corresponding 440BX chip set to fall into the $1,500-to-$2,000 (£915-to -£1,220) range over the next few months, sources said.

Today, that price range is occupied by 300MHz and 333MHz systems with the 440LX chip set. In the $1,200-to-$1,500 (£730-to-£915) range, now occupied primarily by 233MHz and 266MHz Pentium II systems, users will be able to buy 300MHz or 333MHz systems with the 440LX chip set, sources said. At the low end, systems based on the Celeron processor and corresponding 440EX chip set will fall into the $900(£550) range over the next few months, sources said.

Intel officials declined to comment on future pricing.

The lower prices may appease some corporate customers who are growing more frustrated with a befuddling array of processor options. Where once the Pentium served all market segments with few modifications, Intel now is segmenting its markets with multiple brands of processors that have distinct bus architectures and varying levels of cache and memory support. "We're trying to spend less on PCs, [only to have to] spend more on managing the mix of [Intel] architectures," said Henry Danziger, vice president of IT at Johnson Controls in the U.S.

For workstations and servers, Intel has the Pentium II, with a 66MHz or 100MHz bus, and the new Xeon, with a 100MHz bus and more than double the memory support of the Pentium II. In addition, Intel will introduce in the second half of 1999 a new chip, code-named Coppermine, which will have a 133MHz system bus, sources said. That chip will also be geared toward workstations and servers.

In related news, Intel last week said it would introduce new packaging options for Celeron in the first quarter of 1999. Instead of the bulky Slot 1 cartridge current Celeron chips use, Intel will develop a small, pin-based socket to hold the processor.

The new packaging will enable PC makers to create smaller and less expensive Celeron-based systems, Intel officials said.