Intel May Move Up Price Cuts

The soft PC market and an upcoming product release may be pushing Intel to speed up price reductions, said Merrill Lynch analyst Joe Osha in the report, released last Tuesday. The chip giant has said publicly it would release a 3GHz Pentium 4 by the end of the year.

"We believe the majority of the desktop-processor pricing will be reduced by 20 percent and position the 2GHz P4 into the lower end of the mainstream at approximately $150," Osha said in the report. "We believe it is also likely that Intel will cut 2.4GHz P4s by as much as 50 percent, moving that product into the mainstream-performance category."

Osha also forecasted aggressive price cuts from Intel in the mobile and server markets. "Mobile processors will likely see price cuts in the 20 percent to 45 percent range, while Xeon servers will likely be reduced 30 percent to 50 percent," he reported.

An Intel spokesman declined to comment on reports of any price cuts. However, he confirmed that the company would begin shipping the 3GHz version of the Pentium 4 processor in time for the Christmas selling season and characterized the company's manufacturing operation and execution as excellent.

"It's more of a response to the sluggish market," said Ray Rueda, president of Honor International, a Miami-based system builder and solution provider. Rueda said he agreed with speculation that the pricing cuts were designed to move the 2GHz P4s into the "sweet spot" of the market, which could bring an added boost to business.

"The 2GHz, psychologically, seems like more of a second-generation kind of thing," Rueda said. While generally positive about the moves, Rueda said he worried that the steep cuts, ahead of expectations, would have the effect of leaving his business with inventories of Celeron-based motherboards it can't get rid of as clients move more toward P4 solutions.

Rueda said that while business is slow now and expected to be slow in August, he believes September will be a better month.

The last official pricing action from Intel came on June 9, and the rate and pace of price cuts this year has been much slower than it was in 2001. Osha said it was too early to say if the pricing actions would hurt Intel's performance in the quarter. Recently, sales of lower-priced processors such as Celerons have been brisker than expected, while sales of higher-end P4s have been slower, he said in the report.

"If Intel is successful in what appears to be an attempt to migrate buyers back toward P4, weighted [average selling prices could be unaffected," Osha said.