Intel Readies 3GHz Pentium 4, Price Cuts

But Intel executives and some solution providers say pricing may finally stabilize.

The chip maker, under pressure after third-quarter earnings of 11 cents per share came in lower than the 13 cents Wall Street had expected, said its lower-margin, lower-cost products gained momentum during the period.

"In the value space, we introduced a 2GHz Celeron processor," said Intel President Paul Otellini, speaking to analysts during a conference call last week to discuss the company's earnings. Otellini said the higher-end Celerons, which are priced lower than Pentium 4 processors, are "effectively competing" with the high end of product lines of Intel rivals, including Advanced Micro Devices.

Still, Otellini said, the 2.2GHz Pentium 4 is considered by the company to be at the "sweet spot" of the market. That processor is priced at $193 each in 1,000-unit quantities.

Otellini, however, insisted that a more Celeron-heavy mix of product sales was not to blame for Intel's lower-than-expected profit.

For systems builders, including David Chang, president of Houston-based Agama Systems, pricing instability has created confusion among customers who may postpone some acquisitions while waiting for CPU prices to go down.

Chang said he believes the introduction of the 3GHz Pentium 4, like other Intel rollouts, will lead to a pricing reduction across the high end of Intel's product line. Still, he believes the company has continued to keep prices too low.

"I think the market is stable," Chang said. "How low can they go?"

An answer to that question may be found in how Intel manages its inventory.

"We believe that the pressure is mounting on Intel to reduce production levels in order to keep inventory under control, something that we first pointed out in August when Intel's purchases of flip-chip substrates plummeted," Merrill Lynch analysts wrote in a recent report on chip and memory pricing.

Echoing Chang, the analysts wrote that pricing "appears to be in stable, if shaky, equilibrium, but we believe the channel cannot absorb the seasonal ramp in volume that Intel normally puts into the market."

To that end, Intel CFO Andy Bryant told analysts in a post-earnings conference call that Intel would maintain a close eye on inventories, suggesting that the chip maker, too, was concerned about pricing stability.