Financial Woes Force Intel To Slash Prices

Earlier this month, the Santa Clara, Calif.-based company lowered its revenue forecast to between $8.3 billion and $8.6 billion for the period, compared with its previous forecast of between $8.6 billion and $9.2 billion. It also lowered its gross profit margin expectation to 58 percent from 60 percent for the quarter ending on Sept. 27.

In a conference call with financial analysts to break the disappointing earnings news, Intel CFO Andy Bryant said an abundance of inventory and weaker-than-expected sales could keep pricing soft.

In August, Intel cut prices on some of its Pentium 4 processors, and analysts are expecting a cut on pricing for the Grantsdale chipset as early as next week.

While system builders have lamented the soft pricing and limited profit-margin environment that has resulted, one of their biggest competitors says it is aiming to pass lower pricing to customers.

Kevin Rollins, CEO of Round Rock, Texas-based Dell, told investors earlier this month at the Citigroup Smith Barney financial conference in New York that component pricing has been declining measurably for the past several months.

"[Rollins] cited one-half percent per week declines in aggregate component prices during recent months," wrote Smith Barney analysts in a research note. "This represents the most favorable component environment that the company has enjoyed for more than a year."

They added: "Specifically, [Rollins] noted that flat-panel prices have resumed more normal declines and that early indications suggest little rise in DRAM pricing in connection with the DDR2 transition."

Rollins also told investors at the conference that he thought the pricing environment was--as Intel executives said--partly the result of inventory corrections after an aggressive buildup.

"I would say overall component pricing is down," said Jordan Malkin, operations manager at Microstandard Distributors, a Redmond, Wash.-based system builder. However, he said, the effects are mitigated because even the lowest-priced components are high-performing.

"The entry-level machine will meet most people's needs--whether it's for a workstation or a home user," Malkin said.