Intel Corp. is set to slash prices on its top-performing Pentium 4 chips by as much as 25 percent this month and up to 57 percent this spring, according to sources close to the company.
In one example of the potential savings awaiting customers, Intel will slash the price on its top-speed, 2.2GHz Pentium from $562 to $241 in just six weeks, a savings of more than 57 percent.
The price cuts will be welcomed by users, who are focusing more on the cost of the chips than on their performance.
"We have reached a point with desktop computers that unless there is a real massive increase in software demands for processing power—which I dont see any time soon—just buying a faster PC wont increase your ability to do your work," said Sam Avera, technology manager for the state of Washingtons Aging & Adult Services department, in Seattle. "Price is now our driving factor."
But while customers will be pleased, investment analysts fear the planned cuts will erode Intels profit margins in the midst of an already-depressed market.
Intel refused to confirm the price cuts but said that last month it reaffirmed its previous second-quarter sales estimates. However, concerns about the price cuts have helped spur a 12 percent drop in the price of Intel stock since mid-March, analysts said, with some predicting it will dip even further. Late last week, Intels stock was trading at slightly more than $30 a share.
"We believe that shares of Intel could retest the mid- to high-$20 range during the second quarter," said Eric Chen, an analyst with J.P. Morgan Chase & Co., in New York, contending that Intels second-quarter earnings will not likely meet his earlier projections.
Chen also warned that Intels cost cutting could ignite another price war with Advanced Micro Devices Inc., similar to one that undermined the profits of both companies last year.
Despite customers growing demand for lower cost rather than better performance in processors, Intel will continue to increase the performance of its Pentium 4 line. The Santa Clara, Calif., company this week will introduce a 2.4GHz chip, which delivers a 9 percent speed increase over the 2.2GHz chip, which was released in February.
Intel said that by years end, it will release a 3GHz processor.
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