Intel Corp. will slash processor prices by up to 63 percent and move up the release of faster Pentium 4 chips, including 2.8GHz and 3GHz versions, in a bid to reduce rising inventories and rekindle sales, according to sources close to the company.
The chip maker will take the actions after reporting relatively weak sales during the last quarter and announcing plans to lay off 4,000 workers, raising doubts that it will see demand for its chips pick up as it usually does during the holiday season.
To unload unsold chips, Intel has pushed up price cuts originally scheduled for late October to Aug. 25 and Sept. 1. The price cuts will be deeper than originally planned, according to Jonathan Joseph, an analyst with Salomon Smith Barney Inc., in San Francisco.
"The fact that the price move is coming seven weeks earlier, and in some cases is marginally greater than we expected, is probably an indication the company is still unsure about demand in September, one of the most important months of the year," Joseph said in a research note sent to investors last week.
Intels biggest cut will be on its current speed king, a 2.53GHz Pentium 4, which will see its price slashed from $637 to $236, a 63 percent drop. Prices are based on 1,000-unit shipments. Less- speedy Pentium 4s will incur the smallest cuts, such as the 1.8GHz version, which will be reduced from $163 to $143, a modest 13 percent.
While the price reductions are targeted at budget-conscious buyers, Intel will also seek to stimulate interest among performance PC users by moving up the release of its fastest processors.
On Aug. 25, it will release a 2.8GHz Pentium 4, originally scheduled for release next quarter. The chip will be priced at $637.
During the crucial fourth quarter—traditionally Intels peak selling period—the Santa Clara, Calif., company will release a 3GHz Pentium 4 a few months ahead of schedule. The processor, originally scheduled for release early next year, should hit the market in November, according to sources close to the company.
In keeping with company policy, Intel officials declined to comment on upcoming PC products and pricing.
While Intels aggressive price cuts may cheer PC buyers, the moves will likely raise concerns among investors.
"Accelerated price cuts will not likely be seen as a positive by the market," Joseph said in his report.
The Pentium price cuts are seen as especially worrisome, given recent reports that Intels less expensive, and less profitable, Celeron processors are accounting for a greater share of the companys chip sales. Historically, Celerons have accounted for less than a third of Intels PC processor sales. Should that number rise, Intel will likely have trouble attaining its projected profit margins for the year.
Sagging investor confidence in Intels earnings outlook has already pushed the companys share prices down to multiyear lows in recent months, with the stock trading about 50 percent lower last week than it did in January.