Intel CEO Optimistic in Weak Economy

But the company plans price cuts, and others such as Compaq, HP, IBM forecast PC sales to worsen

Intel Corp. CEO Craig Barrett earlier this month hit an optimistic note in an otherwise dour period for the PC industry, saying several times during a business tour through Asia that the embattled industry has bottomed out and is poised for a rebound.

But the bright outlook contrasts with the bleak forecasts presented in recent weeks by such major computing vendors as Compaq Computer Corp., Hewlett-Packard Co. and IBM, which projected that PC sales would remain flat and possibly even worsen in the coming months.

And the comments came the week before the Santa Clara, Calif., chip maker took another financial hit. Analysts last week took a dim view of the immediate future of Intel and its rivals, including Advanced Micro Devices Inc. Analyst Dan Niles of Lehman Brothers, in San Francisco, predicted Intel will announce on Aug. 26 deep cuts—as much as 50 percent—in the price of its Pentium 4 chip.

The cuts would fuel a growing price war between Intel and AMD, both of which are sacrificing profit margins in a battle over market share. The possibility of a deepening price war sent the stock of both companies falling last week.

AMD, of Sunnyvale, Calif., has been chipping away at Intels massive market share lead, edging up one percentage point from the previous quarter to 22.2 percent, with Intel dropping to 76.2 percent, according to market researcher Mercury Research Inc., of Scottsdale, Ariz.

An Intel spokesman last week said the company does not comment on specific pricing plans. However, executives last month said they plan to aggressively cut prices of the Pentium 4 as they push to have it replace the Pentium III in PC systems priced at $800 and above by the end of the year.

In April, Intel slashed the prices of several chips, including a 60 percent cut on the price of its 1.5GHz Pentium 4.

"We anticipate the normal seasonal uptick in the second half—the back-to-school portion and then the holiday buying season at the end of the year," Barrett told reporters during a stopover in Tokyo during the Asian tour.

Other high-tech leaders dont share Barretts optimism. HP Chairman and CEO Carly Fiorina and Compaq Chairman and CEO Michael Capellas recently warned that the weakening of the global economy will continue to hurt sales, forcing their companies to lower earnings projections and continue cutting jobs and other expenses.

IBM Chairman Louis Gerstner said he expects PC sales to remain sluggish.

While Intel is looking for back-to-school sales to spur demand over the next few weeks, analysts say they dont expect sales to rise until the end of the year. One factor that could undermine sales is whats become known as the "XP stall," where computer buyers are delaying purchases while awaiting the Oct. 25 release of Microsoft Corp.s new operating system, Windows XP.

And Richard Chu, an analyst with S.G. Cowen Securities Corp., in Boston, said any upswing in sales this year may not last.

"The reality is, the market is very, very mature," Chu said. "If we do have a second-half pickup, that doesnt mean it will continue into 2002."