Intel Corp, trying to bolster demand for its Pentium 4 processor, may chop prices this month and in October, as computer makers such as Dell Computer Corp prepare for a holiday buying rush, analysts said.
Intel will lower the Pentium 4s cost by an average of 39 percent on Aug. 26, with an additional 23 percent drop planned for Oct. 28, Salomon Smith Barney analyst Jonathan Joseph wrote in a note to clients last week. Other analysts also predict cuts.
Dell, Gateway Inc, Compaq Computer Corp and rivals have been cutting prices to help revive sales and convince users to upgrade their personal computers. They're hoping demand will rise in the back-to-school and holiday shopping seasons and expect a boost as Microsoft Corp releases its newest software, Windows XP, in October.
"Intel -- like the rest of the industry -- is gearing up for the fourth quarter," said Paul Collas, Gateway's director of business desktops. "Everyone's lining up to get aggressive." The biggest chipmaker's price cuts will translate into savings for both consumers and businesses. A PC with a 1.6-gigahertz Pentium 4 will sell for US$900 by year's end instead of US$1,200 now, he said.
Intel hopes the reductions will get companies to standardize their systems on Pentium 4 by enticing them to start replacing aging PCs with fancier yet cheaper ones coming now. The company wants to be selling more Pentium 4s than Pentium IIIs for desktop PCs by year's end.
A big part of that strategy depends on price cuts, Intel Executive Vice President Paul Otellini said last month. He wants PCs with the new chip to sell for as little as US$799.
Santa Clara, California-based Intel will probably keep the prices on Pentium IIIs high, giving PC makers even more incentive to switch, Salomon's Joseph said. He expects a 12 percent drop in August and an 11 percent decline in October on the older lineup.
Falling shipments and prices have hurt Intel's gross margin, or the percentage of sales left after subtracting manufacturing costs. That margin narrowed to 48 percent during the June period from 63 percent in the fourth quarter, and will be around 47 percent this quarter.
Rival Advanced Micro Devices Inc has said it may report an operating loss this quarter, partly because it's had to slash prices to compete with Intel.
Gateway's current lowest price for a Pentium 4-based machine is US$899, and Collas said he doesn't expect the price to get much lower. Instead, PC makers will load the cheapest PCs with extra accessories like a bigger screen or faster memory.
"You'll see a lot of offerings of Pentium 4s in the sub-US$1,000 market," he said. "As you go into fourth quarter, it will be a great time to purchase a PC." Compaq, which recently backed off from matching every price cut made by Dell, expects the lower chip prices to mean reduced PC costs, spokesman Steve Sievert said. The cost of some Compaq systems has fallen as much as 33 percent this year, he said.
Dell, which surpassed Compaq to be the top PC seller for the past two quarters, has led the industry in price cuts so far this year. A Dimension 8100 with a 1.3GHz Pentium 4 already costs US$999, according to Dell's Web site.
The Austin, Texas-based company will pass on all or most of the savings from new Intel price reductions to customers, said spokesman Mike Maher.
"If and when they do decrease the prices, we'll pass those savings along to the customers as quickly as we possibly can, which is quicker then most other people do," he said.
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