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Wed, Aug 08, 2001 - Page 21 News List

Asian manufacturers welcome cuts

BLOOMBERG , TOKYO

Asian personal-computer makers, which are seeking to reduce costs to salvage dwindling profits, cautiously welcomed Intel Corp's plans to cut prices in the processor chips used in 77 percent of PCs worldwide.

The biggest chipmaker plans to cut prices on Pentium 4 chips by as much as 54 percent as the Santa Clara, California-based company works to recoup sales lost to rival Advanced Micro Devices Inc, analysts said. Intel spokesman Tom Beermann declined to comment.

Price competition between Intel and nearest rival Advanced Micro comes as Asian computer makers struggle to cut costs to improve profitability.

"We would use Pentium 4 in our PCs more if prices fell that much," said Susumu Sakamoto, a spokesman at NEC Corp, Japan's biggest PC maker. Sales of PCs using the high-speed chips are "really small" because NEC didn't start selling them until last November, he said.

The company now prices such PCs for corporate customers at about ?450,000 (US$3,636).

PC shipments in the second quarter fell in the first year-on-year drop since 1986. Mounting inventories have eroded earnings of PC makers and chipmakers this year.

While Samsung Electronics Co -- both a customer and a supplier to Intel -- welcomed a possible price cut, it doesn't expect it to have an immediate impact on chipmakers' earnings.

"It's a good signal for personal computer makers and chip manufacturers," said James Chung, a spokesman for the largest maker of computer memory chips.

"It could help the industry to pick up by the end of the year, but the third quarter is still going to be much tougher than the second."

Samsung is the only manufacturer in the US$30 billion-a-year memory chip business that is still profitable.

Sales of memory chips, over 70 percent of which go into PCs, are forecast to shrink as much as 40 percent this year.

Trigem Computer Inc, the largest producer of personal computers for companies such as Hewlett-Packard Co, doesn't expect a chip price reduction to have a major impact on computer prices.

Intel's price cut "will help computer makers because it will improve their margins," said YH Kwon, a spokesman for Trigem.

But "cuts in chip prices don't usually lead to cheaper computers." Intel may more than halve the cost of its top 1.8GHz Pentium 4 chip to US$260 from US$562 this month, Lehman Brothers analyst Dan Niles wrote in a note to clients yesterday.

The price for a 1.7GHz Pentium 4 will fall 45 percent, with low-end models dropping 30 percent to US$135, he said. Pentium 4, introduced in November, will move up to speeds of 2GHz in the fourth quarter, Niles wrote.

Chipmakers are facing one of their toughest years ever.

Worldwide PC shipments in the second quarter ended June 30 fell 1.9 percent from the same period last year to 30.4 million units, according to market researcher Dataquest Inc.

Advanced Micro has taken 22 percent of the PC-processor market, compared with 16 percent a year ago, according to Mercury Research. Intel's share has slipped to 77 percent from 83 percent.

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