Intel's Idea to Spur Demand: Big Price Cuts
By Caroline Humer
Senior Writer
1/25/01 1:12 PM ET
If only the outlook for semiconductor demand was as clear-cut as it is for chip prices.
Semiconductor companies preparing for a rough first half of the year, and an uncertain second half, now have something new to factor in. Giant microprocessor maker Intel (INTC:NYSE - news) is gearing up to lower prices on its Pentium 4, Pentium III and Celeron chips more than analysts were expecting.
Wall Street is bracing for Intel to lower prices on chips by more than 40% this weekend, as the chipmaker tries to cut prices enough to stimulate demand. Most of Intel's chips go into personal computers, so the lower the chip price, the less the computer makers charge for the final product. In turn, the fewer dollars consumers have to shell out, the more likely they'll be to pull out their checkbooks. Lately consumers -- including the ones in charge of technology spending at large companies -- have been keeping their hands in their pockets when it comes to PCs.
Lowering prices itself isn't unusual in the chip world. Intel and other chipmakers cut prices on a regular basis as the technology improves and they introduce faster, smaller products. And any price cuts that Intel makes this weekend already are factored into the company's financial guidance -- Intel said during its Jan. 16 conference call to expect revenue to fall about 15% in the first quarter from the fourth quarter.
Whether these price cuts are deep enough to spur demand or retain market share may depend on how competitor Advanced Micro Devices (AMD:NYSE - news) reacts.
"We'll have to see if pricing in general just gets a lot more aggressive going forward between AMD and Intel. Right now there hasn't been a price war, but it doesn't mean that going forward one may not end up developing, especially as both are trying to get their fair share of a market that's not growing all that rapidly right now," says Dan Niles, an analyst at Lehman Brothers, which hasn't done any underwriting for either company.
An Intel spokesman declined to comment on the price cuts, which were first reported by CNet. Intel price changes typically go into effect on Sunday.
The outlook for chip growth in 2001 has been lowered several times in the last few months and is now anywhere from 7% to 15%. Intel and other chip companies have declined to forecast 2001 revenue, citing the uncertain economic climate and already too-high inventories along the supply chain.
At the same time, AMD is trying to take on some markets that Intel has dominated, such as the corporate market. It also has introduced so-called "value" chips, or chips that are both faster and cheaper than Intel's. For instance, AMD's top of the line Duron 850 megahertz chip lists for $149. Intel's 766 Megahertz Celeron value chip lists for $155. AMD last lowered prices on Jan. 8, while Intel's most recent official cut occurred on Dec. 10.
An AMD spokeswoman said the company's pricing depends on market conditions.
Among the biggest cuts Lehman expects is in Intel's two top-of-the-line chips. For instance, the one-gigahertz Pentium III is being slashed to $270 from $465 and the 1.5-gigahertz Pentium 4 is headed to $650 from $819. AMD's top-of-the-line 1.2-gigahertz |
