and the results of intel's channel stuffing
Intel Cuts to Fuel Computer-Price Declines as Holidays Approach
2001-08-02 03:00 (New York)
Intel Cuts to Fuel Computer-Price Declines as Holidays Approach
Santa Clara, California, Aug. 2 (Bloomberg) -- 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 4's 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 $900 by year's end instead of
$1,200 now, he said.
Pentium 4
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 $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.
Under $1,000
Gateway's current lowest price for a Pentium 4-based machine
is $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-
$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 $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.
--Cesca Antonelli in the San Francisco newsroom at (415) 743-3532
or at fantonelli@bloomberg.net and Peter J. Brennan in Los Angeles
at (323) 801-1281 /jac/*ck
Story illustration: For a chart of Dell Computer shares compared
with the Standard & Poor's 500 Index, see
{DELL US <Equity> COMP <GO>}. |
