intel's goal is sub $800 p4 systems
Intel Planning to Lower PC-Chip Prices, Analysts Say (Update6)
2001-08-06 16:20 (New York)
Intel Planning to Lower PC-Chip Prices, Analysts Say (Update6)
(Updates with closing share prices.)
New York, Aug. 6 (Bloomberg) -- Intel Corp. plans to cut
prices on some of its personal-computer chips by as much as
54 percent as the biggest semiconductor maker works to recoup sales
lost to rival Advanced Micro Devices Inc., analysts said.
``Intel is planning to detonate a price bomb'' on Advanced
Micro by slicing the cost of Pentium 4 processors, Lehman Brothers
analyst Dan Niles wrote in a note to clients. He didn't cite
sources.
With Advanced Micro boosting its market share even as PC sales
drop industrywide, Intel is chopping prices to spur consumer and
corporate demand for machines running on Pentium 4, its newest
chip. Intel wants to be selling more Pentium 4s than Pentium IIIs
for desktops by year's end, and has said it wants PCs with the new
chip to sell for as little as $799.
The company may reduce the cost of its top 1.8 gigahertz
Pentium 4 to $260 from $562 this month, Niles wrote. The price for
a 1.7GHz Pentium 4 will fall 45 percent, with low-end models
dropping 30 percent to $135, he said. Pentium 4, introduced in
November, will move up to 2GHz in the fourth quarter, he said.
Salomon Smith Barney analyst Jonathan Joseph trimmed his sales
and profit estimates on Intel this morning. Last month, he
predicted the company would cut prices an average of 39 percent.
Intel plans to lower chip prices Aug. 26 and may reduce them
more in October if this initial round doesn't work, Niles wrote.
Joseph said the reductions would come Aug. 26 and Oct. 28.
Advanced Micro spokesman Drew Prairie and Intel spokesman Tom
Beermann declined to comment.
Intel shares fell $1.40, or 4.4 percent, to $30.28 today.
They've declined 51 percent in the past year. Advanced Micro fell
$1.63 to $17.62 and has dropped 44 percent in the past year. The
Philadelphia Semiconductor Index fell 9.51 to 631.55 and has shed
31 percent in 12 months.
Price War
Advanced Micro now holds 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.
That shift came as PC sales growth has slumped, with unit shipments
dropping in the second quarter for the first time in 15 years.
``For those who thought the price war was already aggressive,
you haven't seen anything yet,'' Niles wrote.
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 Intel has said it will
be about 47 percent this quarter.
Advanced Micro last month said it may report an operating loss
this quarter, partly because it's had to slash prices to compete
with Intel.
Sales Forecasts
Several analysts today lowered their sales targets for Santa
Clara, California-based Intel, saying the September quarter is
coming in weaker than expected and the traditional bounce from back-
to-school sales may not be as big as they'd hoped.
Salomon's Joseph lowered his third-quarter profit forecast to
8 cents a share from 11 cents and reduced his sales estimate to
$6.24 billion from $6.64 billion.
``Expectations for a meaningful back-to-school selling season
are rapidly fading,'' said Joseph, who rates the stock a ``buy.''
Analysts' Records
Joseph, who correctly bucked the bullish consensus last July
by telling investors to sell semiconductor stocks, has been at
Salomon since April 1999. He said in April that the rebound was
coming soon and last week predicted industry sales would bottom out
this month or next.
Niles, a 34-year-old former Digital Equipment Corp. engineer,
was ranked by money managers as the No. 2 semiconductor analyst and
the No. 2 PC analyst in Institutional Investor magazine's annual
survey. The Sri Lanka native holds a degree in electrical
engineering from Stanford University.
Niles has been pessimistic about the outlook for semiconductor
makers. In April, he predicted chip sales would slide 18 percent to
20 percent in 2001, the biggest decline ever for the industry. He
rates Intel a ``market perform.''
Average Prices
Intel Chief Executive Craig Barrett said as recently as last
week that he expects demand to rise in the next six months, as
consumers buy more PCs for the back-to-school and holiday shopping
seasons.
Merrill Lynch & Co. raised its outlook for the semiconductor
industry last week, saying the worst is over. PC sales may also get
a boost when Microsoft Corp. releases its newest operating-system
software, Windows XP, on Oct. 25, executives and analysts have
said.
Even if chip demand rises, the price drops could continue to
hurt Intel. The chipmaker's average selling price could decline to
about $150 from the $157 Joseph expected earlier, the analyst wrote
to clients. He lowered his estimate for third-quarter shipments to
about 27 million units from 28 million.
U.S. Bancorp Piper Jaffray analyst Ashok Kumar trimmed his
profit estimates to 9 cents a share from 10 cents and his sales
forecast to $6.3 billion from $6.5 billion. Kumar has a ``buy'
rating on the shares.
Intel last month said it expected sales of $6.2 billion to
$6.8 billion this quarter. Analysts on average expect profit of 10
cents a share on $6.44 billion in revenue, according to Thomson
Financial/First Call.
In the year-earlier quarter, the company earned 41 cents a
share on sales of $8.73 billion.
--Cesca Antonelli in the San Francisco newsroom (415) 743-3532 or
fantonelli@bloomberg.net, and Michael Lovell in the Princeton
newsroom (609) 279-4115 /atr/*pjm/jac/*mtw |
