The 20% "slashing" of prices, as the press has reported it, is not a "slashing" of prices at all. This degree of price reduction is normal for processors, not only those made by Intel but by all other manufacturers as well. It is customary to cut he pricing for new generations of products by 1/2 to 3/4 during it's "usefull life" as a viable product. The product cycle of MPUs has shrunk over hte past few years from a few years to just 18-24 months. INtel said that they are lowering the price on their entire Pentium line by 20%. This reduction has been ecpected and should not come as "news" to analysts modeling the industry. Are the reductions in response to cmpetition? Yes, of course, reductions are at least partially timed according to competitive pressure. A big factor in this "normal" reduction is Intels' experience curve on PII and PMMX production. Intel has continued to lower manufacturing costs as yields have increased due to process refinements and die shrinks.
I think we can expect another series of price reductions by the middle of next year. As manufcturers, including IDTI, get parts ramped up on 0.25 micron processes, the costs of manufacturing will be greatly reduced. The benefits of sub micron die shrinks are are the greatest on the more complex, larger die size ICs, such as MPUs. These benefits include higher die/wafer (~2X) and higher yields. Other benefits include lower power consumption and higher frequencies.
Let's suppose that Intel lowers prices on P166-200 MMX by 20%. IDTI is about 1/2 of Intel's price currently. They should be able to easily lower the pricing to the range that I expected it would need to go ~$70 for the C6-166 and ~$100 for the C6-200. That will leave healthy margins and will maintain the 1/3-1/2 discount compared to Intel's pricing on desktop MPUs. Of course, Intel charges about $100 more for low power mobile MPUs than they do for desktop versions.
What will these price reductions do to the PC and electronics industry? The demand for PCs has been proven to be "elastic" - that is the demand increases as the price comes down. The fastest growing segment of the PC industry is the sub $1,000 category. that is followed by the sub $1,500 category and then sub $2,500. Sub $1,000 PC growth is around 42%. While only 40% of Americans households own a PC, that is still much higher than the rst of the world. In much of the rest of the world, PC ownership is only about 15%. A big reason for the lack of penetration in these markets has been the high price. This is particularly true in countries where the average yearly income is only a fraction of that in the US. IMO demand will continue to increase for low priced PCs and portable computers and IDT will benefit from this strong market. |
