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Technology Stocks : Intel Corporation (INTC)
INTC 34.50+2.6%Nov 21 3:59 PM EST
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To: Tony Viola who wrote (41083)11/26/1997 7:34:00 PM
From: Paul Engel  Read Replies (1) of 186894
 
Tony - Re: " Do you think the Intel price cuts are overdone? I do, considering the competition"

No, for two reasons.

1. Intel needs to position the Pentium II as an affordable high performance CPU, so driving prices down on that chip is imperative. Intel needs to keep the momentum going on transitioning the market to Pentium II/Slot 1 and they can't very well due this with $600 CPU costs.

2. Aggressive price cuts on the Pentium MMX as well as the Pentium II means that AMD and Cyrix MUST sell their K6 and 6x86MX chips for less money as well. This is a preemptive strike against these companies. By crippling them in their ability to generate significant profits (if any at all), Intel is insuring that these companies have reduced resources to continue on the design/development treadmill.

By allowing these companies to hang around and develop competitive technologies - and they have the same access (nearly) to the same resorces as Intel - Intel will lose whatever advantages it has. And access to profits is what Intel can deny to these companies by heavy duty price cutting. Denying them profits will, over time, reduce their ability to compete by virtue of limited R & D investment and capital (facility) expansion.

Paul
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