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Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: puborectalis who wrote (132436)	4/15/2001 8:30:02 PM
From: puborectalis	Read Replies (1) \| Respond to of 186894

Intel hopes Pentium 4 price cuts will spark momentum By Jack Robertson EBN (04/13/01 18:29 p.m. EST) SANTA CLARA, Calif. -- Intel Corp. isn't kidding when it says it will make the Pentium 4 a mainstream PC microprocessor: In a series of rapid-fire cuts that began earlier this month, the company is aiming to slash the new chip to about half of its week-ago price. The move, in general, is being interpreted by analysts as a sign that Intel is concerned its Pentium III successor has been slow to leave the starting gate. Others say it's a much-needed stimulus to counter the buzz building around Advanced Micro Devices Inc.'s Athlon processor. “Intel is making a pre-emptive strike against AMD, which has been exploiting the slow Pentium 4 start to continue momentum for its top-end Athlon processors,” said Bert McComas, an analyst at InQuest Research Inc., Higley, Ariz. A spokesman at Intel, Santa Clara, Calif., declined to comment on unannounced Pentium 4 price reductions, saying only that thecompany “historically has lowered its processor prices on a regular basis.” Mirroring reports from other research firms, however, McComas said that while numbers differ slightly, consensus estimates are that the 1.5-GHz Pentium 4 will end April at half its current $637 list price. The price of a 1.4-GHz Pentium 4 will also be halved from its most recent list price of $423. Additionally, a soon-to-be-released 1.7-GHz Pentium 4 is expected to drop quickly from its $700 introductory price to around $350, according to analysts. Pat Otellini, vice president and general manager of the Intel Architecture Group, has said repeatedly that the Pentium 4 will hit volume-PC price points with the third-quarter 2001 introduction of the Brookdale chipset. The expected series of price cuts means the company has determined that it can't afford to wait that long, according to Tony Massimini, an analyst at Semico Research Corp., Phoenix. In part, Intel is faced with a dilemma in that on May 1 the company is slated to end a $70 rebate given to OEMs for each computer shipped with a Pentium 4, according to McComas. Without a general price reduction, customers would, in effect, see Pentium 4 prices rise. “The coming price cuts, however, are far steeper than just offsetting the loss of the rebate promotion,” McComas said. The aggressive pricing program analysts are pointing to ultimately could eat into Intel's Pentium 4 profit margins, according to Peter Glaskowsky, an analyst at MicroDesign Resources Inc., Sunnyvale, Calif. Glaskowsky said lower yields, which are common with newer chips, combined with the Pentium 4's 200-sq.-mm die, suggest that Intel would need higher prices to offset initial production costs. “With such sharp price cuts, the Pentium 4 profit margin could quickly end up lower than the much lower-priced Pentium III,” he said. Indeed, a number of analysts were surprised that Intel would cut Pentium 4 tags so aggressively at a stage when the chips traditionally should carry a premium to offset early production costs and meet profit expectations that typically accompany new products. Analysts added that in the months ahead, the depth of the cuts could exacerbate Intel's declining gross margin, which the company has projected will drop to about 51% in the just-ended first quarter from 63% in the fourth quarter of 2000. Semico's Massimini said first-quarter Pentium 4 shipments have been in the range of 800,000 units, compared with an estimated 16.8 million Pentium III chips in the same period. He expected Pentium 4 production should ramp steeply in the second half of the year, if the SDRAM-enabled Brookdale is introduced on schedule and if third-party vendors can meet demand for the core-logic chipset. Massimini added that Intel must unveil the Northwood on schedule if it is to meet Semico's fourth-quarter unit shipment estimates of 9.5 million Pentium 4 processors. “If any of these factors don't occur, then I'll have to adjust my Pentium 4 estimates downward,” he said.