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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: richard surckla who wrote (136357)	4/16/2001 11:29:08 PM
From: tejek	Read Replies (1) \| Respond to of 1584072

Intel Cuts Pentium 4 Chip Prices, Hopes for Consumers' Response By Jim Seymour Special to TheStreet.com 4/16/01 10:43 AM ET Intel (INTC:Nasdaq - news - boards) is going to get a lot of praise, and probably some analyst puffery, from its price cuts, announced Friday, on the Pentium 4 CPU chip. Well and good ... but for the company and its investors, this is a decidedly mixed blessing. Because the chip is expensive to make (it's a big bugger) and because Intel still doesn't have satisfactory yields (the percentage of working, saleable parts per disc of silicon) on it, Intel doesn't have as much wiggle room on the P4s as it does on other chips in its CPU line. Yet it is doing a big wiggle. These cuts, which with further cuts later this month will bring the P4 by mid-May to prices as low as half of today's level, are among the most dramatic in Intel's history, much larger than the traditional march-the-price-down cuts that occur over the life of its products. The P4 is still a troubled product, for at least three reasons: AMD (AMD:NYSE - news - boards) Athlon CPUs, fully compatible with the P4, tend to deliver more raw performance and cost less. (At comparable speed ratings, and even when the Pentium 4 under test runs at a higher speed, Athlons come out on top in independent tests.) The P4 works only with expensive Rambus (RMBS:Nasdaq - news - boards) memory, and Intel is still paying PC makers rebates to get them to use the P4 and Rambus-design memory. (A new chipset, allowing use of the P4 with conventional memory, is promised for later this year.) The Pentium III, the P4's predecessor, is still very much alive and works fine in desktops and notebooks. Indeed, in some cases, Pentium IIIs actually outperform the larger, much more expensive P4s. So of course Intel would like to push the PIII into early retirement by making it an uneconomic choice. (But if you were a PC original equipment manufacturer, which would you push?) Intel hopes the new, lower prices will help it hit its target of P4 personal computers under $1,000 by the Christmas quarter. It also says it thinks the lower (if not quite that low) PC prices engendered by these P4 price cuts will get buyers back into the stores, where personal computer sales continue to sag. Yes, lower P4 prices will certainly push PC prices down some by Christmas. That's inevitable. But I don't believe many potential buyers are going to race down to Best Buy any time soon simply because the current P4s are somewhat cheaper. They can already buy fast, cheap PCs using AMD's Athlon and even lower-price Duron chips. Worse, this is going to be a big hit on Intel's revenue. Unless Intel gets the surge in sales it's hoping for -- the surge I think is a pipe dream -- it has succeeded only in lowering gross revenue, and further messing up margins. The good news that came from Intel on Friday was already widely known: Intel is only about a week away from officially releasing its new, faster 1.7 gigahertz Pentium 4. (PC makers have had 1.7 GHz P4's for months, and have been building machines with them for weeks.) I've heard rumors that the 1.7-gig P4 performs substantially better; I expect to be using a 1.7-gig P4 PC by the end of the week, and I'll let you know what I find. We should be in for a lively session when Intel reports its first-quarter earnings Tuesday at 5:30 p.m. EDT. (You can listen to a Webcast of that call by going to Intel's Web site.) The consensus earnings forecast for the first quarter is only 15 cents, beaten way down already from its fourth-quarter actual earnings per share of 38 cents. So I don't expect to see a huge miss -- the miss has been taking place for the last six months -- but I'm not looking for any good news Tuesday afternoon, either. -------------------------------------------------------------------------------- Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine.