PC Price War: Will It End the Tech Slump? ( at lower levels , eventually)
INTC said to slash P4 chips later this month , as price wars continue to heat up
By Jay Lyman, www.NewsFactor.com
With price wars raging among makers of microprocessors and computers, advancing technology is getting cheaper -- but analysts so far doubt the bargain buys will be enough to snap the PC market out of its current doldrums.
• Intel Set To Detonate Price-Cutting 'Bomb' - Analyst
• Dell Pegs New PC Price Point Below $600
• Gateway Takes Offensive in PC Price War
Intel (Nasdaq: INTC - news), perhaps the most visible cost-cutter, says it is prepared to do whatever it takes to move its line of Pentium 4 processors into the mainstream PC market. According to some analysts, that means the market can expect to see high-end 1.8 GHz Pentium 4 chips selling at half their current price by the end of the month.
Santa Clara, California-based Intel says it can leverage technology to efficiently offer faster chips at lower prices to stimulate demand, but analysts say it could be years before the semiconductor market fully recovers.
Prices Go Lower
Intel has already dramatically dropped the prices of its processors, including mainstream and high-end Pentium 4 chips. Analysts say the company is on the verge of cutting even more in its war with rival Advanced Micro Devices (NYSE: AMD - news), a Sunnyvale, California company that has battled Intel with competitively-priced, high-performance processors.
Intel spokesman Robert Manetta would not confirm or deny the dramatic cuts predicted for later this month, but told NewsFactor Network that price cuts are not uncommon in the company's effort to transition processors, including the Pentium 4.
"We're accelerating our desktop roadmap," Manetta said. "We said we were going to be aggressive."
Demand Plummets
Despite price cuts by Intel and others and an optimistic outlook from Intel CEO Craig Barrett, technology research company IDC reports that a soft market for semiconductors will continue through the end of the year.
"I think the reality is the economies are slowing," IDC vice president of semiconductors Mario Morales told NewsFactor.
Morales said that Intel may spur some demand, citing computer maker Dell's success in winning market share with price cuts, but he added that the cuts alone will not be enough.
"You will see an uptick in demand, but I think that in general the market is going to stay pretty soft," he said. "With the indicators we're getting, it's still going to be flat the second half of this year."
War Without Weapons
Gartner Group analyst Martin Reynolds told NewsFactor that the price cuts are probably not deep enough to have an impact on the lagging PC market.
"There absolutely is a price war going on, but you have to keep in mind that they don't have a lot of weapons," Reynolds said, referring to a price difference of less than US$50 for most PCs.
"The price cutting can't fuel demand at this point. It's a huge lever in terms of moving market share from one vendor to another, but it doesn't mean there are more PCs sold."
Reynolds said consumers will win, getting faster, better-performing PCs for their money, but said he expected the PC market to remain flat. He added that there will probably be fourth-quarter growth over last year, but only because last year's fourth quarter was so bad.
Just One Chip
IDC, which reports the total worldwide semiconductor market will fall from $50.3 billion in 2000 to $38 billion in 2001, predicts the market will not recover until after 2005, and calls Intel's optimism unwarranted.
"First, PC original equipment manufacturers (OEMs) are sending different signals; and second, while the microprocessor is a major chip inside any PC, it's only one [type of] chip," said IDC senior analyst Shane Rau.
Rau added, "Other semiconductor companies that make chips for the rest of the PC, such as DRAM suppliers, are not doing well, and we don't think they will begin to recover until next year."
Consumers, PC Makers Win
Analysts agree that the result of the price wars will be lower prices for OEMs and consumers at the expense of suppliers such as Intel.
Morales told NewsFactor that the market "sweet spot" -- the price level at which most mainstream PCs are sold -- is dropping below its current $1,000 price range, which is already half of the $2,000 it once was.
"That's very dramatic," Morales said. "With these price cuts, you could see the sweet spot move down to $800."
*****************************
This WJS article was also interesting:
"Intel Will Cut Chip Prices up to 54%, Accelerate Push for Faster Processors"
public.wsj.com
snip
__________
"Mr. Edelstone predicts Pentium 4 prices will drop even further at the end of October, when he estimates that the two-gigahertz Pentium 4 will tumble more than 28% to $400 and the 1.9-gigahertz chip will fall 27% to $275. Some analysts also expect steep cuts on chips for laptop computers in the fall." |
