Paul, Thanks for your reply.
The following news release may have been posted already. If so, my apologies (to you, Francis:-):
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Xeon, Intel price cuts due June 29
By Michael Kanellos
Staff Writer, CNET NEWS.COM
June 2, 1998, 6:20 p.m. PT
Intel will release its first Xeon Pentium II processors for servers and workstations on June 29 and team the debut with price cuts on its desktop processors, as the world's largest chip maker begins to deliver a new class of high-priced, high-margin chips for critical market segments.
The first Xeon chips to be released will run at 400 MHz, and some will contain extra high-speed memory to increase the performance of the chips. These chips will cost $1,050 and $2,650 in volume, respectively, according to Ashok Kumar, semiconductor analyst at Piper Jaffray. Other sources put the price slightly higher.
Pentium II pricing
Processor Current price* July price
450 MHz -- $770**
400 MHz $770 $675
350 MHz $575 $485
333 MHz $460 $385
300 MHz $350 $285
266 MHz $230 $185
Source: Piper Jaffray
* Vendor's price. Official price is higher.
** Expected in August.
Intel will follow this release with a Xeon chip containing twice as much high-speed memory for over $4,400, said sources, and subsequently put out 450 MHz versions of the chip in September.
The special high-speed memory is called "cache" memory. Less-expensive versions of the Xeon chips will come with either 512K (a half megabyte) or 1MB of memory. The priciest chips will come with 2MB of memory.
While the chip will not be officially released for PC Expo, which starts June 16, server vendors including IBM will preview their plans for adopting the new chip.
The chip's pricing is a key aspect of Xeon because Intel should be able to recoup some of the lower margins it is now seeing on its Pentium and Pentium II chips, while also enabling PC vendors to design fast, high-end server computers with price tags ranging above $20,000 for the most powerful systems.
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Workstations using these chips won't be cheap either. These are expected to fall into a range between $5,000 and $10,000, and some could go higher.
Because Xeon chips will be priced substantially more than Pentium II chips, gross margins that have been battered by the rise of sub-$1,000 PCs will be shored up. (Intel is an investor in CNET: The Computer Network.)
The chipmaker's gross margins during the first quarter shrank from above 60 percent in 1997 to 54 percent in 1998, while the average selling price (ASP) for processors similarly also went down. The declines partially owe to cheap computers, according to Intel.
Although increased manufacturing costs contribute to the price hike, market positioning appears to be the controlling factor. In the desktop arena, where the company faces more competition, the latest Pentium II-based processors are priced between $150 to $824 and discounted quarterly. In the server arena, where Intel faces virtually no competition from other x86 processor vendors, Pentium Pro chips from an earlier generation of technology sell for $1,035 and $2,675 and are rarely discounted.
"The server market isn't as price sensitive as the desktop market," Dataquest analyst Nathan Brookwood noted in an earlier NEWS.COM interview. "If you cut the processor price, you don't really change the dynamics of the [server] market."
Xeon chips are more expensive to manufacture because the processors will come in a "Slot 2" package, which is approximately twice as large as the current "Slot 1" package used for desktops. Intel will also use pricey, custom-made memory chips for the cache memory. Standard Pentium II chips use memory bought on the open market.
The Xeon strategy will also allow Intel to cash in on the rise of Intel-based workstations and servers, according to Drew Peck at Cowen & Company. Until now, Intel charged a single price for processors running at a particular speed, regardless of where the chip fit into a PC vendor's lineup, he pointed out. Compaq, for example, pays the same price for desktop Pentium II chips as it does for Pentium IIs that end up in more costly and profitable servers.
By branding Xeon as a separate product line, Intel can price these chips without regard to the desktop prices and take a portion of the incremental profit associated with these more expensive machines.
"In the face of unprecedented price erosion, Dell has seen its average selling price for [computers] rise. A big part of it can be attributed to workstations and servers," Peck said by way of example. "Intel has so far not been able to exploit this. Xeon is an effort by Intel to cash in on [this marketing strategy]," he added.
Meanwhile, the release will be accompanied by desktop price cuts for the third quarter. Pentium II prices in volume will now range from $185 for a 266-MHz Pentium II to $675 for a 400-MHz Pentium II, said Kumar. While customers will not get to pay these prices directly, they will experience overall lower system prices as a result of the cuts. Advanced Micro Devices will probably follow the price cuts as well.
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