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Intel Launching Pentium III With A Bang
(02/12/99, 3:39 p.m. ET)
By Kristen Kenedy, Computer Retail Week
Despite the marketing muscle behind Intel's Pentium III launch next week, retailers and analysts are questioning whether the processor's new multimedia instruction sets can boost the average selling prices of PCs.
Gary Richman, Intel's U.S. retail marketing manager, said the company will spend $300 million on worldwide promotions. Intel will increase its in-store training staff and hold special events for sales associates to attract attention. The Santa Clara, Calif., chip giant also will provide live Internet connections to its top accounts to demonstrate the first 450-MHz and 500-MHz PIII PCs.
Intel is expected on Wednesday to show some of the first software titles optimized for the PIII. According to an Intel spokesman, approximately 100 applications, from games to productivity titles, will ship by year's end and several "big names" are developing optimized sites that work exclusively with PIII chips.
Meanwhile, Intel recently slashed the OEM prices of its low-end Celeron processors. The cuts prompted rival Advanced Micro Devices to do the same, starting a price war that pushed mainstream processors to historic lows. A 400-MHz CPU costs $133 from AMD and $134 from Intel, in quantities of 1,000; a 333-MHz chip costs $72 from AMD and $73 from Intel.
"Sales of sub-$1,000 PCs have been 40 percent of sell-through, but clearly, that is going to increase," said Ashok Kumar, an analyst for Piper Jaffray, in Minneapolis.
The falling CPU prices make possible a viable business model wherein sub-$500 PCs are sold at a loss with Internet connections or other services, Kumar said.
David Feathers, marketing manager for Alpha Computers, in Tigard, Ore., said the competition between AMD and Intel isn't the only factor affecting prices.
"People are starting to realize the best buys in the industry are systems based on chips that are almost on their way out," he said. "The bulk of the interest isn't fast processors -- it's on how much computing people can get for their $800 or $1,200."
Many consumers, he said, aren't buying a PC to get the best gaming performance or for other multimedia applications. They are interested in the Internet, running light productivity applications, and perhaps playing a few games. Today's 400-MHz Celeron system, priced less than $1,000, have more power than some users even need.
Feathers said business customers and those looking for specific computing needs, such as a video-editing package or a multimedia gaming system, are the easiest to step up to a high-end PC.
Yet many industry experts said they believe it's a dearth of compelling technologies that makes high-end systems hard to sell to mainstream consumers.
"There aren't as many applications that force people to go to the very high end like they used to," said a store manager at a consumer-electronics chain.
Intel is working to entice mass audiences toward higher-margin, higher-performance systems. Many observers said they wonder how successful PIII will be, given the new, high-end processor has a Pentium II core.
"There is always a market for the high end," said Bill Bryant, general manager of Datel Systems, in San Diego. Business customers will probably standardize on the PIII as Intel phases out the PII parts, he said, but "the sweet spot is still $1,200."
Retailers can expect the new instruction sets will take center stage as AMD and Intel continue to battle for dominance in the consumer market. Dave Sheffler, AMD's vice president of sales and marketing for the Americas, said his company will promote 3DNow in all its processors, while Intel offers its new instruction sets only in the PIII.
"We will take advantage of the fact that we will be delivering the same [kinds] of instruction sets for the mainstream," he said.
An AMD spokesman said 41 titles are optimized for 3DNow. More announcements are expected this week.
The K6III will ship in 450-MHz and 500-MHz versions. Retailers will start receiving PCs based on the K6III in limited quantities at the end of this quarter. The chips will have integrated Level 2 cache, much like Intel's current Celeron design. For added performance, the chips can support additional cache on the motherboard, which will be designated as L3 cache.
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