Analyst: Intel expected to halve Pentium 4 price

Intel Corp. is expected to cut the price of its fastest microprocessor by more than 50 per cent, one financial analyst company said Monday – a move that will likely mean cheaper PCs for customers.

As the chip maker prepares for the next battle in its ongoing price war with Advanced Micro Devices Inc. (AMD), Lehman Brothers Holdings Inc. analyst Dan Niles said in a research note he expects Intel to cut the cost of its Pentium 4 line of chips by as much as 54 per cent by the end of August.

Intel controlled about 79 per cent of the microprocessor market in the second quarter of 2001, compared to AMD’s 21 per cent market share, according to Lehman Brothers. AMD has continually grabbed market share from the Intel for the past year, which has caused Intel to react, Niles said. In the second quarter of 2001 AMD increased its processor shipments by 23 per cent from the same quarter a year ago, while Intel shipped 12 per cent less processors in the same time frame.

“We believe Intel is planning to detonate a price bomb on AMD,” Niles wrote in his research note.

Stalled consumer demand for PCs is also driving the price cuts, Niles said. “They wouldn’t be doing this if they didn’t see a problem with the demand side of things,” he said.

An Intel spokesman declined to comment, saying the company does not discuss future price moves.

News of the continued price wars sent chip stocks lower Monday – Intel’s (INTC) shares fell $1.40, or 4.42 per cent, to close at $30.28, while shares in AMD (AMD) slid 8.47 per cent, or $1.63, to close at $17.62. Meanwhile, analysts said they expect consumers to see quick gains as computer manufacturers pass the savings on to their customers.

PC makers typically react as quickly as possible to price cuts, said Rob Enderle, an analyst at Giga Information Group Inc. of Cambridge, Mass. In some cases manufacturers such as Dell Computer Corp. and Compaq Computer Corp. who see price cuts on the horizon will actually reduce the cost of PCs before chip makers adjust their prices.

“The vendors are in the middle of this price war,” Enderle said. “Any cut that Intel makes gets transferred almost immediately to consumers.”

Lehman’s estimates have Intel’s current fastest processor, a 1.8 GHz Pentium 4, falling from US$562 to $260, while slower Pentium 4 chips and Intel’s Pentium III processors will fall in price by between 12 per cent and 45 per cent. By those estimates, the future price of a 1.7 GHz processor will match the current price of the 1.0 GHz Pentium III chip, which sells today for $193. Those price reductions will be followed by another round of cuts in late October, Niles predicted. The prices are for chips bought in 1,000-unit volumes.

Subsequent price cuts at AMD are likely to follow in response, analysts said.

“It puts AMD under a huge amount of pressure,” Enderle said. “I’m not sure they have any choice (but) to lower prices.”

Intel, in Santa Clara, Calif., can be reached at Lehman Brothers, in New York, can be reached at