PC price war fizzles despite P4 cuts

In the shadow of an economic downturn, Intel is slashing prices on high-end Pentium 4 chips, but rival Advanced Micro Devices may not follow with price cuts of its own.

Because of manufacturing "capacity issues," AMD may decide not to answer Intel's price cuts, dashing expectations of an all-out chip price war, said Ann Bui, an analyst at International Data Corp.

"I'd be surprised if AMD came back with equally low price cuts," Bui said. "Intel can afford to cut deep; they have the volume."

Kevin Knox, director of enterprise segment marketing and business development at AMD, said the Sunnyvale, Calif.-based chipmaker doesn't see heavy discounting as an effective tactic in the commercial PC market.

"I don't think you're going to see AMD following Intel [with price cuts], especially in the commercial market," he said. Platform stability will remain AMD's main focus in the corporate market, which looks to get more from existing PC investments, Knox said.

"AMD does not want a price war," said Todd Kort, a principal analyst at Gartner Group. "They know what they need to do, and that's maintain a 20 percent or more price performance improvement over Intel."

Absent a price war, Intel's cuts could fall short of benefitting consumers if PC makers were to keep the Intel savings for themselves to boost their own ailing margins, foiling Intel's pricing tactic altogether, IDC's Bui said.

Last week, Dell Computer Corp. was one of the first PC makers to introduce a system powered with Intel's 1.7GHz P4, the first chip to be heavily discounted by Intel. Hewlett-Packard, IBM, and Compaq are also in the process of rolling out systems based on the 1.7GHz chip, according to officials for each company.

Price tags on individual 1.7GHz P4-powered systems from Dell, HP, and IBM are in line with Intel's target price.

Intel wants all Pentium-4-powered PCs near the US$1,000 mark by year's end, and the company hasn't ruled out continued price cuts to make that happen, according to officials for the Santa Clara, Calif.-based chipmaker.

But Gartner's Kort thinks that companies will probably pass on P4 systems this year, opting to keep what they have.

"Enterprises want to maintain a stable software image and hardware platform. We're starting to see a lengthening in PC life cycles, which is a bad sign for hardware vendors," said Kort, who believes companies are "not interested in the P4 at this time."

Nor is the average consumer, who has shown an increasing tendency to buy PCs in the middle-performance range, powered by sub-1GHz chips, Bui said.

PC makers such as Dell are looking to the fall arrival of the Microsoft Corp. Windows XP operating system to help stimulate sales of P4-powered systems, industry experts said.

But companies will be slow to adopt XP if the sluggish rollout of Windows 2000 is any indication, Kort said. Corporate upgrades to XP "won't be immediate."

Likewise, consumers may take Microsoft's minimum system requirements for XP too literally, Bui said. Not understanding that XP benefits from a high-performance chip will lead consumers to install XP onto their existing PC, she explained. "We're calling it the rise of good-enough computing," Bui said. "There is a lack of any compelling reason to buy a new PC. For the rest of this year, I don't see any solid evidence that the worst is over [for slumping PC sales]."

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