Custom-System Builders: Intel Price Cuts Move Processor Sweet Spot

System builders say Intel's latest price cuts will help them clear out old inventory and should move the sweet spot of the company's processor lineup to the 3-GHz Pentium 4 from the 2.8-GHz Pentium 4.

After acknowledging inventory imbalances, the Santa Clara, Calif.-based chip maker earlier this week slashed prices by as much as 35 percent for some of its higher-end Pentium 4 processors, including chopping its 3GHz Pentium 4 to $178 from $218. The price of the 2.8-GHz Pentium 4 remained the same at $163. Pricing is based on lots of 1,000 units. Intel's move was not unexpected.

"It's moving out the old inventory, bringing it down to the lowest price level and bringing in the new product," said Robert Schaffer, president of Source Micro, a Randolf, N.J.-based system builder and solution provider. "Our products end up in SMBs. [Those customers] are looking for more of the mainstream than the high-end, cutting edge."

Intel also reduced the price of the 3.6-GHz Pentium 4 to $417 from $637 and dropped the 3.4-GHz Pentium 4 to $278 from $417.

Intel routinely cuts pricing in its microprocessor lines several times a year and, last month, the vendor signaled that it may see a softer pricing environment in some areas as it works to move excess inventory.Mike Zabaneh, vice president of Tangent Computer, a Burlingame, Calif.-based system builder and solution provider, said Intel's latest pricing move was not unexpected. However, Zabaneh has noticed industry pressure accelerating because of price competition between Hewlett-Packard, Palo Alto, Calif., and Dell, Round Rock, Texas. "

The top two or three [OEMs] are just duking it out big time," Zabaneh said. "Dell is just being extremely aggressive, and HP is being extremely aggressive. It's not tough finding the business. It's tough winning the business."

Intel has said it is delaying the official launch of its 4-GHz Pentium 4 processor until early 2005vs. the end of 2004, but system builders said the company remains on track to ship a 3.8-GHz Pentium 4 this year. Some system builders have voiced concern that a delay in the new, higher-end products could create additional pricing pressures during the heavy, year-end selling season.

In other price cuts, Intel reduced the price of its 2.8-GHz Celeron D chip to $103 from $117 and lowered its Mobile Pentium 4 processor to $234 from $294. Pricing for those chips is also based on 1,000-unit lots.