Intel cuts prices after drop in sales

PC buyers are set to be the winners as Intel instigates price cuts to regain the market share it has lost to arch rival, Advanced Micro Devices (AMD).

Silicon Valley sources are saying that Intel's upcoming 1.7Ghz Pentium 4 will be selling for $350 by the end of April - the same price as AMD is getting for its top-of-the range 1.33Ghz Athlon. When Intel launched the 1.5Ghz Pentium 4 last November it charged $819.

On Sunday, Intel cut prices on all of its Pentium 4 chips by between 11 and 19 per cent, but a spokesman would not comment on the pricing of the 1.7Ghz chip.

Analysts say that as a result of the low processor prices, consumers in the US will be paying $2000 for a leading edge PC which has double the power it had six months ago.

Announcing its first-quarter financials on Tuesday, Intel said that the price cuts would hit its bottom line and that gross margins would fall to 49 per cent.

Mark Edelstone, an analyst at Morgan Stanley Dean Witter, called the price cuts "unprecedented for a new product family".

"We have clearly seen price declines for products that have been mature, but in the 12 years I have covered Intel, I don't ever remember seeing price cuts that were this aggressive," he said. "This will adversely impact their earnings this year. They have decided to take the short-term pain and focus on the long-term gain."

AMD has been taking market share from Intel, which had 77.1 per cent of the PC processor market in the first quarter, down from 82.3 per cent a year ago. AMD gained market share, ending the quarter with 21.2 per cent up from 16.8 per cent a year ago.

Andy Bryant, Intel's chief financial officer, was surprisingly upbeat about the company's future prospects. "The chip business appears to have stabilised," he said, adding that he expects second-quarter revenues to be down by 20 per cent for last year at around $6.8bn, but that the second half of the year should be strong.

For the just completed first quarter, Intel reported a profit, before one-off charges, of $1.1bn, or 16 cents a share, down from last year's $2.7bn, or 39 cents a share. Sales fell 16 per cent to $6.68bn from $8bn.