No surge in demand seen for new Intel processors
August 24, 1998
by April Jacobs
(IDG) -- After a rough first half of the year, Intel Corp. today will unveil two processors -- one aimed at the low-end market it is struggling with, and one aimed at its forte, the power desktop. The chip maker also will give a pep talk about the aggressive PC prices it hopes will be a shot in the arm for the industry.
But despite new, cheaper, more powerful chips and other price cuts, corporate users aren't expected to change their buying patterns; buying multiple types of desktops based on the latest price cut or new chip leads only to support headaches, they say.
Intel is expected to announce a Celeron chip with on-board cache and a 450-MHz Pentium II chip, according to sources close to the company.
Mel Thomsen, an analyst at MicroDesign Resources, Inc. in Sunnyvale, Calif., said the new Celeron, code-named Mendocino, should help Intel gain back some market share in the sub-$1,000 market. That's because Intel's two earlier entrants into the market lagged in performance because of their lack of cache.
Thomsen said that even if Intel and the PC makers are able to drum up demand with lower pricing, Intel's revenue is likely to be flat this year. The company had revenue last year of about $25 billion.
Though sales have been steady for both processors and PCs, inventory gluts resulting from PC overstocks made up a lot of sales in the first and second quarters of this year, Thomsen said.
Intel's announcement follows deep price cuts to its Celeron and Pentium II lines announced July 26. The cuts ranged from 19% to 31%, bringing the average Celeron processor to just $99 and the average Pentium II to less than $600.
Analysts said the upshot for users is lower PC prices. Some analysts have predicted monthly price cuts instead of the traditional quarterly ones issued by PC makers and have said the average drop will range from 12% to 19% per quarter. But it is questionable whether Intel's and PC makers' attempts to give desktop computer sales a boost by lowering system and component prices will be successful.
Low prices may not tempt users to change their buying patterns. That's because large corporate buyers say they buy based on internal standards. But some say they would be willing to buy on a price basis if the vendor is consistent. That means offering industry-standard components and peripherals, which lowers the risk of support and incompatibility issues.
"We made the mistake in the past of buying when the price was right or the latest thing rolled out. I think corporate end users are looking for a standard, which adds years of life to the product," said Dave Geiver, senior technology officer at First Premier Bank in Sioux Falls, S.D.
Corporate IT managers, noting that consumer boxes can cost up to $1,000 less than business models, also want lower PC prices.
Craig Hanson, network administrator at Deloitte & Touche LLP in Fairbanks, Alaska, said he thinks the gap will have to narrow if PC makers want corporate buyers to be satisfied.
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