Intel Expected to Cut Pentium 4 Price

Intel Corp. plans this month to slash prices on its top-of-the-line Pentium 4 microprocessors by 54% to stimulate underwhelming demand, analysts who spoke with the company said Monday.

The news sent shares of the No. 1 chip maker down $1.40 to $30.28 on Nasdaq and dragged down other technology shares as well. More typical price cuts for microprocessors, which are the brains of personal computers, are in the 30% range. Analysts said the plans undercut Intel’s recent prediction of a strong second-half rebound.

Intel spokesman Robert Manetta said the company wouldn’t discuss the latest reports, but he noted that company executives recently said they would do whatever it takes to make sure that PC manufacturers put Pentium 4 chips in as many mainstream computers as possible.

In May, when Intel introduced a quicker Pentium 4, it reduced prices on the slower model by 51%. The top of the line now sells for $562 in quantity.

Intel and other chip companies have been battling stalled demand as PC shipments have begun to slip for the first time in 15 years. In the second quarter, PC shipments fell 8% from the previous year, according to research firm IDC.

Lehman Bros. analyst Dan Niles said Intel will cut the chip’s price to $260 Aug. 26, with further reductions of as much as 25% in October if the company fails to win back the market share it has been losing to rival Advanced Micro Devices.

“Demand still isn’t all that great,� Niles said. “If people won’t buy at a certain price, you keep slashing.�

In his research report, Niles said Intel was fighting back against AMD’s cheaper chips, which have increased their share of the market from 13% to 21% in two years.

Price cuts have always been a major part of the semiconductor business, and Intel Chairman Andy Grove said they always will be.

“So long as technology marches on, chip prices will keep going down,� Grove said Monday. “We’ve been cutting prices for 32 years--sometimes a little slower and sometimes a little faster.�

AMD spokesman John Greenagel said his company will keep its prices competitive. And he said Intel was cutting prices so drastically because the Pentium 4’s improvement in quality was relatively minor compared with the Pentium III.

Intel normally gives manufacturers notice of intended price changes, and one computer maker said Monday it had been told that the August and October cuts combined would take about 40% off the fastest Pentiums.

Chip makers and computer companies are counting on Microsoft’s next operating system, Windows XP, to drive up consumer interest when it is released in October.

But the second-half rebound probably will be about half of the typical seasonal upswing, wrote Salomon Smith Barney analyst Jonathan Joseph.

“Expectations for a meaningful back-to-school selling season are rapidly fading,� Joseph wrote. He cut his revenue forecast for Intel’s current quarter from $6.64 billion to $6.24 billion and his earnings estimate from 11 cents a share to 8 cents.

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Times staff writer David Colker contributed to this report.