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Intel expected to cut prices

As Intel shares fell, Wall Street was predicting that the world's largest chip maker would soon embark on another round of deep price cuts.

As Intel shares fell 4.4% last Monday, Wall Street was predicting that the world's largest chip maker would soon embark on another round of deep price cuts to stimulate demand for its high-end Pentium 4 (P4) chips.

Although some Wall Street analysts are saying that Intel's impending price cuts are a response to increased competition from AMD, Meta Group believes that the action is more a response to the generally weak demand for PCs in both the consumer and business markets.

"Intel is its own biggest competitor," says META Group analyst Dale Kutnick. "People are happy with what they have, and Intel has to find a way to convince them to buy new stuff."

However, the analyst house questions whether a steep cut in P4 chip prices will be enough to stimulate PC sales and it suggests that, in the short run, it is likely to have the opposite effect - depressing sales of the Pentium III (P3) machines that now predominate in the market as consumers wait for the lower-priced P4s.

"The clear message is to hold off on PC purchases until the less expensive P4-based machines have a chance to get onto store shelves," says META Group analyst William Zachmann. "In two to three months, you might be able to buy a PC with a 1.4GHz P4 processor for $800."

In fact, Meta predicts that demand will only when a number of factors come into play. The first is multimedia, as Meta suggests that the growing popularity of digital music and pictures, availability of inexpensive software to edit these multimedia elements, and use of high-bandwidth connections to support e-mailing digital media to family and friends is the next major consumer demand driver.

It also points to the release of Windows XP, which, it says, has improved support for multimedia and this, combined with the less expensive P4, will feed demand. Other factors to consider include the increasing availability of high-speed Internet connections to support the download of large multimedia files, falling prices for CD burners that enable users to make recordings of MP3 and other multimedia files from the Web, and general availability of DVD players create fertile ground for new consumer spending on systems.

With all this in mind, Meta suggests that consumers should hold off on PC purchases for the next two months and wait for the arrival of new, inexpensive P4 multimedia systems. For corporate buyers, the analysts recommend that purchases should be delayed, where possible, until early 2002, when, it says, prices often drop again in the wake of the holiday buying season and as PC manufacturers refocus on stimulating the business market.

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