Can a $300 Million Intel Promo Boost PC Prices?
Despite the marketing muscle behind Intel's Pentium III launch next week, retailers and
analysts are questioning whether the processor's new multimedia instruction sets can boost
the average selling prices of PCs. Gary Richman, Intel's U.S. retail marketing manager, said
the company will spend $300 million on worldwide promotions. Intel will increase its in-store
training staff and hold special events for sales associates to attract attention. Intel also
will provide live Internet connections to its top accounts to demonstrate the first 450MHz
and 500MHz PIII PCs. Intel on Wednesday is expected to show some of the first software titles
optimized for the PIII. According to an Intel spokesman, approximately 100 applications ,from
games to productivity titles,will ship by year's end and several "big names" are developing
optimized sites that work exclusively with PIII chips.
Meanwhile, Intel recently slashed the OEM prices of its low-end Celeron processors. The cuts
prompted rival Advanced Micro Devices to do the same, starting a price war that pushed
mainstream processors to historic lows.A 400MHz CPU costs $133 from AMD and $134 from Intel,
in quantities of 1,000; a 333MHz chip costs $72 from AMD and $73 from Intel. "Sales of sub-
$1,000 PCs have been 40 percent of sell-through, but clearly that is going to increase," said
Ashok Kumar, an analyst for Piper Jaffray, Minneapolis. The falling CPU prices make possible
a viable business model wherein sub-$500 PCs are sold at a loss with Internet connections or
other services, Kumar said.
David Feathers, marketing manager for Alpha Computers, Tigard, Ore., said the competition
between AMD and Intel isn't the only factor affecting prices. "People are starting to realize
the best buys in the industry are systems based on chips that are almost on their way out,"
he said. "The bulk of the interest isn't fast processors, it's on how much computing people
can get for their $800 or $1,200." Many consumers, he explained, aren't buying a PC to get
the best *** performance or for other multimedia applications. They are interested in the
Internet, running light productivity applications, and perhaps playing a few games. Today's
400MHz Celeron system, priced under $1,000, have more power than some users even need.
Feathers said business customers and those looking for specific computing needs, such as a
video-editing package or a multimedia *** systems, are the easiest to step up to a high-
end PC. Yet many industry experts believe it's a dearth of compelling technologies that makes
high-end systems hard to sell to mainstream consumers. "There aren't as many applications
that force people to go to the very high-end like they used to," said a store manager for a
consumer-electronics chain. Intel is working to entice mass audiences toward higher-margin,
higher-performance systems. Many observers wonder how successful PIII will be, given that the
new, high-end processor has a Pentium II core.
"There is always a market for the high-end," said Bill Bryant, general manager of Datel
Systems, San Diego. Business customers will probably standardize on the Pentium III as Intel
phases out the Pentium II parts, he said, but "the sweet spot is still $1,200." Retailers can
expect that the new instruction sets will take center stage as AMD and Intel continue to
battle for *** in the consumer market. Dave Sheffler, AMD's vice president of sales and
marketing for the Americas, said his company will promote 3DNow! in all its processors, while
Intel offers its new instruction sets only in the PIII. "We will take advantage of the fact
that we will be delivering the same [kinds] of instruction sets for the mainstream," he said.
An AMD spokesman said 41 titles are optimized for 3DNow! More announcements are expected this
week. The K6III will ship in 450MHz and 500MHz versions. Retailers will start receiving PCs
based on the K6III in limited quantities at the end of this quarter. The chips will have
integrated L2 cache, much like Intel's current Celeron design. For added performance, the
chips can support additional cache on the motherboard, which will be designated as L3 cache