Entry-level chips get lost in high-level price war

Retail stores and Web sites are loaded with great deals on PCs with high-end processors for the holiday season, but with prices of such processors being cut and re-cut, entry-level chips seem lost in the fray.

This owes partly to changes in the PC market since the days of the dot-com boom. Entry-level chips were aimed at sub-$1,200 PCs as recently as three years ago. But you don't have to look far these days to find a system based on Intel Corp.'s Pentium 4 at a lower price than the company's entry-level Celeron, which has lost market share.

Following the introduction of the Pentium 4, the Celeron saw its market share on the desktop drop to 20.9 percent in the third quarter of 2001, down from 27.2 percent in the year-earlier quarter, according to figures from IT research group Dataquest Inc., a unit of Gartner Inc. In that same period, the Pentium 4 captured 23.9 percent of the desktop market after its release that quarter.

One custom computer manufacturer hasn't seen any demand for the Celeron. "The price has gotten so close that the slight difference doesn't make (the Celeron) worth it," said Chris Roberts, technical manager at South San Francisco, California-based C&E Computers. "We do offer it by request, but nobody asks for it."

PC vendor price wars have had as much to do with it as rivalry-spurred price cuts from Intel and Advanced Micro Devices Inc. (AMD), according to one analyst. "With system pricing and Intel evangelizing the Pentium 4, we now have a situation where US$900 is going to get you a Pentium 4 system, which is where the Celeron used to be priced," said Dean McCarron, an analyst with Scottsdale, Arizona-based Mercury Research Inc.

The choice between the two is obvious. While today's Celeron is essentially a Pentium III with fewer features, the Pentium 4 is a new microarchitecture, and a 400MHz bus, rather than the 100MHz bus on the Celeron, McCarron said.

"Pentium 4 momentum started affecting the Pentium III first, because it was closer," McCarron said. "Now that the Pentium III has been wiped out, the top end of Celeron is starting to get wiped out as well."

Strictly based on clock speed, the Celeron tops off only 100MHz below where the Pentium 4 begins. But the difference is more than clock speed. Most versions of the Celeron have a 128K-byte cache, which allows the chip to access a memory buffer faster than it can access the main memory. Pentium 4 processors offer double the cache size, at 256K bytes, but only the 1.2GHz Celeron offers 256K.

Intel launched the Celeron almost four years ago, with a clock speed of 266MHz. Less than six months later, the Celeron had reached 300MHz, and included 128K bytes of memory cache.

By March 2000, the Celeron was boosted to 600MHz, and Intel added Internet SSE (streaming single instruction multiple data -- or SIMD -- extensions), a set of processor instructions designed to boost the performance of multimedia and Internet applications. Eight months later, Intel's 766MHz Celeron hit the streets, and is currently the lowest clock speed Celeron offered. That same month, Intel launched its new high-end processor, the Pentium 4, running at clock speeds of 1.4GHz and 1.5GHz.

As the world's largest processor maker, Intel has gathered the most attention for its processor lines. However, rival AMD has found itself in a similar price-and-demand situation with its high-end Athlon and entry-level Duron chips, analysts said.

"I would argue that it happened even earlier with AMD than with Intel," McCarron said. "Intel had three product lines, AMD only had two."

But customers at a build-to-order PC maker in Cambridge, Massachusetts, are more likely to buy a computer with AMD's Duron than with Intel's Celeron. "The Celeron is an okay product for someone who just needs to have an Intel processor, and we understand that," said Peter Goodman, founder and chief operating officer at PCs for Everyone. "But the Duron processor will cost you less while delivering the same performance at the least."

Even so, PC vendors, including Gateway Inc. and Dell Computer Corp. have Celeron-based systems available for lower prices than Pentium 4 systems, with just slight differences in the sound and graphics cards. Both come with 128M bytes of RAM and 20M-byte hard drives. In the case of Dell, the largest PC vendor in the U.S., a 1.4GHz Pentium 4-based system costs less than a 1.1GHz Celeron-based model, according to the company's Web site.

Intel downplayed the fact that Dell's Pentium 4-based system was less expensive than the Celeron. "It sounds like the Pentium 4 is a great deal!" said Intel spokesman George Alfs. "That just shows that Pentium 4-based systems can be had for a very reasonable price this Christmas."

"As the Pentium III fades from the mainstream desktop, certainly the Pentium 4 and Celeron have to meet," Alfs said. "The Celeron often gets configured in value systems while the Pentium 4 tends to be focused on richer offerings -- There's a real clear brand difference between the two."

The current price crunch between Celeron and Pentium 4 shouldn't be seen as Intel trying to kill off its Celeron, McCarron said. While there is demand for the Celeron, pricing has become so compressed that a large portion of the desktop market has made the transition to higher-end chips, McCarron said.

The Celeron has a history of changing with the times, and will probably continue to do so, said Nathan Brookwood, principal analyst with Insight 64 in Saratoga, California. "They have evolved it over time from a chip that was part of the Pentium II family, to a chip that was part of the Pentium III family," he said. "They change the architecture typically about six quarters from the time (Intel introduces) the highest speed part."

Six quarters from the Pentium 4 introduction would be in the mid-2002 time frame, but Intel is remaining quiet on the future plans for Celeron.

In the meantime, dropping prices could push buyers to opt for more expensive PCs.

"The high-end (PC) is now about $1,500, and the low end is about $700," Brookwood said, noting that a few years ago, the high end hovered at about $2,500. "People now realize that it's probably not a bad idea" to spend more and get a high-end system.

"Today, most people who are buying PCs have already had one -- they may have purchased their first PC a couple of years ago on sale," Brookwood said. "Now they've learned that maybe buying the lowest priced box on the shelf might not be the best point."

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