Intel launches Core i7 as PC demand softens

Intel released its Core i7 desktop processors on Monday.

Intel began sales of its high-end Core i7 desktop chips in Tokyo late Saturday night, bringing to market a series of processors that are significantly more powerful than any of the company's current desktop products.

In a move intended to stoke demand among Japanese PC enthusiasts, shops in Akihabara, Tokyo's main electronics district, stayed open past midnight to put the first Core i7 chips on sale. The launch preempted a San Francisco news conference planned for Monday, as signs increasingly point to softening global demand for computers.

"This is a major new architecture for Intel and to be able to launch it here first to the user-community that Akihabara supports is a really exciting thing for us to do," said Steve Dallman, vice president of sales and marketing and general manager of Intel's worldwide reseller channel organization, shortly after the midnight launch. He was referring to the PC hobbyists and gamers who crowd the areas electronics stores in search of components to build their own computers.

"One of the features in the new processor I think they are going to be very excited about is Turbo-mode," he said. "There's also Turbo-tuning, which allows them to go in for the first time and tune 20 different parameters to optimize the performance of the processor."

The 3.2GHz Core i7 965 Extreme Edition is priced at US$999, while the 2.93GHz Core i7 940 and 2.66GHz Core i7 920 are priced at US$562 and US$284, respectively. Additional versions of Nehalem targeted at other market segments, including laptops, are expected to be released next year.

Several hundred people crowded stores that were open from around 10pm until 1am Sunday morning to check out the new chip and buy it. It was offered alongside compatible motherboards and other components.

"We ran-out of the high-end ones, the 965 processors, and the motherboards above 40,000 (US$410)," said Keisuke Kuraishi, manager of the Faith store in the electronics district.

Core i7 is the first chip series based on Intel's Nehalem architecture to hit the market. Manufactured using a 45-nanometer process, these chips differ from Intel's existing products in several ways, most notably with the inclusion of an on-chip memory controller and faster links that connect the processor with main memory.

The chips that went on sale late Saturday aren't for the average user.

The first Core i7 processors were designed for systems aimed at gamers and other high-end users, and not the mass market, said Bryan Ma, director of personal systems research at IDC Asia-Pacific.

Despite the challenging economic environment, the release of Core i7 gives Intel a boost by strengthening its desktop product line and will keep the company one step ahead of rival AMD in the high-end desktop space. "They need to stay competitive," Ma said.

The Core i7 launch comes as overall PC demand is weakening in markets around the world. To what extent the new chips will convince buyers to upgrade their systems remains to be seen, and industry observers will be watching closely.

On Wednesday, Intel sent stock markets diving with a warning that it's fourth-quarter revenue will be sharply lower than the company's earlier estimates, signaling that demand for PCs was falling short of expectations. The chip maker also warned that gross margins, a broad measure of the company's profitability, will be lower than expected at 55 percent instead of the previous estimate of 59 percent.

"Revenue is being affected by significantly weaker than expected demand in all geographies and market segments," Intel said in a statement.

Intel said the revised gross margin estimate was primarily caused by lower revenue projections, but also blamed "other charges associated with the weaker-than-expected demand environment."

Those other charges include the cost of excess capacity and inventory write-offs, according to a research note put out by Credit Suisse analyst John Pitzer, who said the slowdown in PC demand will persist beyond December.

"We expect the weaker demand environment to persist into at least 1H09," Pitzer wrote, referring to the first half of next year.

As a result, Pitzer lowered his 2009 revenue forecast for Intel to US$33.8 billion, a decline of 12 percent compared to his 2008 forecast. He also said Intel's gross margin could fall to 50 percent during the first quarter of 2009 due to lower revenue, the cost of carrying excess production capacity, inventory write-offs, and startup costs for Intel's upcoming 32-nanometer process technology.

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