Intel Corp. may have to speed up price cuts on its highest-performance microprocessors next year to boost sales, analysts said, a move that could hurt profits at the world’s largest chipmaker.
In the past, Intel’s new chips have offered computer users significant improvements in performance over older models, spurring rapid sales of newer, higher-priced processors.
The trouble now is that the Pentium II, Intel’s top-of-the-line chip, doesn’t offer a vast increase in capability over the older Pentium with MMX multimedia technology, analysts said. That means Intel may have to cut prices more rapidly to spur demand.
Intel shares fell Tuesday after Morgan Stanley Dean Witter analyst Mark Edelstone cut 1998 earnings estimates for Intel to $4 from $4.20, citing potentially steeper price reductions.
“We believe Intel’s Pentium II price cuts will be more aggressive than we previously estimated,” Edelstone wrote in a report on Intel. Prices may even fall in January, before the scheduled quarterly cut in February, Edelstone wrote.
A lack of compelling software applications for the Pentium II is hurting demand for the new chip, Edelstone said.
Intel shares fell $1.69 to $76.44 Tuesday. They have lost about 20 percent of their value in the past three months, dogged by concern about falling prices and the economic crisis in Southeast Asia, the fast-growing market for personal computers.
“Intel is cutting prices much more drastically than ever before,” said analyst Drew Peck at Cowen & Co. in Boston, who rates Intel shares “neutral.”
Peck said he expects Intel to earn $3.90 a share in 1998, less than Edelstone’s estimate. That number may be “too high” as well, Peck said. “I have limited confidence in it.”
Intel doesn’t comment on future price cuts, though it does give computer-makers guidance on them so they can plan their business. In talking with Intel’s customers, Peck said he’s learned that the company plans to cut prices on its 266-megahertz Pentium II chip by 24 percent, to $401 from $530, in February.
Other prices are expected to fall by similar amounts.
