Falling prices for PC building blocks - CPUs and memory - will drive a continuing slide in system prices as processor vendors shift to MMX-enabled CPUs, and DRAM chips remain in oversupply.
Memory prices will continue to fall despite the best efforts of DRAM suppliers to stop the slide.
CPUs will follow the same path as vendors drop their non-MMX lines.
Last week, Intel announced it had shifted its production lines from the classic Pentium processor to the Pentium MMX, and the last Pentiums in the pipeline should ship by the end of the year with prices as low as US$90.
"We have stopped wafer starts on the Pentium and expect to live off of inventory for the remainder of that product's life," says Paul Otellini, executive vice president and director of the sales and marketing group at Intel.
Lower prices mean more-capable computers for the same price, said Mark Perl, business manager at Visa USA, in Foster City, California. Buyers should keep purchase volumes small to take advantage of the precipitous drop in system prices, he added.
"Prices are so fluid, I don't know how you keep up with it unless you wait until the last minute to buy," Perl said.
Waiting is exactly what some buyers are doing, says Steve Tobak, vice president of corporate marketing at Cyrix.
"The IS director will wait until the last minute to buy," Tobak says.
"The winners in this story are PC buyers," says Linley Gwennap, publisher and editor in chief of Microprocessor Report, in California. "Having wisely and wholeheartedly rejected non-MMX processors, they are being rewarded with lower prices."
"The marketplace is rapidly moving to MMX-enhanced processors," says W.J. Sanders III, chairman and chief executive at Advanced Micro Devices, in Sunnyvale.
AMD will keep its prices 25% below Intel's, an AMD representative says.
Sources previously expected a 166-MHz Pentium MMX desktop processor, now priced at about $270, to drop only to about $203 this month, near the current price of the non-MMX part. These sources now expect the part to become the entry-level processor, selling for less than $150 this month and about $125 in October.
"Pentium II processor shipments grew significantly this quarter and are on track to become mainstream products for Intel in the second half," Otellini says.
The price of the 300-MHz Pentium II, which is not yet shipping in volume, was to remain at $1,981, analysts said. However, higher yields will let Intel drop the price of the part to only $830 or so, they say.
As a result of the Pentium II price cut, a dual-processor Pentium II workstation will be priced more than $2,000 less when the CPU ships than either Intel or OEMs expected, according to analysts.
This reflects the higher production rates and yields, says Mario Morales, manager of semiconductor research at International Data Corp., in Mountain View, California.