And when the chips are down

Intel is determined to make its investors feel confident when the next quarterly results hit Wall Street. At the end of last month, Intel cut the price of its 233MHz Pentium II processor by a third and Pentium II prices have been slashed from $401 to $268 in 1,000-unit quantities.

And that's just the start. At the end of this month there will, allegedly, be a 25 per cent cut on almost every Intel processor in the book. At the same time, Intel also plans to announce the 333MHz Pentium II. This spells trouble for a channel with a build-up of stock and nowhere to go with them. Intel claims these announcements have been planned, but it also said it was responding to PC makers' requests.

Some vendors, Compaq included, are apparently fed up with having to chop and change processors every few weeks, and so are many users. Compaq is going to use AMD's K6 processors in several consumer-based PCs and Cyrix is set to launch a faster version of its MediaGX - the low-cost integrated processor already in use by Compaq. What all this means for the channel is that there is even more of a need to move stocks of Pentium and Pentium Pro systems through the door.

There are already sub-#2,000 Pentium II-based systems on the market and the price cuts will mean even lower PC prices within weeks. Anything Pentium Pro or MMX flavoured must go out the door inside the next six weeks.

But the deals between AMD,Cyrix and Compaq tell a slightly different story. The market may be getting tired of moving so fast and unless Windows terminals are in serious consideration, products like the K6 and MediaGX may be acceptable.

That said, the addition of multimedia features to the AMD and Cyrix chips, Compaq's plans for consumer products, and Intel's frenetic pace of development seem to suggest that the chip business is polarising. Intel is taking the volume business market and AMD and Cyrix are being pushed into the retail sector.

This could be where AMD and Cyrix will flourish; producing low-cost processors for a fast-growing but price-sensitive market. To run Office applications and play games, you don't need the latest chip. One way or another, it all means a tough year lies ahead for vendors that don't have the volume.

Market growth in 1997 was about 12 per cent, but the major brands - Compaq and Dell in particular - grew much faster than that. Between them, they hold about 30 per cent of the market and are taking more every day.

With margins tighter, thin client computing in the news and revitalised challengers such as AST and Acer fighting back, it will be hard to compete this year. Vendors will have to get big, get niche, or get out. PC vendors are going to have to make their minds up if they are in this business or not and if so, exactly what sort of business they are going to be.

Simon Meredith is a freelance IT journalist.