P4 Pricing Strategies

Intel has terminated the 1.3GHz version of the P4 from its launch plans. In October, the P4 will be introduced at speeds of 1.4 and 1.5GHz. Intel has set aggressive pricing for these two speed grades - namely $795 and $695 at launch according to its current pricing schedule. Many have expected Intel to launch at prices over $1000.

To magnify the impact of this P4 pricing strategy, Intel will create an artificial and counter-intuitive price gap with the Gigahertz Coppermine - holding it an a decidedly uncompetitive $990 until just after the P4 launch. After giving this pricing relationship a few days to sink in, Intel will drop the 1GHz P3 price down to a more competitive $465. The 1.13 GHz Coppermine will shortly thereafter be re-introduced with a price tag of about $637.

The 850 Tehama chip set will be priced at a hefty $75 excluding the Firmware Hub component (an additional $5). Mainstream chip sets usually sell at around $30 or less. Even with the seemingly low P4 CPU pricing, the platform is burdened with additional cost at the system level that will make it challenging for vendors to ship fully configured systems at prices significantly below $2000. New processor cooling and EMI containment solutions are required such as the assembly pictured below, which requires a new EMI ground frame between the processor and heat sink assembly mounted to the motherboard. Additionally, EMI will have to be contained through the use of higher quality and more expensive cases. It is also likely that 6 layer motherboard designs will be required for P4 systems.

Pundits have speculated for many months that Intel's insistence on introducing P4 on a high-cost Rambus platform could have a drag effect on its successful early adoption in the market. Intel will be trying hard to enable $2000 system prices for Pentium 4 based PCs. Targeted at the high-end enthusiast, workstation market, and content creation professional, P4 systems are likely to ship with large configurations of the fastest and most expensive PC800 RDRAM (256MB or more).

From our perspective it seems doubtful that there will be much of a market for PC700 or PC600 in P4 platforms. In response to this, DRAM manufacturers could be forced to increase RDRAM prices in order to cover the cost of lower speed bin splits that threaten to accumulate on the shelf.

Intel's RDRAM Rebate Deal

In an attempt to offset OEM reluctance to gamble on RDRAM, Intel has resorted to a $70 'Rambus Rebate Deal' for its P4 OEM customers. This rebate will apply to Willamette+850 system manufactured during Q4'00, and drop to $60 a pop in Q1'01 after which the program will be abruptly terminated. In Q2'01 OEMs are expected to begin re-directing their attention to lower cost DDR platforms using the Brookdale chip set. Intel will have no reason to subsidize these lower cost SDRAM platforms.

It is questionable if this rebate deal will be available to the board makers who were burned so badly over the last year by Intel's numerous problems with its 820 platforms. It seems unlikely that Intel would produce a rebate unless the manufacturer is able to prove that systems actually shipped with RDRAM populated in the system. Considering the hardships already suffered by the board manufacturers based on limited RDRAM availability and high prices, this scenario seems unlikely.

Worse yet, Intel's rebate program could be a signal to DRAM makers to raise prices on 800 MHz RDRAM parts. In the face of a potential squeeze on 800MHz RIMM availability, the shrinking market for 820 and 840 systems may not provide a large enough market to move the slower RDRAM bin splits - besides there will be no RDRAM subsidy from Intel on these systems.

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