The challenge stem from concerns on how to maintain margins when the chip is expensive to build. This is accentuated by the fact that personal computer sales growth is no longer robust and prices for P4-based PCs will be initially high, with the Pentium 4 requiring an expensive type of memory processor. According to industry analysts, the PC market "has permanently slowed" and growth is likely to be driven by cheaper non-P4 PC systems in overseas markets.

The Pentium 4, which represents a fundamental change in design, is an impressive chip with running speeds of up to 1.4 to 1.5 gigahertz. It is designed for Internet tasks such as audio and video processing, web browsing and 3D graphics and will eventually replace the Pentium III, Intel''s current high-volume microprocessor.

However, with its speed and enhanced applications, also comes increased size of the chip, with new 42mm transistors being used on the chip. As a result of this size differential, Intel would be able to produce only one-third to one-quarter as many P4''s per wafer, compared with PIII''s.

Another factor that is going to influence the prices of PCs’ using the P4 chip, is the fact that, PCs using the P4 will require a fast but expensive type of memory chip based on a design from Rambus. Despite Intel''s best efforts to encourage memory chipmakers to produce the Rambus chips, supplies are low and prices are high.

Leading chipmakers who used to produce the Rambus memory chips had stopped due to lack of demand. Intel is preparing special chips, called chipsets, which would allow cheaper types of memory units to be used with the P4. But these chips are not expected until the third quarter of 2001.

The initial high price of P4 PC systems will have to come down rapidly to justify increasing production. Intel may be left with no alternative but to offer P4 microprocessors bundled with Rambus memory chips at cost price. It may also pay a "rebate" to PC makers to help offset the price of Rambus chips.

According to Intel it is in discussions to licence P4 technologies, which could enable others to make P4 chipsets supporting cheaper memory chips sooner than Intel.

The bright side of this whole launch is the fact that video and image production professionals and PC gamers will snap up P4 PCs because of its advanced multimedia features.

The P4 will become a much more profitable product once Intel switches to smaller geometries and larger 300mm wafers towards the end of 2001. These two manufacturing transitions will shrink the size of the chip by about 50 per cent and the larger wafer size will hold more chips.