The market is expecting an 18 per cent drop which would reduce prices by around Rs 2,000 . "Intel wants to take it to a lower level where demand will pick up. The price has to come down by Rs 3,400 to Rs 4,000 for it to be perceived as an entry-level processor," said a source who has been tracking the industry.

The drop is likely to be announced by next week, said market sources. Prices on all Intel processors were cut by 15 per cent to 20 per cent in April but Pentium III systems were not significantly affected by the cut. The price on Pentium II 400 MHz processor had come down to around Rs 12,000 from Rs 16,000 after the cut.

Prices on Pentium III processor are likely to remain steady at current levels for sometime. "Intel has given us anassurance that it will not cut prices on the Pentium III," said a Geniune Intel Dealer (GID). Dealers could face problems if Intel dropped prices often without warning. "Some us have burned our fingers because of this. Intel has dropped prices after we stocked the processors. After that, we don't have a choice but to sell it a lower price," he said.

Because of this, Intel is unlikely to further reduce the price of Pentium III processors. It had effected a 35 per cent price-cut on the Pentium III 450 MHz in mid-May, bringing prices of systems based on the processors to Rs 50,000. The minimum price of a Pentium III-based system was over Rs 70,000 prior to the price cuts. Vendors said demand had picked up by close to 50 per cent following the drop in Pentium III prices.

Intel competitor AMD is also expected to launch its K6-3 chip in India soon. Its K6-2 chip has already made inroads into markets here and a number of GIDs are distributing it along with Intel machines.