And the systems would not only benefit consumers. The chip maker says the new personal computers will help PC manufacturers, whose margins have been squeezed by the sub-$1,000 (£620) PC phenomena, to make money at the low end of the price range. With average retail PC selling prices heading below $850 in September, Intel is targeting an emerging sub-segment of the under-$1,000, or "value market," with extremely low-cost chips resulting in models that will straddle the PC/appliance line. These minimal-cost PCs, likely costing $600 or less and perhaps as low as $399, will be driven by a forthcoming inexpensive integrated Intel processor, code-named Timna. Intel says such PCs should benefit customers by allowing PC makers to create a range of new cheap PCs, full-function PCs or appliance devices that cost even less, based on the relatively inexpensive Timna. With the exception of eMachines, most PC makers don't offer Windows-based models costing much below $599. While some have offered PCs under $500, they have generally been with outdated, end-of-life technologies such as slower processors and CD-ROM drives. The reason is clear: There is little if any profit at the low end of the PC market, analysts agree. With Timna, Intel is attempting to make it easier for vendors to hit lower price points. For PC buyers, this means brand new technologies with decent performance for lower prices. "What you'll see next year is the sub-segmenting of the value space," said Pat Gelsinger, an Intel vice president and general manager of its Desktop Products Group. "Everybody has priced (PCs) to compete in the (value) space, but nobody's making money." To that end, the company will offer Timna, which is based on Intel's new 0.18-micron manufacturing process, in the second half of next year. Timna will combine a Pentium processor core developed specifically for this low-cost market with a graphics engine and memory controller. By combining these three functions into a single chip, Intel says it will lower PC makers' overall component costs and reduce the size of the motherboard needed for Timna-based a system, another cost-saving measure. Cost savings allow PC makers to charge less for a given system. But for end users, the chip promises even lower entry-level pricing. Such PCs can be viewed as the equivalent of entry-level automobiles, which are relatively inexpensive, but meet all of the basic needs of the customer. Their low cost may also encourage those buyers who have not yet purchased PCs to jump on the bandwagon. Analysts agree there is an emerging sub-segment of ultra-low-cost PCs in the sub-$1,000 PC market. Just follow the market trends, they say. September market research numbers show that average retail desktop PC sold for about $828. The price decline seen in September was 23 percent, according to market research firm NPD Intellect LCC. While PCs priced between $600 and $1,000 accounted for a majority of sales in September, 43 percent -- or roughly one-third of the PCs sold in the retail market -- were priced below $600, according to NPD. "I think we're going to consistently see prices decline. I think ASPs (average selling prices) are going to drop into the $600 to $700 range next year," said Matt Sargent, principle of Sargent Consulting a San Diego-based market research firm. "I think we're going to see a lot of systems, that are limited systems, in the $400 to $500 price range. The question is what is a PC and what isn't?" Intel says that those definitions don't matter. The Timna chip will support PCs that run Windows as well as appliance devices that run Linux. "It's an Intel Architecture product and it runs Windows, so it's a PC," Gelsinger said. If a PC maker or device maker were to use Timna in a device with limited function and an operating system like Linux, he said, "now you call it an appliance." Sargent agreed, but it's not a given that PC makers will adopt Timna because it has Intel inside. "I think that makes sense. I think Intel learned in the retail market in 1997 and 1998 that it can't ignore the low end and just play in the high end," Sargent said. "(However), you're seeing the move already with VIA (Technologies) They'll come out with a continued focus (on low end)." VIA, which purchased National Semiconductor's Cyrix processor business and IDT's WinChip business late in the summer, has made public its plans to continue to produce Cyrix MII chips, at least through its 433MHz equivalent. It will follow with two new processors for Socket 370, a 370 pin socket for low-cost PCs developed by Intel for its Celeron chip. The two chips include an MII-based follow-on running at 433MHz to 566MHz equivalents and a later chip, based on Centaur Winchip technology at speeds of 500Mhz and greater in late 2000, according to published reports. It is likely that low-cost PC makers will at least evaluate the new chips, possibly pitting them against Timna. The company has made veiled references to an internal effort to develop its own integrated platforms, and has said publicly it will offer low-cost versions of its Athlon chip, which utilise a lower-cost socket, called Socket A. AMD, in addition, will debut in the first half of next year new versions of its K6-2 and K6-III chips, called K6-2+ and K6-III+, using the 0.18-micron manufacturing process. The K6-2+ chip will offer 128KB of integrated cache, which should help boost performance over the current iteration of the chip. Although Timna will address the low end of the market for Intel, the company has no plans to abandon its Celeron chip, which serves the $600 to $1,200 PC market. Intel will continue to improve Celeron by moving it to the 0.18-micron manufacturing process, which will bring with it faster clock speeds, in the first half of 2000. Users should expect to see this version of the chip debut at speeds of about 550MHz. It should scale to 600MHz and faster in the second half of the year. But just how low will PC prices go when the next wave of low-cost chips hit? "It's hard to see (PC prices) going much below $399, given the current pricing structure," said Stephen Baker, director of analysis at market research firm PC Data. However, he said, "there may be some opportunity between all those things (Timna, combined with the removal of legacy components, such as PS/2 ports or ISA buses from PC) for some decent savings."