New chips, including a more budget-minded version of the Pentium 4 will ring in the New Year for chip giant Intel. The chip maker is coming out with a 1.3GHz version of the Pentium 4 in the first quarter that will allow PC manufacturers to introduce PCs with the chip for less than $1,600 (£1,126) sources said. A souped-up version of the Celeron running at 800MHz will also be introduced. Additionally, introduction of a low-low power 500MHz Pentium III for notebooks, which effectively will compete against processors from Transmeta, has been moved up from the middle of the year to the first quarter. New versions of the Xscale, formerly the StrongArm chip, will make their debut as well. StrongArms are currently used in Pocket PC devices from Hewlett-Packard and others. The early-year chip onslaught comes on the heels of a difficult year for Intel. In the first half, Intel lost sales because of a dire processor shortage. And in the second half, dropping PC demand forced the company to scale back earnings expectations twice. Intel also had to recall a number of products. For 2001, company executives say they are intent on avoiding further shortages as well as beefing up quality control. "We are going back to the 100 percent everywhere testing," said Jeff McCrea, marketing director for Intel's desktop products group. On a 1.13GHz Pentium III that got recalled, he said, "in a little bit of our haste we didn't go through all of our traditional product validation." The 1.3GHz is being put in the lineup to fill a price/performance gap between Intel's aging Pentium III 1GHz chip and its new brand-new, high-end Pentium 4. Currently, Pentium 4 PC prices start at about $1,900 to $2,100. Pentium III 1GHz PCs, on the other hand, cost about $1,400 to $1,500. The 1.3GHz chip would appear in PCs priced between $1,500 and $1,700, a market segment that is becoming the home turf of Advanced Micro Devices. PCs containing a 1.1GHz Athlon chip, for example, start at about $1,800, with 1.2GHz chips selling for slightly more. AMD executives at Comdex discussed how the company plans to exploit the gap between Pentium III and Pentium 4 prices. Intel officials declined to comment on unannounced products, but broadly hinted that a cheaper Pentium 4 was coming. "You can expect to see us expand the (Pentium 4) product line throughout the year," said McCrea. "It might make sense to expand (Pentium 4) both up and down." Slowing demand for PCs has freed up manufacturing capacity so that Intel can afford to dedicate factory space to the chip, said Mike Feibus, principal at Mercury Research. "If you look back a year ago, Intel's thought at the time was that P4 was big and expensive to make, so it would fill the gap with Pentium III," Feibus said. "Now, Intel can do (1.3GHz) with the Pentium 4 now that it has the manufacturing capacity, and there's also capacity for RDRAM." The push to get Pentium 4 more into the mainstream of computing, however, could be hampered a bit by Rambus memory. Although it has come down in price, Rambus RDRAM is still more expensive than conventional memory; it is also the only type of memory that can be used in Pentium 4 computers. Toward the third quarter of 2001, Intel will release a chip set, code-named Brookdale, that will let PC makers pair Pentium 4 computers with regular memory, called SDRAM. In early 2002, Intel will come out with chip sets that will let users incorporate Double Data Rate (DDR) SDRAM, a faster form of standard memory, McCrea said. In addition to the new Pentium 4 chip, Intel also plans to ship a number of new processors in the New Year, ranging from faster Celerons to new XScale chips. The chip maker is expected to launch an 800MHz desktop Celeron chip in early January. Along with slightly higher clock speed, the new chip will be the first desktop Celeron to offer a 100MHz front side bus, a crucial data path between the PC and the rest of the computer. Current Celerons have an older, slower 66MHz bus. Intel also will offer additional performance for handheld devices, with XScale chips that will run at 400MHz and 600MHz. The additional speed will allow handhelds and handsets to run more complex applications, such as speech recognition, and process more data at a faster rate, said Cary Snyder, an analyst at MicroDesign Resources. The 1.13GHz Pentium III chip likely won't be launched until the second quarter of next year. AMD will counter Intel with a 1.33GHz Athlon chip, sporting a 266MHz front side bus. That chip is due in the first quarter, according to the chip maker. Micheal Kanellos contributed to this report. Go to our Chips Central 'news special' which include a Flash-based interactive timeline to illustrate new product launches from AMD and Intel from now -- through Q1 2001. Updated daily.