The world's top chip maker is poised to cut the price of the 550MHz Pentium III by 26%, sources say. It means that in the US, the cost of some processors will drop from $658 to $487.

It is the latest attack in a war between rival chip makers. Personal computer users are already set to benefit as manufacturers cut their own prices.

Intel is battling for business with AMD

The biggest price cut - 41% - will be on the 500MHz Pentium III, an Intel source said.

And the 450MHz Pentium III may be reduced by 21%. The prices of selected Pentium II chips will also come down.

Intel will reportedly slash the US cost of at Pentium II 450MHz from $230 to about $183, a cut of more than 20%.

Intel officials would not comment on any price plans.

Chip makers do battle

But the company reveals price cuts to PC manufacturers in advance and they use the information to plan their own reductions and to draw up new models using the lower cost of chips.

PC giants Hewlett-Packard and IBM are believed to be already planning to announce reductions on their desktop models.

Last week, Gateway revealed wide price cuts on its consumer PCs.

Intel's action is the latest attack in a war with rival chip firm AMD, which undercut Intel when it launched the new Athlon K7.