Intel hit the accelerator on Pentium 4 this week, announcing a new 1.7-GHz version at a bargain price of $350. To put this in perspective, Intel has never introduced a new high-end part at less than $500, but this price demolishes that barrier.

This pricing is Intel's latest effort to boost Pentium 4 sales in a soft PC market. Although the new chip offers a performance advantage over Pentium III on multimedia-intensive tasks, on everyday software the difference is minimal.

Pentium 4's advantage will grow as music, video and speech become more integral to mainstream applications. For example, the next version of Microsoft Office will include a speech interface.

But for now, few applications really take advantage of Pentium 4's performance. That problem, coupled with the general economic malaise, has caused sales of high-end PCs to drop.

Intel has invested hundreds of millions of dollars in small software companies developing leading-edge applications, hoping to spur demand for faster processors. So far, no killer app has emerged.

Intel is in the middle of a $300 million advertising campaign to drum up demand for Pentium 4. (Remember those blue men at the Super Bowl?) PC sales remain soft.

Now Intel has slashed Pentium 4 prices to the point that the least expensive Pentium 4 costs the same as a Pentium III. With these prices, the market will move to the new platform by default. The PC slowdown actually helps Intel hasten this transition. Last year, it could barely make enough chips to go around. Now, the company can devote its excess capacity to the larger Pentium 4 die.

Once Pentium 4 becomes the standard platform, the installed base will quickly grow. At that point, Intel hopes software developers will finally deliver next-generation applications intended for Pentium 4.

I have no doubt these applications will reach the market sooner or later, but it may well be later. In the meantime, Intel's new pricing structure will put a squeeze on margins, particularly given Pentium 4's high manufacturing cost.

Over the next year, Intel will shift to its 0.13-micron process and 300-mm wafers, significantly reducing Pentium 4's cost. The company also plans to rebuild its price structure by introducing higher-priced versions at 2.0 GHz and faster.

Once OEMs get a taste of the juicy new prices, convincing them to pay more will be difficult. Intel is counting on new software to demonstrate Pentium 4's true value.

Linley Gwennap is the founder and principal analyst of The Linley Group, a technology analysis firm in Mountain View, Calif.