Intel's biggest customer, Compaq Computers, has decided not to use the company's chips in its new range of Presario computers and has opted instead for a product from Intel's rival, Advanced Micro Devices (AMD).

However, a spokesman for Intel Ireland, where many of the company's Pentium chips are manufactured, said Compaq's decision would only effect one segment of the market.

"We will still supply the majority of Compaq's needs, including business computers and other high-end PCs," he said.

On the January 25th Intel will be reviewing the prices of all its products and significant cuts are expected.

This, coupled with the marketing of Intel's Pentium II chip, should see the company regain any lost market share, said the spokesman. "The PC market at the sub $1,000 market is very price sensitive, so from time to time companies like Compaq will change their supplier, but it tends to change a lot over a fairly short period of time," added the spokesman.

The announcement about the use of Advanced Micro's K6 chip confirms a rumour that has been around the PC industry for almost two months.

One of the new PCs from Compaq will be an upgrade of its current $799 model.

AMD officials could not comment on Monday on the potential impact on its future earnings of its pact with Compaq. A source close to Compaq said the PC maker will also unveil some new Presarios with Intel processors. Compaq will also have other models with Cyrix Corp processors.

Some analysts said they did not expect the Compaq deal to be a huge bonus to AMD and that Intel would regain its position when further price cuts on its chips are announced.

Intel recently cut the price on the entry level Pentium II chip by 33 per cent in an effort to rejuvenate PC sales.