Price war between Intel and AMD winding down, study says

Pinched by microprocessor price wars, Intel Corp. and Advanced Micro Devices Inc. are trying to move away from competing over prices and toward competing on features and functionality instead, according to a study released by iSuppli Corp. on Monday.

Though Intel has a sizable lead over AMD in global microprocessor revenue market, both companies recently noted that competition over average selling prices of chips has eased, which could signify the beginning of the end for the x86 microprocessor pricing war, El Segundo, Calif.-based iSuppli said in a statement.

Overall, microprocessor revenue globally for the third quarter of 2007 was $8.53 billion, increasing almost 11% from the previous year. Intel retained the top position with a 79% market share, up almost five percentage points from the previous year. AMD followed with a 14% market share, dropping three percentage points year over year. Other suppliers, including IBM, Freescale Inc. and Marvell Technology Group Ltd., accounted for 7% of the microprocessor revenue market share.

Global microprocessor revenue increased thanks to strong sales of PCs and entry-level servers, of which 68.1 million units shipped for the quarter, up 14% from the previous year, the study said.

Despite strong PC shipments, aggressive pricing by both Intel and AMD significantly hurt microprocessor revenues for both companies, said Dale Ford, vice president at iSuppli. But the situation has improved somewhat, as prices have stabilized with the release of new multicore processors and chips made using more advanced manufacturing technologies, he said.

Intel recently released its power-efficient Penryn chip, manufactured using a 45-nanometer process. AMD, which makes 65nm chips, said it will start manufacturing 45nm chips in the middle of 2008.

In addition to upgrading chips with features like virtualization support and improved graphics, new chip architectures -- like the upcoming Nehalem and Fusion platforms from Intel and AMD, respectively -- are helping to shore up prices, said Dean McCarron, an analyst at Mercury Research in Cave Creek, Ariz.

For example, Intel said Nehalem, due for release in late 2008, will deliver better per-watt performance. Fusion, AMD's next-generation chip, will merge a CPU and graphics processor on a single die.

"New and differentiated products keeps the price tack moving," McCarron said.

Strong demand for mobile chips is also helping to keep prices high. Both AMD and Intel have warned that aggressive pricing is likely to continue in the lower end of the desktop PC market, but rising demand for mobile devices is likely to boost prices in that segment of the market, McCarron said.

Copyright © 2007 IDG Communications, Inc.

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