Intel fires fresh salvo at AMD in price war

The world's largest chip maker slashed prices on a handful of microprocessors after the company's battle to retake market share from rival Advanced Micro Devices Inc. took a turn for the worse.

Intel Corp. appears to have undertaken some precision cutting in this round, repricing chips likely to catch attention, such as a quad-core microprocessor aimed at desktop PCs. The company slashed the price of the Q6600, a Core 2 Quad processor that runs at 2.4 GHz, to $266, down 50%, according to a new price list on Intel's Web site dated July 22.

The company also ventured where rival AMD dared not to when it reduced prices earlier this month, cutting prices on some processors aimed at laptop PCs. Intel reduced prices on two Celeron M processors by 20% each, a 1.73-GHz Celeron that now sells for $107 and a 1.6-GHz Celeron now reduced to $86 per chip. In servers, Intel slashed the price of its X3220 Xeon Server processor, which runs at 2.4 GHz, to $266, down 50%. The price of the Xeon X3210, a 2.13-GHz chip, was lowered 47% to $224 each.

Prices are all for lots of 1,000 chips.

This round of price reductions by Intel was different from previous quarters. The company lowered prices on fewer products, but it appeared to take aim more carefully. The difference may be in the fact its own profit margins have suffered during the pricing battles with rival AMD, or it could be in the fact that despite mounting losses, AMD was able to retake some market share from Intel in the second quarter.

Intel's main rival stopped a six-month decline in market share during the second quarter, according to preliminary estimates from iSuppli Corp. AMD's market share climbed a half a percentage point in the second quarter to 11.4%, while Intel's fell by exactly the same amount to 80.3%, the industry researcher said.

"This ended a major resurgence in market share during the prior two quarters for the microprocessor giant," iSuppli noted.

The price war has been painful for both companies. Stock market investors punished Intel after its second quarter earnings release because the company's gross margin failed to meet expectations. Intel's gross margin fell to 46.9%, but the chip maker forecast a rebound to 52% in the third quarter. Intel blamed lower average selling prices for the decline.

AMD has also been hurt. The chip maker reported a $600 million loss for the second quarter, which ended June 30. It was the company's third consecutive quarterly loss. AMD reduced prices on some of its microprocessors earlier this month.

The tit-for-tat price war Intel and AMD have fought over the past year has been great for users -- particularly in desktop PCs. Processors are the most expensive part of a PC, so price reductions on this key component really impact the overall cost of a system.

Price reductions for microprocessors and other computer components are a natural part of the business. As products age, they lose value, so lower prices are used as a way to entice users to spend less on slightly older technology. But the market share battles between AMD and Intel in recent years have pushed both companies to boost technology and keep pricing down, to the benefit of users.

Copyright © 2007 IDG Communications, Inc.

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