AMD cuts prices to match Intel
Published: 30 May 2002 16:21 BST
Advanced Micro Devices has slashed prices of its desktop and mobile Athlon processors just days after a similar move by rival Intel.
The cuts range from 17 percent to 52 percent for mobile Athlon XP chips and between 11 percent and 32 percent for desktop Athlon XP chips. On Sunday, Intel dropped prices of its Pentium 4 processors by as much as 53 percent.
The AMD price cuts help the company keep pace with Intel.
"We're going to do what it takes to stay competitive (on prices)," said an AMD spokeswoman.
AMD's move is also designed to clear out inventory and make way for faster new desktop and mobile processors. The company is expected to introduce a new Athlon XP 2200+ 1.8GHz desktop chip early next month, followed by a new mobile Athlon XP 1800+.
Intel has long used price cuts as a tool to speed the adoption of its new chips. Last year, it cut Pentium 4 prices in order to speed up the introduction of new versions.
Spring price wars are an annual ritual for the chipmakers. AMD's aggressive price-chopping also mean the company doesn't want to give up market share gains even at the cost of losses on the bottom line, said analysts.
In a recent research note, Merrill Lynch analyst Joseph Osha said he came away impressed with AMD's "tenacity" against Intel and added that the chipmaker is in good shape to "fight the good fight." But he noted that the price cuts will mean "low margins for AMD over the next three quarters."
Nevertheless, AMD has gained a respectable amount of market share from Intel in the last year-and-a-half, especially in Europe and Asia. As of the end of the first quarter, AMD's market share was 18.2 percent, according to Mercury Research.
Price chopping
Chipmaker AMD cuts Athlon XP prices as much as 52 percent for notebook chips and as much as 32 percent for desktop versions, following price cuts of up to 53 percent from rival Intel.
To hold those market share gains, however, AMD cut prices across the board.
AMD dropped its top three desktop Athlon XP chips by as much as one-third, for example. The 2100+ chip moved from $330 to $224, a 32 percent reduction, while the 2000+ went from $280 to $193, a 31 percent cut, and the 1900+ was reduced 22 percent, from $220 to $172.
Price cuts for the company's mobile chips were even steeper for the company's mobile processors.
AMD's top mobile Athlon XP chip, the 1700+, dropped by 52 percent, from $489 to $235. Meanwhile, the company trimmed the 1600+ by 49 percent, from $380 to $192; the mobile 1500+ by 30 percent, from $250 to $175; and the 1400+ from $190 to $150, a 21 percent drop.
Battling Intel
When it comes to cutting chip prices, Intel historically has had an advantage over AMD. Notably, Intel has been able to cut prices on lower-priced chips because it dominates on high-end -- and high-margin -- chips.
"We expect Intel to dust off its tactic of using high margins in segments that AMD can't address to subsidise aggressive pricing in markets where AMD is competing," said Osha.
Simply put, AMD has less of a cushion to fall back on. Price cuts pinch profits at either company by lowering the average selling price of processors. For AMD, the severity of price cuts is often the difference between profits and losses.
Where Intel has remained profitable despite price cuts, AMD has had trouble staying in the black, reporting losses in the last three quarters. The company is expected to report a loss of 9 cents a share for the second quarter, ending June 30, according to First Call.
Typically, AMD has been hurt more deeply by price cuts. During the first quarter of 2002, for example, it increased processor shipments from the fourth quarter of 2001, topping eight million, but processor revenue declined by 3 percent sequentially. In effect, the company sold more chips for less money than in the fourth quarter.
AMD has managed, however, to make greater inroads into the notebook and server market. Those new markets may help it hold the line somewhat on average selling prices because those chips generally cost more than desktop chips.
But Intel is unlikely to let up the pressure, with faster chips coming down the pike.
Intel is eyeing the 3GHz mark on the desktop and could possibly hit 2GHz with its Pentium 4-M mobile chip by the end of the year. With new, faster versions of the chip coming, Intel will cut prices in order to motivate PC makers to move up to the new chips.
It is also working to boost demand for Pentium 4-M notebooks. So far, notebooks with the chip haven't sold as expected, according to analysts, especially in the corporate market. Price cuts could prompt consumers to purchase the machines in greater numbers.
"Intel has been extremely protective of its mobile market share in the past, and AMD has less history here than in the desktop (market)," said Osha.
But AMD won't sit still. The company is also expected to march forward with faster Athlon XP processors as well on both desktops and notebooks. It will also begin shipping its first new "Hammer" processor at the end of the year. The chip, which will debut to the public in the first quarter of 2003, will run at 2GHz or faster, the company has said.
The company also cut prices on its desktop and mobile Duron processors by between 7 and 14 percent and reduced its Athlon MP processors for servers between 12 and 25 percent.
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