Just 18 months ago, the worlds two largest PC chip makers reaped record profits as they raced neck and neck to ship the fastest processor and lay claim to an unofficial speed crown. But now, Intel Corp. and Advanced Micro Devices Inc. are locked in a price war that is inflicting pain on both sides.
Earnings reports released this month revealed the latest damage: Intels third-quarter income plummeted 96 percent from a year ago, while AMD lost about $187 million for the quarter. AMDs poor showing highlighted the impact that price cuts were having, with the company posting a deficit despite near-record sales of its Athlon and Duron processors.
AMD Chairman and CEO Jerry Sanders said "aggressive pricing" had hurt earnings but noted that Intel was not escaping the price war unscathed. "Its pretty clear that their desire to cut off our air supply is not painless to them," Sanders said.
While Intel, of Santa Clara, Calif., did not detail how many chips it sold during the quarter, a company executive said the company has slashed its prices to boost sales.
"The pricing actions we took changed the decision from which processor to buy to which Pentium 4 to buy," said Andy Bryant, Intels chief financial officer.
Although Intel claims its cost-cutting efforts in recent months have helped it recapture market share it lost to AMD early this year, the gains, so far, appear relatively minor. Intel posted less than a 1 percent gain from the second to third quarter, while AMD lost less than 1 percent.
The dramatic drop in prices is most noticeable in top-speed chips. Intels fastest chip, the 2GHz Pentium 4, debuted in late August at $562 each in 1,000-unit volumes. By contrast, the 1GHz Pentium III was priced at $990 when it was launched in March last year.
Pricing by AMD, of Sunnyvale, Calif., fell even further. In March last year, the company charged $1,299 each for what it hailed as the markets first 1GHz chip. But its fastest chip, a 1.4GHz Athlon XP, lists at $252 after being introduced this year.
While less expensive chips have reduced PC prices, some system managers said the potential savings have had little impact on their buying decisions.
"If I need 500 PCs, Im simply looking to buy 500 PCs, so the price doesnt make that much of a difference," said Bob Howard, data processing senior planning specialist with the Oklahoma Department of Human Services, in Oklahoma City, who oversees about 7,500 desktops. "Its nice if the price goes down and it doesnt hurt so much when you write that check, but I still just buy what I need."