Intel Goes for Broke

By eweek  |  Posted 2001-08-20

Stung by pressure from Advanced Micro Devices, PC chip market leader Intel will sharply cut prices this month on its newest processor to regain momentum for the holiday shopping season — however thin its margins become.

At its developers conference in San Jose next week, Intel will announce its more powerful 2-gigahertz Pentium 4 processor for personal computers, and the expected price will signal that it has had enough of losing market share to AMD.

IBM tilted the battle slightly in favor of Intel last week when it confirmed that it has stopped using AMD processors in the North American PC market. Big Blue has a 5.9 percent market share. AMD plans to keep supplying IBM with its processors in Asia, and expects to match Intels discounts worldwide.

For consumers in search of a new, faster PC, it should mean a happy holiday — a chance to buy a desktop computer with unprecedented processing power for $800 or $900.

But great prices or not, consumers will be reluctant to buy new PCs if the bandwidth bottleneck to their homes keeps them from swapping music, getting video-on-demand or enjoying other new applications.

"Intel is drawing a line in the sand because AMD has come on strong grabbing market share," said Jeremy Lopez, semiconductor analyst of telecommunications consultant Morningstar. "Theyre saying, Were going to cut prices because we can. We have the power; we can spur demand and get market share. "

Early this year, AMD increased its share of the PC processor market from 17 percent to 22 percent, then held steady in the second quarter. Intels share is about 77 percent.

AMD spokeswoman Catherine Abbinanti said Intel is offering deep discounts "because the Pentium 4 is not a great product. Intel is having problems with market acceptance. We will not be pushed out of the market. We can produce . . . in the volumes needed at competitive prices."

When Intel introduced its 1.7-GHz Pentium 4 processor in April, it sold for $352 and was meant for computers that would cost $1,800 or more apiece. A year ago, 1-GHz chips alone cost $1,300.

The two chip companies hope to get a big boost from customers who want more powerful PCs to get the most out of the about-to-be-released Microsoft XP operating system. But Dean McCarron, a principal of Mercury Research, expects just "a little bump" from that.

Lopez said AMD ought to be able to withstand the downturn while matching Intels prices. "Theyll take their lumps for now. The question is whether they can crack the server and corporate PC market," she said.

The corporate customers reluctance to part with the familiar Intel integrated circuits drove the decision to discontinue the AMD chip, said Ray Gorman, an IBM spokesman. "It didnt make sense to continue investing in two separate chip platforms," he said. "Everything in development became times two. Its hard enough to make a buck in the PC industry at todays margins anyway."

Intel also announced last week that IBMs Summit chip set will be one of the platforms it will test for the fast-growing enterprise server market. IBMs new eServer xSeries systems will likely heat up the battle to sell servers that link several PCs.

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