Chip makers Advanced Micro Devices and Intel intensified their battle in the second quarter.
The tumultuous period saw the rivals pare back chip prices—while Intel also battled its own inventory problems—amidst declines in processor shipments, due to somewhat weaker than normal seasonal trends, new data from Mercury Research shows.
AMD emerged with a small gain. The chip maker saw its market share grow by half a point to 21.6 percent, up from 21.1 percent in the first quarter of 2006.
Intel, comparatively, felt the weight of its excess inventory, and arrived at a share of 72.9 percent, down from 74.3 percent in the first quarter of 2006.
But the third quarter, which has already seen a raft of new processor introductions, will be far more telling for the chip makers, analysts said.
“Q2 was a weak, seasonally,” said Dean McCarron, principal analyst at Mercury Research. “Intel was dealing with its inventory issues. So it shouldnt be that much of a surprise that AMD gained a little bit of share, given Intels financial results and the background behind them.”
AMDs gains came in servers—AMD, quoting Mercurys numbers, said its Opteron jumped to 25.9 percent of the x86 server market—and desktop PCs. Desktops were noted by both chip makers as a particularly tough market during the second quarter. Intel held the line in notebook processors, however, McCarron said.
Pricing, which embodied the tighter competition between the chip makers, set the tone for their quarters. Lower prices caused AMD to miss its second quarter revenue target.
Intel also saw lower than expected pricing along with its reduced second-quarter earnings, it said.
Intel and AMD have since added new products, upping the performance ante in an effort to top each other and woo buyers with the right mix of price and performance.
Intel rolled out its Xeon 5100 server chip for dual-processor machines and begun the introduction of its Core 2 Duo chip for desktops and notebooks.
Intel, which called the Core 2 Duo its most important chip introduction since the Pentium, is looking to the chip to help it regain market share.
Intels second-quarter market share was roughly 9 points below that of its second quarter 2005 share of 82.2 percent. AMD, on the other hand, gained more than 5 points, year over year, from 16.2 percent in the second quarter of 2005, Mercury Research numbers show.
AMD has been looking to a version of its chips, including the Athlon 64 X2 and Opteron, dubbed “ref F.” Ref F chips offer new features such as virtualization and support DDR2 (double data rate 2 DRAM).
Rev F Opterons have been shipping for several weeks, but have not been formally launched. An introduction is scheduled for August 15, people familiar with its plans said.
Both chip makers cut their prices during the week of July 23, lowering the list prices on their desktop processors by up to 61 percent each.
The cuts sparked talk of a price war. But theres reason to believe the new list prices simply reflected deals the chip makers were already offering PC makers during the second quarter as competition heated up.
“Theres ample evidence [the cuts] actually took place well before the announce date,” McCarron said. “It was quite evident that the products were being sold for those prices youre seeing now back then.”
PC Market Slows Down
The lower prices have since made it possible for PC makers to offer dual-core-processor desktops for $500 to $600, for example.
But Intel and AMD—which are on the front lines of what many analysts say is a slowing PC market—may not change their pricing drastically again soon unless economic or competitive situations call for it.
McCarron said that at the moment, there are more reasons to keep prices the same.
If Intel were to make major Core 2 Duo price cuts, it risks hurting itself by giving up revenue even more than it might hurt AMD, McCarron said.
Intels average selling price for a processor is typically higher. AMDs ASP was under $100 in the second quarter, he said.
Intel has, in the past, used prices to motivate demand for its chips by collapsing more than one planned processor price drop, for example.
But “AMD is at a size, now, that its going to be difficult to push it out of the market with only one particular tool, such as pricing,” McCarron said. “Both have a lot of revenue to lose if they play this particular game.”
Meanwhile, PC makers are showing more support for AMD. Lenovo, for one, will offer AMDs desktop processors in a new ThinkCentre A60, aimed at large businesses, during the second week of August.
Even Dell, which has signed on to offer an AMD Opteron-based server, is expected to launch AMD-based PCs to compete with Hewlett-Packard, published reports have said.
PC makers are “seeing the benefit of AMD being present and stronger,” McCarron said. “Were seeing a level of competitive activity [between the two chip makers] that we havent seen in probably more than a decade.”
Thus market conditions, dictated more by economics than any measure like processor pricing, are more likely to spell out what happens in the quarter.
The third quarter, which includes the consumer back-to-school season, is generally better than the second quarter. The mixture of new chips and higher demand—if it materializes—could make for an entirely different environment than in the second quarter.
More market share will be up for grabs. VIA Technologies, which normally garners 1 or 2 percent of the market, carved out a 5.5-percent market-share figure in the second quarter of 2006 versus 1.4 percent in the second quarter of 2005.
The change came as the chip maker sold customers large numbers of older C3 processors ahead of the end-of-April close of a technology licensing agreement with Intel.
Therefore somewhere in the order of four points of market share—millions of processors—will be up for grabs this quarter.
Given the arrival of new products, the availability of inexpensive desktops and notebooks using slightly older dual-core processors, and the potential for easier sales in the third quarter, the two chip makers could see their average selling prices increase, McCarron said.
“The concern I have, separately from this, is there seems to be a lot of evidence that the market is getting softer. Q2 was weaker than seasonal and we have this inventory issue still hanging around… and weve got macroeconomic indicators that are far from positive,” he said.
“Were seeing some great product being launched and some great pricing from both companies. But it may be happening in a market environment where its falling on deaf ears.”
And that has the potential to hurt more than just Intel or AMD.