Intel to cut chip prices, AMD to follow

Duncan Martell

SAN FRANCISCO: Reflecting a continuing price war between Intel Corp. and

Advanced Micro Devices Inc., No. 1 chipmaker Intel plans on Sunday to cut prices

on its microprocessors, industry sources said.

Intel typically cuts prices on a few or several its microprocessors on a

Sunday and publishes the magnitude of those reductions on Monday as it announces

new chips. But this time, the sources said, it will announce just the price

cuts. Intel's Pentium 4 chips running at 2.2 gigahertz will ship late in the

fourth quarter and be announced in January.

AMD will follow suit by trimming prices on its Athlon chips, sources said.

Intel has lost market share through the first half of this year, dipping to

below 78 per cent. But because of the fierce price war undertaken by Intel

against AMD, in the third quarter Intel regained 0.8 points of market share to

77.5 per cent.

"It certainly has had a dramatic impact on the profitability of both

companies and it hasn't really stopped AMD's gains in market share,"

Insight 64 analyst Nathan Brookwood said of the price war. "By and large,

AMD has been selling virtually everything it can make, it just hasn't been

selling it at the prices it would like."

Intel's fastest chip available right now, the 2.0 gigahertz Pentium 4 costs

$562 in lots of 1,000 and will come down about 30 per cent to $400 or so, the

industry sources said. The 1.9 gigahertz Pentium 4 will also come down in price.

Certain Pentium III chips will also be cut, as Intel works to phase out that

processor. Intel said that in the third quarter, shipments of the Pentium 4

topped those of the Pentium III for the first time.

War, what is it good for? Plunging profits, for one



Intel typically says that it drops prices as its manufacturing costs fall, and
then passes along those price cuts to customers, which, in turn lead to lower PC

prices. But analysts say the cuts this year have been far more drastic than

usual, particularly the cuts in April and August.

"My opinion is -- and the company won't admit it -- but I think the

price cuts this year have really been due to AMD's competitive position,"

said Needham & Co. analyst Dan Scovel. "Yes, AMD did lose incremental

market share last quarter, but it was pretty small potatoes."

The price war, weak demand and comparatively dismal PC sales have conspired

to wreak havoc on Intel's and AMD's sales and profits during all of 2001.

Intel on Oct. 16 reported third-quarter profits, before acquisition-related

charges, that tumbled 77 per cent to $655 million, or 10 cents a share, from

$2.89 billion, or 41 cents a year ago, before the 5 cents a share in charges.

Sales declined 25 per cent to $6.55 billion from $8.73 billion.

AMD posted its first loss in three years, saying it had a loss before charges

relating to job cuts and shutting two plants of $97.4 million, or 28 cents a

share, compared with a year-ago profit of $219.3 million, or 64 cents. For all

of 2001, Intel's gross profit, sales minus cost of goods, is forecast to be

$12.5 billion, down from $21 billion last year, Scovel forecasts.

"I can't really, from an economic standpoint explain why they're doing

it," other than for market share gains, which end up hurting both AMD and

Intel, Brookwood said. "The bad part of a price war, especially when you

are the guy with the majority market share is that it takes $3 out of Intel's

pocket for every $1 it takes out of AMD's pocket."

(C) Reuters Limited.