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Negotiations lead to lower AMD chip prices

The company cuts prices on its desktop processors, although some customers can actually buy the chips for less than the "official" wholesale price.

Advanced Micro Devices cut prices on its desktop processors this week, although some customers can actually buy the chips for a lot less than the "official" wholesale price.

After price cuts by rival Intel over the weekend, AMD cut the prices of its Athlon and Duron chips for desktops by around 20 percent this week. Under the new cuts, the 1.2GHz Athlon with a 266MHz system bus sells for $294 in quantities of 1,000. The 850MHz version drops to $120.

The cuts will help pave the way for the introduction of a 1.3GHz desktop version of Athlon, which sources say will be unveiled at the CeBit computer trade show from March 22 to 28 in Hanover, Germany. In addition, the first version of Athlon for notebooks will arrive March 19, according to sources.

Processor price cuts usually lead to lower PC prices. But when it comes to AMD computers, the discount is often larger than expected. That's because AMD's distributors and computer dealers often don't pay the company's official wholesale price for chips. Instead, they pay a negotiated price, leading to retail chip prices that are often far lower than the official wholesale price.

"Price is set with negotiations with each customers," said Drew Prairie, an AMD representative. "If they buy more than 1,000 units, they can negotiate price individually."

Excess processor supply can also lead to deeper cuts in the AMD system, sources have said.

Rob Guella, president of RB Computing in Nepean, Ontario, for example, pointed out that his company plans to sell the 1.2GHz Athlon for the equivalent of $245, or $50 below the official wholesale price.

"AMD is getting pretty popular up north," Guella said, in part because of the price.

With the hidden discounts, the discrepancy between AMD and Intel chip prices can get substantial. Computer dealers are offering the 1GHz Athlon for $167 to $175, while the 1GHz Pentium III sells for $250 to $260. An 800MHz Intel Celeron at retail can be found for around $120, while the equivalent AMD Duron starts in the $60 range.

In contrast to AMD's methods, Intel sells its chips at prices that derive from a formula correlating to volume purchases. Big customers get larger discounts, but the discount is related to how much the customer buys, not the tenor of negotiations. The more formal approach comes as a result of Intel's large market share and as a way to avoid potential antitrust issues.

Prairie would not comment on the exact release date of the 1.3GHz desktop Athlon or the new mobile chips, but indicated that they both would appear this month.

"We haven't been shy about saying (the 1.3GHz Athlon) is coming this quarter, and it makes sense to align it with a major industry event," he said.

CeBit is the world's largest computer trade show.