AMD discounts chips to match Intel

The chip-pricing limbo contest continued today as Advanced Micro Devices cut prices on its K6-2 processors by 10 percent to 24 percent in an effort to match accelerated discounts on Intel's Celeron chip announced earlier today.

The price war between the two companies has

AMD cuts K6-2 prices
Speed, in MHz	Old Price	New Price	% change
400	$157	$134	15
380	$133	$118	11
366	$122	$93	24
350	$97	$87	10
333	$84	$72	15
300	$73	$62	15
Source: AMD

dropped the bottom line cost of processors to historic lows. Under the new price regime, only two AMD processors sell for more than $100 in volume while only one Celeron, the 400-MHz version of the chip debuted last month, sells for above the $100 mark.

The rest of the Celeron line, which was invented in 1998 for the cheap PC market, sells for between $93 and $63. Historically, Intel discontinued chips when they hit the $100 or $85 mark.

While the price cuts have prompted some analysts to reconsider the financial impact on both companies--and prompted a sell-off of AMD stock--discounts will likely mean good news for consumers. Processor discounts typically turn into lower costs for PCs.

By the end of the year, mainstream PCs could be selling for as low as $399, according to, among others, Paul Otellini, executive vice president of the Intel Architecture Business Group.

The 1999 price war has been largely fueled by Intel's efforts to regain lost market share in the low-cost computing segment. In 1998, AMD and Cyrix landed a number of design wins with major computer vendors and saw the market share for non-Intel PCs grow. Intel has responded by cutting prices more deeply, and more often, than in the past. Until recently, Intel would cut prices four times a year. Last year, Intel cut prices seven times.

So far this year, Intel has cut prices twice on the Celeron processors. Today's Celeron cut, in fact, was originally scheduled for later in the month. Before that it had been scheduled for the March-April time frame, said sources.

More cuts will likely come in March and May when the company releases 433-MHz and 466-MHz versions of the Celeron chip. Cuts on Pentium II chips will occur when the first Pentium III processors come out on February 28. Further Celeron cuts could also occur.

Likewise, the company has hastened the technology time frame with Celeron, releasing faster chips than planned. This puts additional pressure on AMD, according to Charles Boucher of Donaldson, Lufkin & Jenrette, because AMD has tripped up in the past in taking its chips to a new level.

AMD cut its prices in response to Intel's action, said Scott Allen, an AMD representative. "They were accelerated by Intel's price cuts," he said.

The price war is already exacting a toll on AMD's financial outlook. Last week, the company announced that it would likely report a loss for the current quarter because of Intel's pricing actions. Last quarter, AMD turned in profit, but missed expectations because it could not produce enough 350-MHz K6-2 processors. A number of analysts downgraded their earnings estimates for the company following the announcement.

Despite the discounts, Allen maintained that AMD would be able to sustain the same average selling price, or ASP, of its processors at $89. More than half of the K6-2 processors now shipping are from the more expensive 350-MHz or faster categories.

In addition, a 450-MHz version of the K6-2 as well as the K6-3 will be released during the quarter. AMD's goal is to boost the ASP to $100.