Although the reductions siphon profits, maintaining pace with Intel has paid off for AMD in terms of visibility.
Since the beginning of the year, the
Still, the price wars are exacting a cost. The company lost over $64 million due in part to softness in non-microprocessor divisions and declining PC prices. A surfeit of processors is also contributing to price erosion. Several retail chip resellers, for instance, currently offer the K6-2 chip for less than the official volume wholesale price.
In addition, AMD is likely giving additional discounts to its major computer vendors, according to a group of sources that includes Ashok Kumar, semiconductor analyst with Piper Jaffray.
The price trajectory can be seen in the decline of the 300-MHz and 266-MHz K6-2s. The chips debuted at a wholesale price of $281 and $185, respectively, in late May. By early June, retailers sold the chips for $172 and $127, before further declines to $164 and $112 by July.
Jerry Sanders, AMD's well-groomed chairman, said during a conference call earlier this month that the average selling price for K6 chips has to rise to $100 for AMD to turn a profit.
Under AMD's new pricing scheme, AMD K6-2 processors are 25 percent below Pentium II processors running at the same speed, while the older K6 processors are priced at the same level as Celeron chips, according to Scott Allen, an AMD spokesman.
"Our value proposition remains the same. On Pentium II we will give you 25 percent off or equivalent clock speeds and you get the 3DNow technology. On Celeron, you get equivalent clock speeds but better performance," he said.
The price cuts actually went in place before Intel's latest round of cuts, added Allen. AMD estimated what Intel's latest prices were going to be and cut accordingly, but did not make a formal announcement.
During its second-quarter conference call, AMD officials said the company expects to product 3.2 to 3.3 million K6-2 and K6 chips this quarter as well as release a 350-MHz version. In the second quarter, AMD shipped 2.7 million K6-class chips.
Intel is an investor in CNET: The Computer Network