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AMD cuts prices in line with Intel

Like clockwork, AMD slashes processor prices by 18 to 45 percent, matching similar price cuts by Intel.

Like clockwork, AMD slashed its processor prices by 18 to 45 percent during the weekend, matching similar price cuts by Intel on its Celeron and Pentium III lines.

The steep discounts on all of AMD's K6-III and K6-2 chips come during a year of drastic price reductions on PC processors, which in turn has lead to fabulous deals for consumers, especially in the sub-$1,000 PC market. This weekend's cuts followed a round of discounts imposed a month ago and will no doubt be followed by further cuts in July and September as Intel is expected to cut its prices again in those months.

Concurrently, price reductions have dovetailed with the production of faster chips. Intel moved up the release date of its 433-MHz and 466-MHz Celeron chips earlier this year to bring these faster chips to market quicker. In turn, AMD recently released a 475-MHz K6-2, and is working on a 500-MHz version of the K6-III and K6-2, said a spokeswoman.

Toward June, AMD will release its K7, a chip built around a new and highly touted architecture that could help AMD get into the corporate space, as well as a version of the K6-III for mobile computers, said sources close to AMD. Similarly, Intel will release the "Coppermine" version of the Pentium III, which is expected to allow PC makers to take advantage of faster memory and better graphics.

What does this mean for consumers? More power for less money. The above-$2,000 system has virtually disappeared from retail shelves while machines costing between $600 and $999 occupy around 30 percent of retail sales, according to statistics from ZD Infobeads.

"The low end has also gotten much more interesting with advertised bundles of system, monitor, and color printer for $499," wrote Aaron Goldberg, an analyst at Infobeads, in a recent report. Additionally, companies such as IBM and HP have released $1,499 notebooks.

Financial ache
While a boon for consumers, the discount craze has been a bane for manufacturers. Historically, Intel and its competitors lowered prices every quarter. Now cuts occur every other month or quicker. Chipmakers and PC assemblers are continuing to see strong growth in the sheer number of units going out the door, but discounts are neutralizing much of the profit that this growth should be producing, according to various studies.

AMD Cuts Prices
Chip Old price New price Pct. change
450-MHz K6-III $397 $220 45%
400-MHz K6-III $237 $185 22%
475-MHz K6-2 $213 $152 29%
450-MHz K6-2 $158 $112 29%
400-MHz K6-2 $103 $82 20%
380-MHz K6-2 $87 $71 18%
350-MHz K6-2 $68 $56 18%
Source: Various

Intel's desktop processors, especially those selling in consumer systems, are now selling for less than they did in past years. The company has managed to maintain an average selling price of around $227, according to MicroDesign Resources, largely through sales of chips into the workstation and server markets. The company's Xeon processors, for instance, start at close to $1,000 and go up to close to $3,600.

AMD gained market share throughout 1998 and landed two key alliances with Gateway and Toshiba in the first few months of 1999. Still, it suffered $128 million losses in the first quarter, because it could not produce enough of its fastest chips before discounts set in. The average price of AMD's chips descended to $78. Layoffs and further losses are expected.

As difficult as life has become for AMD, it has been even tougher for others. National Semiconductor recently announced that it will sell off its PC processor unit, while IDT admitted it was seeking funding so that it could continue to products its WinChip family of computer microprocessors.

"AMD's economic viability depends on its ability to move beyond the entry-level market into performance-oriented markets, where profit margins are much higher. The K7 is the key to this effort," wrote Michael Slater, founder of MicroDesign Resources, adding, "All things considered, it remains unclear whether anyone will build a profitable business competing with Intel in the PC processor market, but the lure of the largest IC market remains irresistible."