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Following Intel, AMD to cut prices

Advanced Micro Devices will cut prices on its K6 microprocessors by 15 to 23 percent Monday to keep pace with archrival Intel.

Despite low chip yields and recent financial losses, Advanced Micro Devices will cut prices on its K6 microprocessors by an estimated 15 to 23 percent Monday to keep pace with archrival Intel.

The price cuts adhere to a blood vow made this year by beleaguered AMD that K6 prices would stay 25 percent below the price of equivalent Intel processors. The price cuts follow similar processor discounts announced by Intel this week.

Price, however, is a secondary concern for the company at this point, analysts say. AMD's chief problem remains improving chip yield, which could be as low as 20 percent. Yield refers to the percentage of usable chips a manufacturer can get out of a silicon wafer. Low yields not only increase manufacturing costs, but they also reduce chip supply and scare off computer makers.

Under the new volume-pricing schedule, the 233-MHz K6 processor will be tagged at about $225 per processor, a 22 percent discount from the current $289. The 200-MHz version of the chip will be priced around $160, down from $189, a 15 percent discount. The 166-MHz K6 will sell for roughly $85, a 23 percent drop from the current $109 and the first time the K6 will sell for less than $100.

An AMD spokesman confirmed that the company will cut prices Monday and would maintain its 25 percent differential with Intel. The spokesman would not confirm exact prices.

The move follows steeper-than-expected price cuts by Intel on Pentium II, Pentium MMX, and classic Pentium processors. Pentium MMX chips are generally considered the equivalent of the K6 family.

The 233-MHz Pentium MMX is now priced at $300, down from $386, while the 200-MHz Pentium MMX now sells for $213, down from $252. The 166-MHz version of the chip was discounted to $112. In July, analysts estimated that prices on these processors would be $5 to $11 higher after this latest round of cutting.

The prices listed above reflect the price offered to computer manufacturers purchasing in volume, not the estimated retail price. While single chip prices at retailers will likely be higher than the figures quoted above, lower volume chip prices typically result in lower system prices for consumers.

Discounts on the K5 processor are unclear but likely. AMD ceased production of the chip earlier this year, but it still selling off inventories of the Pentium-equivalent chip, according to an AMD spokesman.

While the new price cuts will keep AMD competitive, analysts say the company's aggressiveness could be academic if processor yields do not improve.

"Price cuts? They have to get product first," said Ashok Kumar, who estimated that AMD is getting only a 20 percent yield on its wafers. "For every one they shipped, they are scrapping four."

"They are lower than they want them to be," added Dean McCarron, principal analyst at Mercury Research. While McCarron did not put a number on the yield, he said it was likely that AMD's yield remains "well under 50 percent."

Mark Edelstone, semiconductor analyst at Morgan Stanley, said that yields have been improving. Still, "they are not where they need to be," he said.

Compaq has engaged in recent negotiations with AMD over adopting the K6, according to Kumar and other sources, but is concerned about chip yields.