Intel, AMD chop chip prices

As expected, Intel on Sunday dropped list prices on its Pentium 4 chips by as much as 29 percent.

The chipmaker nipped the 2GHz Pentium 4 by 29 percent, from $562 to $401. It also cut the 1.9GHz Pentium 4 by 27 percent, from $375 to $273, and the 1.8GHz by 12 percent, from $256 to $225.

In addition, Intel cut prices on its Pentium III desktop and server chips. It lopped the price of its 1.2GHz Pentium III by 10 percent, to $241; the 1.13GHz Pentium III dropped by 14 percent, to $193; the 1.1GHz was cut by 14 percent, also to $193, and the 1GHz Pentium III fell by 10 percent, to $173. Intel also cut prices on its Pentium III server chips by up to 11 percent and dropped 26 percent off the price of its 2GHz Xeon, which now sells for $415. Prices on Intel's desktop Celerons, mobile processors and the remainder of its Pentium 4 chips were kept the same.

Rival chipmaker AMD followed Monday with price cuts of its own on the Athlon XP family, which debuted earlier this month.

AMD made more conservative price moves, dropping the list price of its Athlon XP 1800+ chip from $252 to $223, a 12 percent cut. It also reduced the 1.4GHz Athlon by 4 percent, from $130 to $125. The chipmaker saved its largest cuts, as much as 17 percent, for its desktop Duron chips. The 1.1GHz Duron dropped from $103 to $89, a 14-percent reduction, while the 1GHz was lowered by 17 percent, from $89 to $74. The 950MHz Duron fell from $74 to $69, a 7-percent cut.

Prices for the remainder of AMD's chips--including its Athlon XP 1500+, 1600+ and 1700+ models, Athlon MP and Athlon 4 mobile chips--were kept the same.

However, resellers last week reported at least some drop in Athlon XP prices, with street prices on the 1700+ hovering between $164 and $167. Meanwhile, the 1600+ was selling for between $139 and $143 and the 1500+ was selling for between $122 and $129, suggesting that, as has been the case in the past, resellers who buy the largest quantities are enjoying deeper discounts even on the chips whose price did not change. The three chips list for $190, $160 and $130, respectively.

Because of an excess supply of most processors, both distributors and dealers have been cutting their prices in advance of the official price cuts. In addition, AMD sells its chips to large distributors and PC makers at discounts well below the "official" price. As a result, AMD chips typically sell for less than the posted price.

The price cuts aren't as steep as the discounts that occurred in August. Instead, the cuts may be calculated to create room on the price lists of both companies for upcoming products. AMD, for example, plans to introduce a 1900+ Athlon during the quarter. The chip will run at 1.6GHz and likely outperform the 2GHz Pentium 4.

For its part, Intel plans to come out with a 2.2GHz Pentium 4 in early January, code-named Northwood, that will contain a performance-enhancing secondary cache with 512KB of memory. Currently, the Pentium 4 comes with a 256KB secondary cache.

More price cuts will likely follow the introduction of Northwood because the chip is smaller than current Pentium 4s, a factor that lowers manufacturing costs.

Analysts say that lower prices could help out the limping PC market. "People aren't feeling as rich as before," said Dan Niles, an analyst at Lehman Brothers.

AMD and Intel have been dueling over prices throughout 2001. AMD's market share jumped to 21 percent in the first quarter from 17 percent in the previous quarter--its quickest acceleration since 1999.

In April, Intel retaliated with scorched earth prices on the Pentium 4. Besides helping the company gain market share back from AMD, Intel said in March that price cuts would also allow the Pentium 4 to replace the Pentium III inside desktops by the end of the year.

Although the chip reductions have led to cheaper prices on performance PCs, both companies have felt an effect on the bottom line. AMD enjoyed profits in the first half but reported a net loss of $190 million in the third quarter and is in danger of ending up in the red for the entire year. AMD achieved an annual profit in 2000. Before that, its last annual profit came in 1995.

Similarly, Intel has seen its revenue and profits slide. In the third quarter, earnings dropped from $2.89 billion to $655 million in the same period a year ago--a whopping 77 percent decline. Meanwhile, revenue in the quarter declined 25 percent to $6.5 billion, compared with the year-ago quarter.