AMD on the defensive in price war

AMD will cut its chip costs in response to a similar move by Intel, but profits might go out the window.

AMD confirmed Monday it will cut chip prices to remain competitive against Intel which will cut prices later today. AMD will make its announcement in the next few days.

The move follows reports Intel is to lower prices on its desktop Pentium II and Pentium III by as much as 41 percent. AMD's marketing manager Richard Baker admits an AMD response is necessary. "We have to respond," he says.

Last month, following staggering losses of $1.10 per share, AMD chairman W.J. Sanders admitted the price war in the low-end chip market was taking a "devastating" toll on his firm. Earlier Sanders said AMD needed to keep prices above $100 per chip to remain profitable.

Joe D'Elia, senior chip analyst with the Gartner Group is sceptical about the price battle between the chip makers. "Everyone keeps talking about price slashing but if you followed all the price cuts to the logical conclusion Intel should be giving us money by now," he says. "What they [Intel] are actually doing is realigning prices to move the faster processor into the hot spot."

D'Elia believes the battle between Intel and AMD will come down to technology, not price. "The real question for AMD is have they got the technology to match Intel in speed," he says. Whether AMD can achieve this, he is not sure. "It's a matter of wait and see," he says.

IDC analyst Martin Hingley believes AMD's future could lie in chasing the high-end market and expects a server chip to compete head to head with Intel later this year. While the price battle continues Hingley thinks AMD will be the loser. "It is difficult for AMD or anyone else to compete on price as they don't have the economies of scale that Intel has," he says.