Intel doesn't see much need to cut prices

Intel is likely to hold of on processor price cuts for the time being
Written by John G. Spooner, Contributor

Digitimes is reporting that Intel is preparing to drop the prices on its Pentium 4 and Pentium D processors by 5-10% in April. (Link here.) There’s no real surprise in this, given that Intel has begun phasing out these processors.

What’s more interesting is the relative lack of information, recently, about whether or not Intel will cut prices on its Core 2 Duo chips any time soon. Clearly, the chipmaker will reduce the prices of its current Core 2 Duo chips in the future as it introduces new desktop processors and tries to shift some desktop buyers to quad cores. It will also rolls out a new notebook platform soon. The Register, for one, has predicted Core 2 Duo price cuts for late April. (Link here.)

But why not any sooner? Intel’s answer to that question would probably be something to the affect of why should we?

The company apparently feels comfortable with its current position in the market. Assistant CFO Stacy Smith said recently (link here) that Intel saw its average price for a processor move higher during the fourth quarter of 2006 versus third quarter. That means a couple of things. First, it tells us Intel has been able to charge more for its latest processors, the Core 2 and Xeon 5x00 families, due to their performance and energy efficiency improvement when compared to its earlier Pentium D and Xeon 5000-series processors. It also likely means that customers are buying higher-end processors, right now, versus purchasing lower-end, lower priced chips in the not-to-distant past. Essentially, people are willing to pay more for Intel's chips right now. So the company sees no reason to lower its prices.

Intel is basically benefiting from having the newest processors in the market. This will change with time, however. Once AMD’s quad-core Barcelona server chip comes to market, AMD will also be able to charge more for its server chips as well, I predict. It will also benefit from subsequent desktop processor introductions, which will offer greater performance than its current chips. Will Intel cut prices in response? Probably. Then it will release its 45nm Penryn chips early next year and the cycle will begin all over again.

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