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PC-chip price war rages on
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February 8, 1999: 8:19 p.m. ET
Intel, AMD reduce prices for chips destined for sub-$1,000 PCs
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NEW YORK (CNNfn) - Intel Corp. turned up the heat on rival Advanced Micro Devices Inc. Monday in what has fast become a tooth-and-nail battle to sell microprocessors destined for low-cost personal computers.
Intel (INTC), the world's largest maker of computer chips, said it was lowering the cost of four versions of its new Celeron chip, which are geared for PCs priced less than $1,000, by up to 24 percent.
AMD (AMD) quickly matched those cuts, saying it would lower prices on its K6-2 line by up to 24 percent.
Latest salvo in a price war
The price cuts mark the latest salvo in a price war that will benefit consumers by driving down even further PC prices, analysts said.
The moves come just days after AMD shares plummeted following its announcement that it would likely post a first-quarter loss because of the price war with Intel.
The tit-for-tat grappling comes just months after Intel noted a chipping-away of its market dominance, particularly in the market for low-cost semiconductors.
Though most industry watchers had been expecting Intel to cut its prices later this month, company officials said Monday's move should not have come as a surprise.
"We said last fall we were not happy with our performance in the low-cost market," said Intel spokesman Chuck Mulloy.
Since Intel unveiled 366-MHz and 400-MHz versions of the Celeron earlier this year, it has seen "higher demand (that) allows us to reduce prices," Mulloy added.
Intel told computer makers that prices on the 400-MHz Celeron will fall 16 percent to $133 and the 366-MHz version will come down by 24 percent to $93.
The 333-MHz chip will fall by 19 percent to $73, and the 300A-MHz version will now cost $63 -- a price that drew a gasp from at least one analyst.
Intel is also poised to release 433-MHz and 466-MHz versions of the Celeron this spring, which could set off yet another round of price cuts.
Each of those is the per-unit price when a computer maker buys a batch of 1,000 chips.
For its part, AMD said it would lower prices on its comparable chips: the 400-MHz K6-2 falls 15 percent to $134, and the 366-MHz version drops 24 percent to $93.
Meanwhile, the 333 MHz K6-2 will cost 14 percent less at $72, and the 300-MHz model falls 15 percent in price to $62.
Shares of AMD edged up 5/16 to 17-1/8, while Intel jumped 4-7/16 to 132.
AMD on the ropes
The price cuts by Intel will raise the bar for AMD, which focuses primarily on the market for sub-$1,000 computers -- a segment that has been booming over the past two years.
"Finally it seems that Intel has gotten some religion and is serious about the low end of the market," Dan Scovel, an analyst at Fahnestock & Co., said. "It's an old school method of Intel of hitting you hard with the hammer."
But there's a "double whammy" involved in the move, Scovel said. "Now anything under 300 (MHz) is going to be nearly impossible to sell."
Both Intel and AMD shares dropped last week when word of an upcoming price war spread through the industry. AMD in particular was hit hard, as analysts feared the company could not win a price war with its considerably larger rival.
Analysts said Intel can afford to lose gross margins in its Celeron line because it can make up the difference with its high-end chips. Until AMD releases its K7 processor to compete with Intel's high-end Pentium III chip, it doesn't have that same luxury.
"There's no question that as PC prices go down, we want to have our server products driving our margins," said Andy Bryant, Intel's chief financial officer.
Intel, however, wasn't left unscathed, as analysts and investors also expressed worries about how a price war would hurt the company's bottom line. But Bryant said the company had already factored the price cuts into its guidance for first-quarter gross margins.
"Our pricing strategy is no different than what we said earlier in the quarter," Bryant said at the Goldman Sachs Technology Conference in New York. "We said early in the first quarter we're going to take back the low end. This is consistent with what we said in early January."
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