Intel has dropped the prices of some of its quad-core desktop and Xeon server processors by as much as 40%, as the company battles with rival Advanced Micro Devices for customers in a PC market hammered by the economic downturn.

For servers, Intel cut the price of its 3.0-GHz Xeon X3370 chip to $316 from $530. The company also dropped the prices of its Xeon 2.83-GHz X3360, 2.66-GHz X3350, and 2.66-GHz X3330 by 16% to $266, $266 and $224, respectively.

For the desktop, Intel slashed the price of its quad-core, 3.0-GHz Q9650 to $316 from $530. The chipmaker also made significant reductions to several other quad-core processors: the 2.83-GHz Q9550, 2.66-GHz Q9400, 2.5-GHz Q8300, and 2.33-GHz Q8200s. The reductions were 16% to $266, 20% to $213, 18% to $183, and 16% to $163, respectively.

Intel also cut the price of the Core 2 dual-core 2.8-GHz E7400 15% to $113. Among dual-core Pentium chips, Intel dropped the prices of the 2.6-GHz E5300, 2.5-GHz E5200, and 2.4-GHz E2220 by 14%, 24%, and 14% to $74, $64, and $64, respectively. The vendor also dropped the price of its dual-core 2.0-GHz Celeron E1400 by 19% to $43.

For the laptop market, Intel dropped the price of one dual-core Core 2 processor, the 2.4-GHz P8600, which fell 13% to $209. Prices for some single-core Celerons were also cut from 19% to as much as 48%.

The price cuts, which took effect Jan. 18, came three days after Intel reported a 90% drop in net income for the fourth quarter of last year. Intel revenue fell 23% as the chipmaker suffered the effects of an economic slowdown that has resulted in a drop in sales of PCs and consumer electronics.

Global PC sales in the fourth quarter fell for the first time in six years, according to researcher IDC. Shipments dropped 0.4% from a year ago and 2.5% from the third quarter. The decline followed a half-dozen years of rising shipments, with the last five averaging increases of 15%.