Intel completed an overhaul of its processor lines last week when it introduced its long-awaited, next-generation dual-core chips for desktops and notebook computers and slashed prices on older chips to reduce inventory. Rival Advanced Micro Devices has been making its own cuts to keep pace.
"Processors are like bananas: They don't last very long on the shelf," says Nathan Brookwood, an analyst with Insight 64. "They don't get brown and mushy, but they become less and less competitive every day. [Intel] definitively had to move out the old season's inventory."
The price war has produced cuts of 50% or more for many PC processors, but it hasn't had much impact on server processors. Some of the cutting is typical of a competitive market; Intel and AMD have duked it out for decades. But this round of cuts was exacerbated by Intel's introduction last week of the Conroe processor platform for desktops and the Merom for notebooks, which are based on its new Core architecture. The new portfolio has rendered Intel's inventory of older processors that use the NetBurst architecture virtually obsolete.
Intel is pinning a lot of hope on the new Core 2 Duo processors, which have garnered favorable reviews compared with AMD's product line. Intel CEO Paul Otellini calls Conroe and Merom "the best [microprocessor units] we've ever designed, the best MPUs we've ever built."
The Bottom Line
The pricing battles are likely to continue as Intel ramps up production of the Core 2 Duo chips. Otellini predicts Intel will ship 1 million of the new chips in less than two months. Once Intel has shifted most of its factories to producing the newer models and clears out the older ones, chip prices should stabilize and PC bargains may be harder to find. The price war has hurt the bottom lines of both Intel and AMD, and they may have to choose between profits and market share as they set future prices.
Not to be outdone by Intel, AMD last week provided details of one of the more intriguing "bargains" it plans to offer later this year: its 4-by-4 product line for desktop PCs. The product will combine two dual-core Athlon 64 FX processors on a motherboard for less than $1,000, or about the same price that AMD charges for a single high-end Athlon 64 FX. The 4-by-4 is expected to appeal to gamers and others with high-performance needs.
Both vendors also plan to introduce over the next year quad-core chips, which will set new standards for computing power. The good news for buyers: They'll probably set off a new price war.
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