Intel Tells Customers It Will Cut Prices by 60% (Update2) June 9 (Bloomberg) -- Customers of Intel Corp. said the world's biggest computer-chip maker plans to reduce prices on Pentium processors by as much as 60 percent to reclaim market share from Advanced Micro Devices Inc.
Executives at Micro-Star International Co. and Gigabyte Technology Co., two of Taiwan's biggest makers of circuit boards for computers, said Intel officials told them the price cuts will start July 23. Tom Beermann, a spokesman for Santa Clara, California-based Intel, declined to comment.
Advanced Micro last quarter increased its share of the $35 billion computer chip market to more than 20 percent for the first time in more than four years. Intel Chief Executive Officer Paul Otellini forecast the company's first annual sales decline in five years and Dell Inc. decided last month to buy some Advanced Micro chips for the first time.
``They're very aggressive about getting market share back,'' said Max Tsai, a product manager at Gigabyte. Tsai said yesterday that his Intel account manager in Taipei said prices will be cut. ``We're all surprised.''
Intel said it will reduce prices of faster dual-core chips by about 15 percent, according to Alex Lin, a product marketing manager at Micro-Star, Taiwan's third-largest maker of motherboards, which connect electronic parts in computers. Intel also told him that it plans to lower Pentium prices by 60 percent.
Citigroup Inc. analyst Glen Yeung on June 7 published a list of price cuts he anticipates from Intel in July, based on discussions with makers of computers and their components.
Pentium prices will fall 61 percent, Yeung said. Advanced Micro also told Gigabyte that it plans to cut prices, though not by as much as Intel, Tsai said.
`Fighting Back'
Intel typically posts its prices on its Web site. The most recent change was May 1.
Anand Chandrasekher, Intel's sales chief, declined to comment on the company's chip prices earlier this week. Chandrasekher, Yeung and the components makers are among attendees of the Computex trade show in Taipei.
Shares of Intel have fallen 34 percent since Otellini succeeded Craig Barrett in May last year. Advanced Micro's stock has gained 71 percent during the same period. Intel fell 1.6 percent to $17.11 in Nasdaq Stock Market composite trading. Advanced Micro dropped 3.5 percent to $27.03, a six-month low, on concerns that Intel will lower prices.
``Intel is fighting back,'' Ray Chen, president of Compal Electronics Inc., the world's second-largest maker of notebook computers, said yesterday in an interview. Such competition ``means the consumer will get the benefit and the unit price will get lower so we can stimulate demand.''
Lowered Estimates
Citigroup's Yeung, citing conversations at the Computex trade show, predicted ``a more aggressive price war in microprocessors is forthcoming'' and cut his profit estimates for Intel and Sunnyvale, California-based Advanced Micro.
In a research note, Yeung lowered his prediction for Intel's 2006 profit to 77 cents a share from 86 cents and cut his revenue estimate to $34.5 billion from $35.4 billion. Yeung kept his price target for Intel shares at $21. He rates the stock ``buy.''
Yeung cut his Advanced Micro profit estimate to $1.14 a share from $1.28 and reduced his target for the stock price to $33 from $42. He rates the stock ``hold.''
`Cornered Animal'
Advanced Micro isn't positioned for a price war, Yeung said. Discussions with customers at Computex signaled Advanced Micro hasn't responded to the planned cuts.
Deep cuts by Intel may have a broad impact and hurt sales at distributors that market chips for manufacturers, said Patrick Moorhead, an Advanced Micro vice president for marketing.
``Knee-jerk pricing reactions like this wreak havoc,'' said Moorhead, who worked at Compaq Computer Corp. before joining Advanced Micro. ``These are desperation moves. I've been in the business as a customer of them and competing with them. I haven't seen this type of behavior, it's like a cornered animal.''
Intel's share of computer processor chips fell to 74 percent during the first quarter, according to Cave Creek, Arizona-based Mercury Research.
``They want to kill AMD market share,'' said Micro-Star's Lin. ``I believe Intel will steal at least 3 percent'' because of the price cuts.
New Chips
Intel will introduce the Woodcrest chip for computer servers this month, the Conroe processor for desktops next month and the Merom for notebooks in August.
``From the second half, we believe Intel's product can stimulate the market demand, and will have pretty good performance,'' said Sunny Han, marketing director of Asustek Computer Inc., the world's largest maker of motherboards.
Advanced Micro had a breakthrough in May when it won its first order from Round Rock, Texas-based Dell, the world's biggest PC maker. The contract for processors in some server machines ended Dell's 22-year exclusive use of Intel chips.
Taiwanese companies made 98 percent of the world's motherboards, 30 percent of desktop computers, 82 percent of laptops, and 72 percent of LCD monitors last year, according to Taiwan's Institute for Information Industry.
To contact the reporters on this story: Tim Culpan in Taipei at [email protected]
Last Updated: June 9, 2006 01:27 EDT
Executives at Micro-Star International Co. and Gigabyte Technology Co., two of Taiwan's biggest makers of circuit boards for computers, said Intel officials told them the price cuts will start July 23. Tom Beermann, a spokesman for Santa Clara, California-based Intel, declined to comment.
Advanced Micro last quarter increased its share of the $35 billion computer chip market to more than 20 percent for the first time in more than four years. Intel Chief Executive Officer Paul Otellini forecast the company's first annual sales decline in five years and Dell Inc. decided last month to buy some Advanced Micro chips for the first time.
``They're very aggressive about getting market share back,'' said Max Tsai, a product manager at Gigabyte. Tsai said yesterday that his Intel account manager in Taipei said prices will be cut. ``We're all surprised.''
Intel said it will reduce prices of faster dual-core chips by about 15 percent, according to Alex Lin, a product marketing manager at Micro-Star, Taiwan's third-largest maker of motherboards, which connect electronic parts in computers. Intel also told him that it plans to lower Pentium prices by 60 percent.
Citigroup Inc. analyst Glen Yeung on June 7 published a list of price cuts he anticipates from Intel in July, based on discussions with makers of computers and their components.
Pentium prices will fall 61 percent, Yeung said. Advanced Micro also told Gigabyte that it plans to cut prices, though not by as much as Intel, Tsai said.
`Fighting Back'
Intel typically posts its prices on its Web site. The most recent change was May 1.
Anand Chandrasekher, Intel's sales chief, declined to comment on the company's chip prices earlier this week. Chandrasekher, Yeung and the components makers are among attendees of the Computex trade show in Taipei.
Shares of Intel have fallen 34 percent since Otellini succeeded Craig Barrett in May last year. Advanced Micro's stock has gained 71 percent during the same period. Intel fell 1.6 percent to $17.11 in Nasdaq Stock Market composite trading. Advanced Micro dropped 3.5 percent to $27.03, a six-month low, on concerns that Intel will lower prices.
``Intel is fighting back,'' Ray Chen, president of Compal Electronics Inc., the world's second-largest maker of notebook computers, said yesterday in an interview. Such competition ``means the consumer will get the benefit and the unit price will get lower so we can stimulate demand.''
Lowered Estimates
Citigroup's Yeung, citing conversations at the Computex trade show, predicted ``a more aggressive price war in microprocessors is forthcoming'' and cut his profit estimates for Intel and Sunnyvale, California-based Advanced Micro.
In a research note, Yeung lowered his prediction for Intel's 2006 profit to 77 cents a share from 86 cents and cut his revenue estimate to $34.5 billion from $35.4 billion. Yeung kept his price target for Intel shares at $21. He rates the stock ``buy.''
Yeung cut his Advanced Micro profit estimate to $1.14 a share from $1.28 and reduced his target for the stock price to $33 from $42. He rates the stock ``hold.''
`Cornered Animal'
Advanced Micro isn't positioned for a price war, Yeung said. Discussions with customers at Computex signaled Advanced Micro hasn't responded to the planned cuts.
Deep cuts by Intel may have a broad impact and hurt sales at distributors that market chips for manufacturers, said Patrick Moorhead, an Advanced Micro vice president for marketing.
``Knee-jerk pricing reactions like this wreak havoc,'' said Moorhead, who worked at Compaq Computer Corp. before joining Advanced Micro. ``These are desperation moves. I've been in the business as a customer of them and competing with them. I haven't seen this type of behavior, it's like a cornered animal.''
Intel's share of computer processor chips fell to 74 percent during the first quarter, according to Cave Creek, Arizona-based Mercury Research.
``They want to kill AMD market share,'' said Micro-Star's Lin. ``I believe Intel will steal at least 3 percent'' because of the price cuts.
New Chips
Intel will introduce the Woodcrest chip for computer servers this month, the Conroe processor for desktops next month and the Merom for notebooks in August.
``From the second half, we believe Intel's product can stimulate the market demand, and will have pretty good performance,'' said Sunny Han, marketing director of Asustek Computer Inc., the world's largest maker of motherboards.
Advanced Micro had a breakthrough in May when it won its first order from Round Rock, Texas-based Dell, the world's biggest PC maker. The contract for processors in some server machines ended Dell's 22-year exclusive use of Intel chips.
Taiwanese companies made 98 percent of the world's motherboards, 30 percent of desktop computers, 82 percent of laptops, and 72 percent of LCD monitors last year, according to Taiwan's Institute for Information Industry.
To contact the reporters on this story: Tim Culpan in Taipei at [email protected]
Last Updated: June 9, 2006 01:27 EDT
