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What's Intel's Plan?

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January 22, 2007 6:11:10 PM

Was thinking about Intel's pricing choices, how they have lowered prices more than needed to gain some market share and do well, just in order to "regain" the market share (from the recent 75% back up to 80%?) that they had.

Normally a business tries to maximize profits over time, but Intel seems to have a different motivation for now, best as I can gauge.

It's as if the difference between a 78% market share and a 80% market share is *more* important than a big chunk of their entire profits!

That's unusual, in the business world. Even more than unusual.

It's as if Coke choose to forego a big chunk of it's profits just to get a bit of extra share on Pepsi, and overall losing a lot of profits to do it, with little chance of regaining that money over time. This would be shooting itself in the foot.

I was trying to imagine why Intel chose to do this, and none of the possibilities I can think of make a lot of sense to me.

A) Ego. Intel somehow feels that less than 80% is very serious loss of prestige somehow. (This seems unlikely to me).

B) Fear. Intel hopes to prevent AMD from being able to be a stong competitor say 4 years from now by reducing AMD's profits now. (This seems unlikely, since it won't actually work. AMD doesn't need huge profits in order to innovate and progress).

C) Philosophy? I vaugely remember an Intel CEO wrote some book about Only the Paranoid Survive or somesuch. This could be behind it, but again, it seems less smart than you'd expect at this level of corporate size. In the longer run Intel will do well precisely depending on it's innovation, not on AMD.

D) Some better reason that I can't think of.

Does anyone have better insight?

-----------------------------------

Edit:
Some Interesting discussion, especially in page 2 of the posts. Finally I think it's more the difficultly in planning than an intentional price war.

Also re the votes on this OP, you'd think it was an evaluation of advice, but of course this post has no advice! It's exactly as it appears: asking an interesting question, and soliciting, finally, some interesting discussion (in page 2). So the thread became in time a 5 star thread for me, through the discussion and insights.

More about : intel plan

January 22, 2007 6:23:51 PM

Are You in the right Forum old chap? 8O
January 22, 2007 6:27:01 PM

They were trying to dump their last gen stuff that no one wanted?
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January 22, 2007 6:27:12 PM

The basis of Intel's strategy is volume. The more CPU's they can pack on a wafer the more money they make per CPU. They aggressively shrink the die size, improve their manufacturing process, increase the size of their wafers, and generally produce more good chips. It is about efficiency. Intel can make them cheaper so they can sell them cheaper. AMD cannot compete with that strategy.

At this point, my take on it is that Intel is looking at AMD and saying, "We're tired of your hot air, put up or shut up." They're smearing them on every front, why not volume too? Think of this as WWII, where AMD is Japan and Intel is the USA. You figure out the rest.
January 22, 2007 6:32:19 PM

Quote:
The basis of Intel's strategy is volume. The more CPU's they can pack on a wafer the more money they make per CPU. They aggressively shrink the die size, improve their manufacturing process, increase the size of their wafers, and generally produce more good chips. It is about efficiency. Intel can make them cheaper so they can sell them cheaper. AMD cannot compete with that strategy.

At this point, my take on it is that Intel is looking at AMD and saying, "We're tired of your hot air, put up or shut up." They're smearing them on every front, why not volume too? Think of this as WWII, where AMD is Japan and Intel is the USA. You figure out the rest.
January 22, 2007 6:32:47 PM

Quote:
The basis of Intel's strategy is volume. The more CPU's they can pack on a wafer the more money they make per CPU. They aggressively shrink the die size, improve their manufacturing process, increase the size of their wafers, and generally produce more good chips. It is about efficiency. Intel can make them cheaper so they can sell them cheaper. AMD cannot compete with that strategy.

At this point, my take on it is that Intel is looking at AMD and saying, "We're tired of your hot air, put up or shut up." They're smearing them on every front, why not volume too? Think of this as WWII, where AMD is Japan and Intel is the USA. You figure out the rest.



So you're saying the answer is:

Animosity.

?
January 22, 2007 6:35:31 PM

No, I'm saying that Intel hasn't changed their strategy on this front, except now they're doing it with a better architecture. As long as Intel aggressively improves their architecture instead of sitting on it like they did with Netburst, they will be nearly unstoppable.
January 22, 2007 6:36:25 PM

Quote:
So you're saying the answer is:

Animosity.

?


No, that's what you're trying to say.

Intel is lowering the prices on it's old processor architecture because it is in competition not only with AMD, but also with Intel's new Core 2 Duo line.
January 22, 2007 6:42:13 PM

What year did Intel not make a profit?

Intel is selling off inventory, and trying to push it's Core uArch to the mainstream, hence the lower prices. Combine that with the fact that it's 65nm process has matured, and as someone has mentioned, more efficient and cheaper, means that it can sell it's newer products a little lower than previous products when first released. Yes, a company would like to maximize their profits, but Intel is trying to show the channel, and the market that they are the better choice, both in performance and price.

As for your point B of Fear. No, it's not fear, but realization that AMD is a threat, and is being seen as one. If you don't believe that having profits will not affect any innovation or progress, you're mistaken. A loss in profits (not a decline, but showing a loss) will affect R&D, since there will be less to commit to any new technologies.

As long as Intel has to show a good return to it's shareholders, it will do what it has to do just that.
January 22, 2007 6:44:31 PM

Quote:
So you're saying the answer is:

Animosity.

?


No, that's what you're trying to say.

Intel is lowering the prices on it's old processor architecture because it is in competition not only with AMD, but also with Intel's new Core 2 Duo line.

If I was "trying to say" that, I would have said it!

Frankly, I don't think "animosity" is the reason, but....if everyone else thinks so, then perhaps it is.

In the meantime, I'll hope to find a more rational reason.

Btw, I didn't say that Intel only lowered prices on netburst chips. They have lowered prices on all chips, and have publicly stated it's important to regain all that marketshare, and that's the part that doesn't make to sense to me yet.
January 22, 2007 6:47:19 PM

Quote:
What year did Intel not make a profit?

Intel is selling off inventory, and trying to push it's Core uArch to the mainstream, hence the lower prices. Combine that with the fact that it's 65nm process has matured, and as someone has mentioned, more efficient and cheaper, means that it can sell it's newer products a little lower than previous products when first released. Yes, a company would like to maximize their profits, but Intel is trying to show the channel, and the market that they are the better choice, both in performance and price.

As for your point B of Fear. No, it's not fear, but realization that AMD is a threat, and is being seen as one. If you don't believe that having profits will not affect any innovation or progress, you're mistaken. A loss in profits (not a decline, but showing a loss) will affect R&D, since there will be less to commit to any new technologies.

As long as Intel has to show a good return to it's shareholders, it will do what it has to do just that.


Perhaps if you re-read the OP and respond.

In the meanwhile you've pointed out similar reasons to what I mentioned for why it doens't make sense, except you think AMD needs large profits to innovate. They didn't before, and don't now, of course.

Intel obviously cannot sell every last chip that they can possibly manufacture without selling chips at a loss. So with the obvious discounted, why are they foregoing the profits a normal business would prefer?

Intel doens't need 80% market to make profit, that 78% share doesn't allow. Selling price is much more important.
January 22, 2007 6:54:47 PM

Quote:
What year did Intel not make a profit?

Intel is selling off inventory, and trying to push it's Core uArch to the mainstream, hence the lower prices. Combine that with the fact that it's 65nm process has matured, and as someone has mentioned, more efficient and cheaper, means that it can sell it's newer products a little lower than previous products when first released. Yes, a company would like to maximize their profits, but Intel is trying to show the channel, and the market that they are the better choice, both in performance and price.

As for your point B of Fear. No, it's not fear, but realization that AMD is a threat, and is being seen as one. If you don't believe that having profits will not affect any innovation or progress, you're mistaken. A loss in profits (not a decline, but showing a loss) will affect R&D, since there will be less to commit to any new technologies.

As long as Intel has to show a good return to it's shareholders, it will do what it has to do just that.


Perhaps if you re-read the OP and respond it would be nice.

In the meanwhile you've stated exactly the reasons I mentioned for why it doens't make sense. Intel obviously cannot sell every last chip that they can possibly manufacture without selling chips at a loss. So with the obvious discounted, why are they foregoing the profits a normal business would prefer?

They are still making a profit, even with lower prices. Where's the problem?

Are you trying to say that they should raise their prices just to gain more profits, over gaining back market share that they lost? Or are you trying to convince people that Intel doesn't know what they are doing, as a company, since they only gained $1.9B USD last quarter over $3.9B the year previous? It's their strategy, to regain market share, in all areas. To do that, they are discounting their old inventory, and introduced the Core uARch at a price that would be reasonable for someone to afford to upgrade to. I don't see a problem, and I am a shareholder.

Do you have any proof that Intel is manufactuering CPUs at a loss? Do you have the price of each CPU per wafer? Or even a chipset per wafer?

Sounds almost like you're upset that Intel's pricing is a stiff competition for AMD's product line, something that helped AMD gain it's foot hold in the CPU market. I frankly like the price war. Lower prices for top notch items. Why don't you like it?
January 22, 2007 6:58:02 PM

Quote:
They are still making a profit, even with lower prices. Where's the problem?

Are you trying to say that they should raise their prices just to gain more profits, over gaining back market share that they lost? Or are you trying to convince people that Intel doesn't know what they are doing, as a company, since they only gained $1.9B USD last quarter over $3.9B the year previous? It's their strategy, to regain market share, in all areas. To do that, they are discounting their old inventory, and introduced the Core uARch at a price that would be reasonable for someone to afford to upgrade to. I don't see a problem, and I am a shareholder.

Do you have any proof that Intel is manufactuering CPUs at a loss? Do you have the price of each CPU per wafer? Or even a chipset per wafer?

Sounds almost like you're upset that Intel's pricing is a stiff competition for AMD's product line, something that helped AMD gain it's foot hold in the CPU market. I frankly like the price war. Lower prices for top notch items. Why don't you like it?


All very good points.

Besides, Intel raising prices just because it could doesn't exactly look good to the anti-trust folks, you know?
January 22, 2007 6:58:49 PM

I didn't state all the obvious things in my OP, but perhaps it would be good to put a few here after all.

Intel can't possibily sell every last chip it can possibly manufacture without lowering the selling prices so much that they make little or no profit, since AMD would just match the price/performance ratios in the middle and low ends.

The low prices are nice for us all, and might even have a good effect of causing customers to upgrade their computers more often, instead of only once in a long time.

Low prices are fine if the big volume (many customers) show up.

Etc. all the obvious things.
January 22, 2007 7:04:12 PM

Quote:
I didn't state all the obvious things in my OP, but perhaps it would be good to put a few here after all.

Intel can't possibily sell every last chip it can possibly manufacture without lowering the selling prices so much that they make little or no profit, since AMD would just match the price/performance ratios in the middle and low ends.

The low prices are nice for us all, and might even have a good effect of causing customers to upgrade their computers more often, instead of only once in a long time.

Low prices are fine if the big volume (many customers) show up.

Etc. all the obvious things.


No, they can't sell everything they manufacture at so low a price that it won't make a profit, but right now, every CPU made is selling at a profit. Not a large one, but it's still a profit. And with the release of the E4xx series, the mid/low range CPUs are in for a major shake down, since these CPUs are aimed for that target audience.

Upgrading their companies? What does that mean? If you mean, switching from Intel to AMD, or AMD to Intel...that's been around for years, and a won't change. If AMD releases a CPU that blows Intel's best out of the water, the switch will occur again. Not sure what you mean by upgrading companies.
January 22, 2007 7:08:25 PM

not "companies", "computers". It would be nice if the low prices lead to average people to buy new computers more often (shorter average cycle time) than they do.
January 22, 2007 7:13:34 PM

Quote:
not "companies", "computers". It would be nice if the low prices lead to average people to buy new computers more often (shorter average cycle time) than they do.


That would only be nice to the enthusiast, and not so much to Uncle Joe and Aunt Mary who check their email and surf the web for new cornbread recipes.

The price war has hurt everyone involved with CPUs, especially T1 vendors, who had to cut their prices along with AMD and Intel. But it has helped with sales for all.

Yes, Intel's pricing has seem aggressive, but in order to regain loss markets and even gain new customers (like Sun), it seems to have worked. With more market share, usually comes more profits. Not all the time, but usually it works out that way.
January 22, 2007 7:13:47 PM

Intel has been perfecting their manufacturing process and the transition from generation to generation with amazing alacrity. Relatively recently they figured out that they actually SAVE money by transitioning faster, so long as they can keep up the efficiency and yields, which they have managed to do well enough so far.

So, in essence, Intel is shrinking their process at a faster pace because it allows them to make MORE money, not less. There will always be points between architecture transitions where they will have to face low margins on some products (Pentium D anyone). But, they have never needed to sell their CPU's at a loss.

You are trying to make a conspiracy out of circumstance. Core 2 is better than Netburst, so they transition everything to Core 2 and sell off the Netburst inventory. Die shrinks mean higher yields and more profit, so they transition away from the old technology as quickly as possible. This is the Intel machine in its prime.

AMD has survived in the past by being innovative compared to Intel. Now that Intel has the superior technology AND the superior manufacturing process, AMD has to figure out what to do. AMD has to come out with something better than a "Core 3" at this point and make it soon, or they will lose any strength they have left and have only their fans to turn to as customers.
January 22, 2007 7:21:30 PM

Quote:
not "companies", "computers". It would be nice if the low prices lead to average people to buy new computers more often (shorter average cycle time) than they do.


That would only be nice to the enthusiast, and not so much to Uncle Joe and Aunt Mary who check their email and surf the web for new cornbread recipes.

The price war has hurt everyone involved with CPUs, especially T1 vendors, who had to cut their prices along with AMD and Intel. But it has helped with sales for all.

Yes, Intel's pricing has seem aggressive, but in order to regain loss markets and even gain new customers (like Sun), it seems to have worked. With more market share, usually comes more profits. Not all the time, but usually it works out that way.

Yes, that's right. But I made the post because Intel appears to have gone past that point to just foregoing profits they could have with stable market share.

I am thinking of another possible explanation for this. Perhaps Intel fears the new K8L architecture, and wants to slow AMD down in terms of market growth in 2008 by pulling in more of the upgrading buyers sooner, like a defensive action.
January 22, 2007 7:24:16 PM

Quote:
Intel has been perfecting their manufacturing process and the transition from generation to generation with amazing alacrity. Relatively recently they figured out that they actually SAVE money by transitioning faster, so long as they can keep up the efficiency and yields, which they have managed to do well enough so far.

So, in essence, Intel is shrinking their process at a faster pace because it allows them to make MORE money, not less. There will always be points between architecture transitions where they will have to face low margins on some products (Pentium D anyone). But, they have never needed to sell their CPU's at a loss.

You are trying to make a conspiracy out of circumstance. Core 2 is better than Netburst, so they transition everything to Core 2 and sell off the Netburst inventory. Die shrinks mean higher yields and more profit, so they transition away from the old technology as quickly as possible. This is the Intel machine in its prime.

AMD has survived in the past by being innovative compared to Intel. Now that Intel has the superior technology AND the superior manufacturing process, AMD has to figure out what to do. AMD has to come out with something better than a "Core 3" at this point and make it soon, or they will lose any strength they have left and have only their fans to turn to as customers.


Believe you me, I don't buy conspiracy theories! No, Intel has a plan, and it doesn't make sense to me yet.

Why is Intel selling the e6400 at that very low price?
January 22, 2007 7:33:00 PM

His point is, it seems like they are making a lot less per processor in order to get 80% of the share as opposed to making a lot more per processor and getting 78% of the market.

example (these numbers are completely made up)

if they sell 78 million processors for $100 profit each, that is a lot better profit then selling 80 million processors for $50 profit each.



Now I have no clue if his numbers are correct or not, but people are completely misunderstanding his point.
January 22, 2007 7:37:08 PM

It is called a price war, my friend. :lol: 
January 22, 2007 7:38:09 PM

Quote:
I am thinking of another possible explanation for this. Perhaps Intel fears the new K8L architecture, and wants to slow AMD down in terms of market growth in 2008 by pulling in more of the upgrading buyers sooner, like a defensive action.


Why does any of this have to be based on fear? I think Intel is just keeping the ball rolling instead of artificially slowing down the rate at which the industry advances, like they have in the past. Intel could have jumped from 2GHz to 3GHz VERY quickly during the P4 era, just like AMD could have. In the past it was smarter for them to slow down and enjoy the profits. It is now a game of "who can run the other guy's profits down first". AMD just happens to be losing that war.

Intel is making faster chips at an accelerating rate. The ONLY likely thing that will slow them down is if the software folks can't keep up and we get to a point where everyone has 4+ cores on their desktop while only utilizing 2 of them. Another possibility, though unlikely at this point, is that if Intel doesn't aggressively work on "Core 3" and instead continues to milk Core 2 for longer than the market will allow (like they did with Netburst).
January 22, 2007 7:38:19 PM

To force AMD out of that target market.
January 22, 2007 7:45:19 PM

Quote:
His point is, it seems like they are making a lot less per processor in order to get 80% of the share as opposed to making a lot more per processor and getting 78% of the market.

example (these numbers are completely made up)

if they sell 78 million processors for $100 profit each, that is a lot better profit then selling 80 million processors for $50 profit each.



Now I have no clue if his numbers are correct or not, but people are completely misunderstanding his point.


I think most of us are understanding his "point" just fine. His "point" though is just "why is Intel operating like a company that has competition"? Which is like asking why lower prices when there are a few people out there that like to spend more? The real answer is somewhere between "they know what they're doing and it is all part of the plan" and "they are clueless and just trying to do anything to keep AMD at bay". My money goes to the former.
January 22, 2007 8:08:17 PM

Quote:

I think most of us are understanding his "point" just fine. His "point" though is just "why is Intel operating like a company that has competition"? Which is like asking why lower prices when there are a few people out there that like to spend more? The real answer is somewhere between "they know what they're doing and it is all part of the plan" and "they are clueless and just trying to do anything to keep AMD at bay". My money goes to the former.


It´s more like "they know what they have to do to keep AMD at bay". :wink:

And they are doing a good job at that.
January 22, 2007 8:16:36 PM

All companies have competition, but few try to gain just a tiny extra bit of share at a cost of a big chunk of profit.

Put another way, why is Intel doing a price war. We all know they are. Just, why?

That's the only question. It isn't something else.
January 22, 2007 8:18:17 PM

Quote:
All companies have competition, but few try to gain just a tiny extra bit of share at a cost of a big chunk of profit.

Put another way, why is Intel doing a price war. We all know they are. Just, why?

That's the only question. It isn't something else.


M$ anyone?
January 22, 2007 9:22:20 PM

Quote:
All companies have competition, but few try to gain just a tiny extra bit of share at a cost of a big chunk of profit.

Put another way, why is Intel doing a price war. We all know they are. Just, why?

That's the only question. It isn't something else.


Okay, here's a theory.

Maybe Intel's 65nm process is not as expensive as it once was, so it can lower it's prices, forcing AMD, who's process isn't as mature or maybe even cheaper, to eat more of a loss than Intel at this time.

AMD wanted fair competiton, and here it is. Intel could keep prices high, but at what cost? Intel wanted to make their new CPU the mainstream CPU for its company, and sacrificed Netburst profits for it. That's it. I have no idea how much each Core uArch CPU costs, but it could be cheaper than Netburst was, so in reality, it isn't really losing money per CPU.

Why a price war? To regain market share and to put a hurt on AMD. That's about it.
January 22, 2007 9:43:41 PM

Quote:
All companies have competition, but few try to gain just a tiny extra bit of share at a cost of a big chunk of profit.

Put another way, why is Intel doing a price war. We all know they are. Just, why?

That's the only question. It isn't something else.


Intel has been slowly but steadily losing marketshare to AMD ever since K8 was released. At their high point they had 81% marketshare, they are now down to ~76% the last time I checked.

This is not merely about gaining back marketshare, it's about stopping the marketshare decline in the first place. I don't think Intel can ever get back to its 81% marketshare heydey, but it can at least stem the bleeding and perhaps even gain back 1 - 2% of the market, instead of steadily losing 0.5% per quarter to AMD.

In order to do that, Intel needs superior price/performance compared to AMD, hence the 'price war'.
January 22, 2007 9:57:25 PM

Quote:
All companies have competition, but few try to gain just a tiny extra bit of share at a cost of a big chunk of profit.

Put another way, why is Intel doing a price war. We all know they are. Just, why?

That's the only question. It isn't something else.


Intel has been slowly but steadily losing marketshare to AMD ever since K8 was released. At their high point they had 81% marketshare, they are now down to ~76% the last time I checked.

This is not merely about gaining back marketshare, it's about stopping the marketshare decline in the first place. I don't think Intel can ever get back to its 81% marketshare heydey, but it can at least stem the bleeding and perhaps even gain back 1 - 2% of the market, instead of steadily losing 0.5% per quarter to AMD.

In order to do that, Intel needs superior price/performance compared to AMD, hence the 'price war'.

Never say never:


Quote:
While it may be surprising that Sun was moving towards Intel, given the firm's close connection with AMD, Schwartz had a good reason to call Otellini. According to Sun, 70% of Solaris installations on x86 systems run on Intel systems, not on AMD. Ignoring Intel meant ignoring 70% of its market. "That was a great motivation to work together," Schwartz said. Of course, the fact that Sun was able to convince Intel to market Solaris may have save the operating system's life: Seven million installations are considerable but the future of the software was uncertain: "There was the question if Solaris would suffer the same fate of other UNIXes," Schwartz said. "Now that issue is off the table."


And dont expect Intel to continue losing market share, or AMD to hold what it has. They are behind the power curve and need to get 65nm pumping out the door in reliable quantity. 1 &2/3 more qaurters is a long time to wait for K8L and AMDs 2 quarter "grace" period is over.
January 22, 2007 10:12:09 PM

Ok, that makes sense. If Intel was afraid of continued share losses, then they would be acting rationally (as opposed to emotionally).

Also thinking further about the price gap in the C2duos between the $320 6600 and the $510 (roughly) 6700, it's perhaps reasonable there is no $420 neighborhood chip (sans the laptop types), because the 6700 was to be the premium chip, and perhaps a $400 price point chip isn't really needed.

Nonetheless, if Intel is able to sell *all* it's C2duo production easily, (with no inventory at all), it would be clearly foregoing profits, which is unusual for any business, and notable for a publically owned company. I have some intel stock, and I don't really want them shortchanging me, an owner.
January 22, 2007 10:15:05 PM

Quote:
....That's it. I have no idea how much each Core uArch CPU costs, but it could be cheaper than Netburst was, so in reality, it isn't really losing money per CPU.

Why a price war? To regain market share and to put a hurt on AMD. That's about it.


The issue isn't about "losing money" in the sense of selling below costs, it's about losing money in the sense of selling below what the market would willingly pay!

See my other reply just above.
January 22, 2007 10:33:02 PM

Did you made that avatar yourself?
January 22, 2007 10:33:24 PM

Thats not true.

Intel needs market share because of its bulk. As Baron likes to point out continuosuly, they have a lot more "mounths" to feed than AMD. If Intel kept its prices high, and maximized profit per unit vs profit through volume, they would be selling less inventory. That would force them to make some hard descisions:
Storage: Continue production at high rates and pay to store the overage or reduce production?
If production is not reduced: risk eating the costs of storing products which might be obsolecsed in a few months time or not?
If production is reduced: lay people off or keep paying them for doing nothing?
Close fabs to consolidate production and maximize efficiency, or leave them open and continue paying the overhead?

If Intel does not sell what it produces it either has to shrink itself, or waste money. Its that simple. To maintain themselves at their current capacity/size, they need to sell in volume which means they need market share. AMD tried the "keep prices high" approach Q1 and Q2 of last year. That approach attrophied their market growth, which is to say they grew less market than they could have. That prices were not driven by demand was evidenced by the masive cuts they were able to make in july. AMD has been playing its cards wrong this year, and their chips are down. Theyre still in the game, but they need to be smart. Stunts like 4x4 are not smart. Brisbanes release was handled even more poorly than C2Ds. Not smart. They need K8L and they need to play it smart.
January 22, 2007 10:52:58 PM

Quote:
Did you made that avatar yourself?

No.

Quote:
The issue isn't about "losing money" in the sense of selling below costs, it's about losing money in the sense of selling below what the market would willingly pay!


Just cause it's lower than what the market is willing to pay, does that make it bad? Intel is still making a profit, albeit smaller than what it can be, but I think it's part of their strategy to push their newer technology.
January 22, 2007 10:54:44 PM

Quote:
They were trying to dump their last gen stuff that no one wanted?


My idea for Intel is that they put all those Smithfields in computer controlled space heaters with wi-fi capability. That way, they could pawn off old tech as a new tech toy. Just think, a space heater that communicates with the refrigerator, the washing machine and the dishwasher. :wink:

I was going low end C2D, but I think I'll go X3800+. I'd like to keep AMD afloat and the performance isn't that bad. When Intel's sold the last Prescott, the last Smithfield, and the last Pressler, then I'll consider. I think they're holding us all back by dumping that dreck onto the budget market, when one of the upcoming Core 2 Solos would be the thing to put into an E-Machines box so Bubbe can read e-mail and surf mahjong strategy sites.
January 22, 2007 11:04:03 PM

There might be a more simple reason for Intel actual pricing policy. It's called, ''lets learn from past experience''. I think that in the past Intel didn't take AMD to seriously since they were pretty much always a distant second. In recent years though, AMD has been busting their chops a lot more then they like to and the advent of K8 certainly had Intel reevaluate their views on AMD and the CPU market in general. Now that they have retaken the lead, they don't want to make the same mistake again and they are just not cutting some slack to AMD.

Also, this pricing policy is certainly helping them clearing out their old inventory. I mean who would want to buy a Netburster that costs more than a Conroe ?
January 22, 2007 11:16:32 PM

Quote:
There might a more simple reason for Intel actual pricing policy. It's called, ''lets learn from past experience''. I think that in the past Intel didn't take AMD to seriously since they were pretty much always a distant second. In recent years though, AMD has been busting their chops a lot more then they like to and the advent of K8 certainly had Intel reevaluate their views on AMD and the CPU market in general. They don't want to make the same mistake again and they are just not cutting some slack to AMD.

Also, this pricing policy is certainly helping them clearing out their old inventory. I mean who would want to buy a Netburster that cost more than a Conroe ?


Yes, I agree thats part of it, if not the root cause. But how did intel recognize the threat?

Lost market share.
January 22, 2007 11:30:39 PM

Yes, market share is certainly the main indicator of that recognition.
January 22, 2007 11:58:06 PM

Hal,

This is really very simple... Sorry you have had issue with detecting this...

Which would you rather do as a company?

A) Sell one chip @ $1000 with a profit of say $500 and only take up 1 OEM install worth of market share?

OR

B) Sell Two chips @ $1200 with a profit of $800 and take up 2 OEM install berths (one of which could have been your competitor)?

Is this really that difficult of a concept?

Let me help you here.

With A) you have a customer that paid a premium for a product that does perform well. He/She may not want to pay a premium again especially if the customer later sees the competition selling item B. You have in fact taken up a single "berth" in market share and may have a flip flop(no reference here to the jk kind ;) customer).

With B) you are still profitable (granted you have taken less profit from a single product) and you managed to take up TWO berths in the market share game. Not to mention the customer which purchased item B may be a "little" more likely to purchase again from the original vendor. Also in this scenario your "ON HAND/Shelved" product is moving quicker (don't kid yourself stockholders do look at these things).

On Hand/In Channel stock (product that has not yet sold) if not moved quickly leads to a backup in production. This is not a good thing. You are only making money if you are producing and selling chips. This was given as the reason (Intel's reasoning not mine) for shorting the prices of the P4 line.

Also, "Market Share" is what happens to drive the market :) . If Intel were to lose market share again to AMD what do you think the other side of this equation would look like? Stockholders would do what on a sharp decline in market share lost to AMD?



There is a lot more to this but I don't want to teach an economics 101 lesson tonight ;) 
January 23, 2007 12:39:36 AM

See, you don't even have to do those guessing games at just exactly where those particular price points are. There is a more elegant way to satisfy *all* of the considerations and objectives together!

You just sell at the price points that sell *almost all* (say 98%) of your production. Whatever those price points are, so they are dynamic of course.

This lets you maximize profit, while meeting the demand your price point creates, without leaving people who would like to buy at that price point waiting.

If Intel is doing this it meets *your* criteria.

But.....I'm wondering if their product mix is oriented to maximize profit essentially. And perhaps altogether it isn't so bad, and isn't an intentional price war. There is that possibility.

It would be a price war if they had to lower prices re the above technique until the prices were too near their marginal cost of production (cost per chip), in which case you could say they are flooding the market and doing an intentional "price war".

I seem to have answered some of my own questions.
January 23, 2007 12:48:34 AM

Quote:
Thats not true.

Intel needs market share because of its bulk. As Baron likes to point out continuosuly, they have a lot more "mounths" to feed than AMD. If Intel kept its prices high, and maximized profit per unit vs profit through volume, they would be selling less inventory. That would force them to make some hard descisions:
Storage: Continue production at high rates and pay to store the overage or reduce production?
If production is not reduced: risk eating the costs of storing products which might be obsolecsed in a few months time or not?
If production is reduced: lay people off or keep paying them for doing nothing?
Close fabs to consolidate production and maximize efficiency, or leave them open and continue paying the overhead?

If Intel does not sell what it produces it either has to shrink itself, or waste money. Its that simple. To maintain themselves at their current capacity/size, they need to sell in volume which means they need market share. AMD tried the "keep prices high" approach Q1 and Q2 of last year. That approach attrophied their market growth, which is to say they grew less market than they could have. That prices were not driven by demand was evidenced by the masive cuts they were able to make in july. AMD has been playing its cards wrong this year, and their chips are down. Theyre still in the game, but they need to be smart. Stunts like 4x4 are not smart. Brisbanes release was handled even more poorly than C2Ds. Not smart. They need K8L and they need to play it smart.


Good points. Essentially, instead of a price war, it's just the outcome of both companies expecting to gain market share and having production accordingly, along with what I'd guess is some slowed demand re people waiting for Vista recently.
January 23, 2007 12:49:43 AM

Quote:
See, you don't even have to do those guessing games at just exactly where those particular price points are. There is a more elegant way to satisfy *all* of the considerations and objectives together!

You just sell at the price points that sell *almost all* (say 98%) of your production. Whatever those price points are, so they are dynamic of course.

This lets you maximize profit, while meeting the demand your price point creates, without leaving people who would like to buy at that price point waiting.


Of course I over simplified the pricing points. Do you not think that Intel has mauled over their price points again and again? Do you think that maybe just maybe they have a team of people deciding the pricing that would give the best ROI (Return on Investment)? ROI is not simply based on the pricing of a single product or even an entire product line. It is based on cross markets, product bottom line, market share, stockholders (how they are thinking), where can you push/lead/extract a market.

You think that the Core 2 Duo line is the only finger in the pie :) ? How about all those wonderful chipsets they also sold you know the 965 and 975 variants? How about their mobile processor (not just notebooks but ARM as well) which also gains notoriety when everyone hears again the name Intel?

How about that too. Free/limited funds for marketing. This is a lesson learned from AMD definitely. What are we talking about on these forums these days? AMD got next to free marketing from folks like us which actually stole market share away from Intel. Now they are doing the same. In fact, if Intel remain the same marketing machine that they used to be and on top of that add word of mouth?

There is far too much involved, this is much more than just the pricing of a single line of chips.
January 23, 2007 1:01:03 AM

Quote:
Thats not true.

Intel needs market share because of its bulk. As Baron likes to point out continuosuly, they have a lot more "mounths" to feed than AMD. If Intel kept its prices high, and maximized profit per unit vs profit through volume, they would be selling less inventory. That would force them to make some hard descisions:
Storage: Continue production at high rates and pay to store the overage or reduce production?
If production is not reduced: risk eating the costs of storing products which might be obsolecsed in a few months time or not?
If production is reduced: lay people off or keep paying them for doing nothing?
Close fabs to consolidate production and maximize efficiency, or leave them open and continue paying the overhead?

If Intel does not sell what it produces it either has to shrink itself, or waste money. Its that simple. To maintain themselves at their current capacity/size, they need to sell in volume which means they need market share. AMD tried the "keep prices high" approach Q1 and Q2 of last year. That approach attrophied their market growth, which is to say they grew less market than they could have. That prices were not driven by demand was evidenced by the masive cuts they were able to make in july. AMD has been playing its cards wrong this year, and their chips are down. Theyre still in the game, but they need to be smart. Stunts like 4x4 are not smart. Brisbanes release was handled even more poorly than C2Ds. Not smart. They need K8L and they need to play it smart.


Good points. Essentially, instead of a price war, it's just the outcome of both companies expecting to gain market share and having production accordingly, along with what I'd guess is some slowed demand re people waiting for Vista recently.

Oh, its a price war, but the battle for Intel is market share, not profit margin. AMD did shake them, no doubts about it. If not, Intel would have released C2D at prices relative to AMDs performance levels, in fact, if it werent for AMD there wouldnt have been much reason for C2D in the first place. Intel wants its share back. If they continued to lose share, theyd have no choice but to shrink.

AMD wants a bigger share too, but they cant support it yet. They bit off as much if not more than they could chew last year, which is why 65nm is so important. A 31% increase in production with no increase in manufacturing capacity. 65nm is nothing but good for AMD now. If they can get it squared away and working
January 23, 2007 1:02:13 AM

Quote:
See, you don't even have to do those guessing games at just exactly where those particular price points are. There is a more elegant way to satisfy *all* of the considerations and objectives together!

You just sell at the price points that sell *almost all* (say 98%) of your production. Whatever those price points are, so they are dynamic of course.

This lets you maximize profit, while meeting the demand your price point creates, without leaving people who would like to buy at that price point waiting.


Of course I over simplified the pricing points. Do you not think that Intel has mauled over their price points again and again? Do you think that maybe just maybe they have a team of people deciding the pricing that would give the best ROI (Return on Investment)? ROI is not simply based on the pricing of a single product or even an entire product line. It is based on cross markets, product bottom line, market share, stockholders (how they are thinking), where can you push/lead/extract a market.

You think that the Core 2 Duo line is the only finger in the pie :) ? How about all those wonderful chipsets they also sold you know the 965 and 975 variants? How about their mobile processor (not just notebooks but ARM as well) which also gains notoriety when everyone hears again the name Intel?

How about that too. Free/limited funds for marketing. This is a lesson learned from AMD definitely. What are we talking about on these forums these days? AMD got next to free marketing from folks like us which actually stole market share away from Intel. Now they are doing the same. In fact you remain the same marketing machine that you used to be and on top of that add word of mouth?

There is far too much involved, this is much more than just the pricing of a single line of chips.

No doubt.

Planning the production lines, their capacity, is certainly a roll of the dice, and certainly the issue of profits depends largely on those choices.

Given the overproduction of netburst chips, when it was already clear the AMD alternatives were superior in 2005, along with the rhetoric and such, and you can see why some would think it's a planned price war.

Now I'm thinking it's more the blundering through the fog kind of thing (the seeming overcapacity), since no one can predict consumer demand that accurately, much less the delays of Vista, etc.

What's less clear is whether it would be advantageous for Intel at this moment to have somewhat higher prices for it's C2duos even if it meant some inventory build, in view of the Vista consumer delay, and the advantages of greater revenue. But there's no way for me to guage this from the outside. Is Intel sacraficing profits just to squeeze AMD (and also it's own shareholders)? Or is it only being reasonable, and actually maximizing it's profits right now?
January 23, 2007 1:10:46 AM

Hal,

You keep asking the same question in a differing manner.

You have been told by many here what is a likely and sometimes factual manor.

Intel told all of us that they were going to take a loss on their P4 line. They went public with that. They also went public with the reasoning. They had too much stock on hand. At a car dealership for instance these ON-STOCK vehicles incur what we call "Floorplan Charges", the longer a vehicle stays on the lot the higher the price that vehicle needs to sell at to recover costs (regluar washing/insurance/sales staff. Other industries call these similar charges "stewardship" or the cost of maintaining stock. After some period of time it becomes cost beneficial to just off-load your stock and move on.

This was Intels case. They had a better processor in the works (widely advertised as the one to beat). They had too much stock on hand of the P4s. They off loaded them.

Pretty simple actually.
January 23, 2007 1:27:07 AM

yeah, I think the P4 situation is pretty simple and obvious enough. Months ago, on another forum I suggested perhaps the best thing (for Intel!) was to grind up some of those chips into dust, but that was only an attempt to stimulate some creative new thinking. Dumping them cheap in Asia was a good option of course. Altogether, Intel has probably done as well as it could with them. Witness it had to lay off a lot of people!

Not sure exactly what you mean re "manor", but if you just mean people are answering the question, I agree! I count about 3 posts that gave good answers that made sense, and helped me see through the "price war" buzz in the media.

Don't presume I'm the average obstinate arguer here. Actually, I'm far more interested in finding new ideas and insights than silly ego arguing!

Thanks for you great posts.
January 23, 2007 8:44:15 PM

By manner I meant:

You keep asking the same question in a different way.

So far it seems that many of the good/accurate and appropriate answers given already will not suffice.

You seem to have an agenda. Would you care to just come out and say what that is?

If you are partial to AMD or even an AMD troll please state this as fact so we can continue on in such a manner which is equal to your tastes.

Being "partial to AMD" is NOT a bad thing at all. Being a "Troll" is.

So far your posts in this and other forums has leaned toward the Troll side. I would hate to see you misrepresented/misunderstood.

Right (now) I am kinda partial to Intel's current product release over that of AMD's. I however will switch to the green team in a heartbeat if they start to produce the performance leading chip. I am very very partial to performance.
January 23, 2007 8:50:38 PM

I see you didn't read thru. Even the last post.
!