Intel Fine Tunes Processor Pricing, Increases Pressure On AMD

Santa Clara (CA) - Intel’s latest round of processor price represents a very subtle adjustment of prices the market widely seems to have accepted. However, it is clear that the company is reacting to AMD’s aggressive dual-, triple- and quad-core pricing strategy: Entry-level quad-core processors can now be purchased for less than $200. All Intel dual-core processor are now sitting well below this critical mark that divides the processor market into mainstream and performance products.

Processor price reductions are typically triggered by regular life-cycle changes or competitive pressure. Consider the fact that Intel currently offers more than 160 different desktop, mobile and server processors and reductions for seven processors (three of them server CPUs) appears to be a non-event. But the first impression can be deceiving and we actually heard that the new prices are reactions to advances of AMD.

Intel’s aging 65 nm Q6600 quad-core processor with Kentsfield core remains the company’s most important product for consumer PCs in the range between $700 and $800, which is considered to be the entry-level point into higher-end mainstream PCs. Intel is currently battling AMD’s Phenom X4 armada, which seems to have made quite some impact in retail PCs judging by the number of AMD PCs that are currently on the retail shelves at Best Buy & Co.

Intel reduced the tray price (PDF) of the Q6600 by 14% from $224 to $193, which makes the CPU Intel’s first quad-core processor to be priced at less than $200. The chip is priced against AMD’s Phenom 9650 (2.3 GHz, $195) and 9550 (2.2 GHz, $175). The current average retail price of the Q6600 is at $242, according to Pricegrabber.com.

The sharpest price cut can be seen for the 45 nm dual-core E8500 (3.16 GHz) processor, which was dropped by 31% to $183. While it remains the most expensive dual-core CPU in Intel’s desktop lineup, all Intel dual-core processor have fallen below the $200 mark, presumably to build up the

defense against AMD triple-core assault. The 3.0 GHz E8400 CPU was reduced by 11% from $183 to $163 and is now priced on one level with five other 6000- and 8000-series Core 2 Duo processors ranging from 2.33 GHz to 2.83 GHz in clock speed.

In the entry-level segment, the E7200 model (2.53 GHz), is the first 45 nm dual-core CPU we can consider as a true entry-level chip. Intel dropped the price of this processor by 15% to $113 and now undercuts AMD’s cheapest triple-core processor - the Phenom X3 8450 (2.1 GHz) sells for a tray price of $125. AMD’s other triple core CPUs are priced at $145 (8650) and $175 (2.4 GHz) and can be considered direct competitors of the E8500 and E8400 processors.

The sub-$200 market of x86 microprocessors accounts for 95% of the market and Intel’s latest price cut may be just one indication how Intel is dominating this market right now. AMD may be the more aggressive player in terms of pricing, but it is clear that AMD will need faster chips to stabilize the pricing of its cash-cow and mainstream processors. Intel’s latest move will add pricing pressure on AMD’s triple-core and quad-core processors and as long as the company does not have faster chips, it will have no defenses against such price cuts by Intel. Margins in sub-$200 regions can be brutal and AMD just does not have capacity and volume to compete on this level.