Welcome News For Builders: Intel, AMD Slash Chip Prices

There's at least one silver lining to the terrible economy: System builders trying to survive can at least appreciate that hardware vendors in the same boat are starting to offer bargain-basement deals on components--the kind of savings that can be passed on to their own reluctant customers.


It's the old quandary: The market isn't buying, inventory is sitting around costing companies money and it has become crucial to get parts out the door by any means possible. "Inventory is king," said Intel (NSDQ:INTC) Corp. CEO Paul Otellini during the company's recent fourth-quarter earnings call.


Intel, Santa Clara, Calif., and Advanced Micro Devices Inc., Sunnyvale, Calif., have led the charge on clearing out inventory, slashing prices for their processors in a mid-January exchange that looked on the surface like the old price wars but seemed to have more of a desperate edge. The chip makers were hit hard in the fourth quarter by demand drying up downstream.


Thus, falling revenues and renewed competition from AMD (NYSE:AMD) added up to aggressive new pricing from Intel, including 40 percent price cuts for Intel's top Core 2 quad and Xeon parts.


Intel took its sagging sales figures head on in mid-January, slashing prices for 20 older processors by as much as 48 percent and debuting several new, low-power chips. With the chip giant's disappointing fourth-quarter numbers reflecting tough times for its distribution channel as well, Intel partners like Bill Paschick were encouraged by the price cuts.


"We mainly focus on the quad-cores, the 9550 and 9650, so it really is helpful," said Paschick, president of Rain Recording, Ringwood, N.J., a builder of high-performance desktop and mobile audio workstations.


Intel cut the price for the 3.0GHz Q9650 processor by 40 percent, from $530 down to $316. It also dropped the price on its 2.83GHz Core 2 quad Q9550 from $316 to $266. Other adjustments included price cuts for the 2.66GHz Q9400 (from $266 to $213), the 2.50GHz Q8300 (from $224 to $183) and the Q8200 (from $193 to $163).


Whether the price cuts have more to do with Intel's own inventory needs or some pressure from the well-received new Phenom II desktop processors from AMD, Paschick said better deals on older product are more than welcome.


AMD answered back a few days later with price cuts of its own. It slashed prices for its very latest, top-of-the-line Phenom II quad-core desktop processors. The chip maker took its 3.0GHz Phenom II X4 940 Black Edition from $275 down to $225 and its 2.8GHz Phenom II X4 920 from $235 to $195.


Meanwhile, Intel's newest family of processors, the first three Nehalem-class Core i7 chips released last November, continue to be priced at their initial levels, including $999 for the 3.20GHz Core i7-965 Extreme Edition. The top quad-core part from the older Core 2 architecture, the 3.2GHz Core 2 Extreme QX9775, is still the most expensive non-server/workstation chip in Intel's stable at $1,499.


Intel also cut prices for two Core 2 Duo parts, several Pentium and Celeron chips and the top four Xeon server processors in its X3000 series for 1p servers. The biggest price cut in percentage terms was the 48 percent reduction for the 2.26GHz Celeron 570 mobile processor, from $134 to $70.


It also quietly introduced several new energy-efficient processors manufactured at Intel's current 45nm process node. These include three new 45nm Core 2 quad desktop parts designated with an "s" -- the 2.83GHz Q9550s (12 MB L2 cache, $369), 2.66GHz Q9400s (6 MB, $320) and 2.33GHz Q8200s (4 MB, $245).


Paschick also singled out Intel's new dual-core Pentium T3400, a 2.16GHz mobile processor released at the end of last year, as a very attractive alternative to equivalent Core 2 Duo chips in the $200 to $300 price range. The T3400 doesn't appear on Intel's new price list, but VARBusiness found the processor available online for prices as low as $64.


The custom-system builder has at least one notebook giant thinking the same thing--Toshiba built its newly released Satellite L305-S5921 around the Pentium T3400.


Intel, which suffered a 19 percent sequential drop in revenue for the just-concluded financial quarter, is projecting a continuation of that trend in the current three-month period, according to executives. AMD, which has laid off more than 1,000 employees in recent weeks, reported a loss of $1.42 billion for the fourth quarter of 2008.