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Price War; Chipsets

By Phil Trent

Date: August 31, 2001

Economic Uncertainty Causes Porcine Altercation

Downturns have a great effect on disposable income.  Everyone will still buy groceries and pay the house payment, but luxuries such as new PCs and cars have to take a back seat to economic uncertainty. This uncertainty has lowered CPU demand; to what extent is uncertain, but it is unarguably less than AMD and Intel had originally planned.

Till recently, the chip titan and the virtual gorilla had been planning for a certain percentage of growth in CPU demand, which has remained relatively constant over the last few years.  When this demand was much less than anticipated, they were both left with extra inventory.  They were both so anxious to unload their extra 10% or so of CPUs that they both cut prices in half or much more over the last year.  They both seemed to get a Vulcan death grip on each other at the same time - neither shows signs of relenting anytime soon.

Jerry Sanders said in a conference call a few months ago, ďDonít fight with pigs because you will get dirty and they will like it.Ē While AMD may not like it all that much, the chip giant is just beginning to feel the effects of the price war. Intel has launched the entire Spanish Armada at AMD by releasing the P4 @ 2 Gig, ramping up P4 production, and dropping prices so fast as to appear to reach terminal velocity on Intelís bottom line. Whether this will slow AMDís market share growth is uncertain, but the cost of risking their profitability to protect a few percentages is beginning to become more clear. In short, they are getting dirty, but the little pig is taking its own measure of abuse.

Still there is some measure of hope for both of them. AMD is beginning to sell laptop CPUs and dual-processor units, while Intelís higher-end P4 solutions give ASPs some measure of stability. These lower volume but higher-end offerings may offset some of their vicious mutual assault.

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Chipsets ahoy!

Intel has also been active in the chipset arena.  While releasing a revised chipset of their own, they seem to be in conflict with VIA yet again.  Iím not sure which vital organ Intel believes it is protecting from having VIA develop a chipset for the P4.  It could be that Intel wants to maintain high standards (meaning theirs) for P4 chipsets.  Possibly, Intel could be nervous about VIAís growing market share in the chipset arena because each percentage point hastens the day when Taiwan doesnít have a silicon earthquake every time Intel begins to make unreasonable and/or irrational demands. Going so far as to threaten those OEMs that will/are using VIAís DDR for the P4 is impressively obtuse.  This communicates a level of desperation of an increasingly powerless monarch, whoís decrees and demands are politely ignored by those who no longer need be afraid. Maybe the best reason is that Intel isnít shy about throwing its weight around; even at the cost of its self-interest.

While Intel is busy performing unnecessary surgery on itself to keep others from making P4 chipsets, AMD is gathering a virtual harem of chipset manufacturers.  Besides their own solution, Athlon DDR w/ 266 FSB chipsets are pouring from VIA, SIS, ALI, with Nvidia to soon join them. This chipset competition has brought out best in all of them because none can afford to be lazy or do a half-way job. It is a wonder that the 800 lb. gorilla doesnít try to produce an AMD chipset.

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