Intel, AMD Price War Winding down

Pinched by microprocessor price wars, Intel and Advanced Micro Devices are trying to move away from competing over prices, to competing on microprocessor features and functionality instead, according to a study released by iSuppli on Monday.

Though Intel has a sizeable lead over AMD in global microprocessor revenue market, both companies recently noted that competition over average selling prices of chips has eased, which could signify the beginning of the end for the x86 microprocessor pricing war, iSuppli said in a statement.

Overall, microprocessor revenue globally for the third quarter of 2007 was US$8.53 billion, increasing 10.9 percent from the previous year, with Intel retaining the top position with a 78.7 percent market share, rising 4.6 percent. AMD followed with a 13.9 percent market share, dropping 2.9 percent year-over-year. Other suppliers, including IBM, Freescale and Marvell Technology, accounted for 7.4 percent of the microprocessor revenue market share.

The global microprocessor revenue increased from strong sales of PCs and entry-level servers, of which 68.1 million units shipped for the quarter, up 13.8 percent from the previous year, the study said.

Despite strong PC shipments, aggressive pricing by both Intel and AMD significantly hurt microprocessor revenues for both companies, said Dale Ford, vice president at iSuppli. But the situation has improved somewhat as prices have stabilized with the release of new multicore processors and chips made using more advanced manufacturing technologies, he said.

Intel recently released its power-efficient Penryn chip, manufactured using the 45-nanometer process. AMD, which makes chips using the 65-nm processor, said it will start manufacturing 45-nm chips in the middle of 2008.

In addition to upgrading chips with features like virtualization support and better graphics, new chip architectures - like the upcoming Nehalem and Fusion chip architectures from Intel and AMD, respectively - are helping to shore up prices, said Dean McCarron, an analyst with Mercury Research.

For example, Intel said Nehalem, due for release in late 2008, will deliver better performance-per-watt and system performance. Fusion, AMD's next-generation chip, will merge a CPU and graphics processor on a single die.

"New and differentiated products keeps the price tack moving," McCarron said.

Strong demand for mobile chips is also helping to keep prices high. Both AMD and Intel have warned aggressive pricing is likely to continue in the lower end of the desktop PC market, but rising demand for mobile devices is likely to boost prices in that segment of the market, McCarron said.