Intel recently announced that the company is significantly cutting prices on its consumer line of Pentium III processors to protect the company's market share from rival microprocessor manufacturers. Some of these price cuts exceed 40 percent and will result in big savings on consumer computers over the important Christmas holiday season. For example, Intel reduced the price of its 550MHz Pentium III processor by 26 percent, from $658 to $487; slashed the price of its 500MHz Pentium III chip by 41 percent, from $423 to $251; and reduced the price of its 450MHz Pentium III chip by 21 percent, from $230 to $183. Intel chose to keep its 600MHz Pentium III processor priced at $669. During the past year, Intel has watched microprocessor vendors such as Advanced Micro Devices (AMD) “chip” away at Intel’s dominant position in the consumer desktop marketplace. Intel’s share of this market has dropped from about 90 percent to an estimated 65 percent. If you visit your local CompUSA, Office Depot, or Staples or pick up a direct mail catalog, you’ll likely see Compaq and HP computers powered by an AMD or Cyrix chip. With vendors such as eMachines selling computers in quantity at very low prices (and in fact, often giving desktop systems away when you sign up for 3 years of Internet access), the desktop computer market is extremely price sensitive. In the last few weeks, AMD scored a coup by releasing its Athlon K7 chip series into the marketplace. The Athlon runs at speeds up to 650MHz and sells at a discount against the slower Pentium IIIs. AMD’s Athlon chip gives the company a product that can compete in the server marketplace, an area in which Intel is still dominant. So far, Intel hasn't cut prices on its Pentium III Xeon chips, which the company sells into the high-performance server marketplace. Intel’s consumer price cuts are meant to blunt AMD’s advantage, narrow AMD’s window of opportunity, and particularly slow AMD’s entry into the lucrative higher margin server market. AMD’s stock has risen over the past few weeks in recognition of this market window that the company has created.
