Intel Cuts Prices, AMD Cuts Jobs AND Now Phenom II Prices

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Intel announced substantial price cuts for selected CPUs among its 775 series while AMD announced substantial job cuts and a $622 million goodwill write-down associated with the ATI acquisition – On January 20th, AMD announced Phenom price cuts of 17%.

Intel’s CPU markdowns for its Core 2 Quad, Core 2 Duo, Pentium Dual Core, Celeron, and Xeon chips appear to reflect the global slowdown in PC sales, cuts ranging from 14% to 40%. This is good news for consumers. (Go HERE for Intel’s price list.)

AMD at the same time announced it is cutting 1,100 jobs – about 9% of its workforce. On top of that, salaries are to be cut 15 percent for VPs, 10% for management and 5% for hourly employees with non-US locations taking cuts consistent with local laws. In addition, AMD is suspending some contributions to employee’s retirement accounts.

UPDATE: Today (Jan 20th) AMD announced price cuts on the Phenom II X4 940 from $275 to $235 and the 920 model from $235 to $195, effective immediately, in response to Intel’s price cuts. It appears that AMD’s cuts maintain a slight edge in price/value, but frankly AMD can not win a price war. Unless AMD has lower costs than Intel, competing against the dominant market leader is a quickest path to sharply reduced earnings and possible bankruptcy.

This is NOT good news for consumers.

Let’s not kid ourselves – Intel can afford to cut some jobs with minimal impact; AMD does not have the cushion which Intel has and can ill afford to cut into muscle, which I feel is what is happening at AMD.

A dispassionate look at AMD’s financials is not at all encouraging – AMD is on track to bankruptcy and Intel’s price cuts do not help the picture one bit. AMD has successfully played its “extra-market” cards (getting financial aid from Germany, Abu Dhabi and New York State) but the well has run dry given what is increasingly amounting to a global recession (dare we say depression?) meltdown.

AMD is not only arranging deckchairs, it’s throwing crew overboard to avoid sinking.

What’s left – spin out ATI? Somehow go private (Chrysler did it – why not AMD)? Merge with ?

Any company that’s the number two competitor in a market dominated by a strong, almost monopolistic, number one will never come out ahead competing on price. Remember the experience curve? Intel’s costs will always be lower than AMD’s, and its financial position is so much stronger than AMD’s that there’s no comparison.

In addition, the CPU market is a commodity market – brand differentiation really does not amount to much as far as the consumer is concerned. I boot up the PC and it works – whether the CPU is Intel or AMD doesn’t make any difference, OS’s work the same and programs work the same. The winner in a commodity market is the low cost producer.

AMD may gain some traction with the Phenom, but it will be short and temporary. Intel’s resources mitigate against ceding any permanent¬† advantage to AMD. AMD has navigated its ups and downs fairly well, but the next two years are going to be off-the-charts tough for business and any business that’s shaky will face long odds on surviving.

If AMD packs it in, it’s not good news, but Intel becoming a de facto monopoly is much, much worse.

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