Intel, AMD Retreating In Price, Researcher Says - InformationWeek

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Intel, AMD Retreating In Price, Researcher Says

Both processor firms reported higher third-quarter revenue, in spite of the brutal price war that negatively affected each company's gross margins.

Intel and Advanced Micro Devices have unilaterally declared a truce in their brutal price war, as both vendors increase market share as demand for PCs and servers rises, a researcher said Monday.

Both companies in their third-quarter financial reports said there was an easing in the use of price to grab share from each other, a strategy that had ruled for most of 2007, iSuppli said. The researcher said it interprets the lull as "the beginning of the end" of the price war, which has had a negative impact on each company's gross margins, a key measure of profitability.

Prices are stabilizing because both vendors are increasing share at a time of robust sales of computers. Shipments, including desktops, notebooks, and entry-level servers, amounted to 68.1 million units in the third quarter, up 13.8% from 59.9 million during the same period a year ago. Shipments rose 11.1% from the second quarter of this year.

Pricing trends are also being affected by Intel's rapid migration to its new Core 2 architecture microprocessor, and AMD's launch of its Opteron quad-core server processor, which was code-named Barcelona. Demand for the more expensive chips in the vendors' portfolios is rising because of the increasing penetration of multi-core processors in the market, iSuppli said.

Intel raised its market share in terms of revenue to 78.7%, up 0.3% from the second quarter, iSuppli said. AMD did even better, raising its share 0.6% quarter-to-quarter to 13.9%.

Both increases were at the expense of smaller rivals in the general-purpose processor market. Their collective share declined to 7.4% from 8.2% in the second quarter, iSuppli said. In ranking vendors, the research firm considers sales of all types of general-purpose chips, including RISC and PC-oriented x86 machines.

Intel and AMD together accounted for 93% of global microprocessor revenue in the third quarter, an increase of 2% from a year ago, iSuppli said. "The combination of strong PC and server demand -- combined with stable microprocessor prices -- led to a prosperous quarter for both Intel and AMD," iSuppli analyst Matthew Wilkins said in a statement.

Despite the positive trends, competition between AMD and Intel is expected to remain fierce, particularly in terms of technology. AMD's Barcelona products give the vendor a strong portfolio to compete, and Intel is looking to stay ahead of its rival by shipping an increasing number of products on its new 45-nanometer manufacturing process, which squeezes better performance-to-power ratios. "Neither company is resting on its laurels," Wilkins said.

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