You make a eloquent position statement. However, your conclusions could have been equally applied to General Motors vs Ford. General Motors got the upper hand in size, income, profits, etc. However, they did not annihilate Ford. Both grew bigger, both had long term erosion of margins. There is a rightfully position for #1 in a market, and also a position for #2. Companies such as General Motors, Boeing, Xerox, and IBM are interesting examples which scholar will argue the similarities and difference with the semiconductor CPU business.
As a second point, I would argue that the K7 is not a shot at the heart of Intel, but rather a necessary evolutionary moderate cost workstation chip of the future. In five years when 1 GHz is the mantra of modern computers, the performance of the K6-2 or K6-3 will simply not be enough for the low end and moderate computer users since these earlier chips likely will "peak out below 700 Mhz" and these speeds will seem unacceptibly slow just as the Intel 80486, 80386, 80286 and 8080 generations of yesterdays gone by
As a third point, Intel is now valued by the market at $90+ per share. An all out price war with AMD would reduce their ASP by more than 2.5x and this would likely, IMHO, result in an Intel stock drop and revenue drop by more than this factor. As may people have observed the Intel revenue per share is in the low teens presently and therefore the revenue per share could drop to $5 per share or lower in an all out price war. Distressed companies sell for less than their revenue per share. A price war with AMD and the subsequent revenue and profit hits could result in a market evaluation similar to other economically shrinking companies which would temper Intel executives decisions as it has other earlier executive in General Motors, IBM, etc.
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