Intel Tells Customers It Will Cut Prices by 60% to Gain Share
2006-06-08 12:32 (New York)

By Tim Culpan
     June 9 (Bloomberg) -- Customers of Intel Corp. said the
world's biggest computer-chip maker plans to reduce prices on
Pentium processors by as much as 60 percent to reclaim market
share from Advanced Micro Devices Inc.
     Executives at Micro-Star International Co. and Gigabyte
Technology Co., two of Taiwan's biggest makers of circuit boards
for computers, said Intel officials told them the price cuts will
start July 23. Tom Beermann, a spokesman for Santa Clara,
California-based Intel, declined to comment.
     Advanced Micro last quarter increased its share of the $35
billion computer chip market to more than 20 percent for the
first time in more than four years. Intel Chief Executive Officer
Paul Otellini forecast the company's first annual sales decline
in five years and Dell Inc. decided last month to buy some
Advanced Micro chips for the first time.
     ``They're very aggressive about getting market share back,''
said Max Tsai, a product manager at Gigabyte. Tsai said yesterday
that his Intel account manager in Taipei said prices will be cut.
``We're all surprised.''
     Intel said it will reduce prices of faster dual-core chips by
about 15 percent, according to Alex Lin, a product marketing
manager at Micro-Star, Taiwan's third-largest maker of
motherboards, which connect electronic parts in computers. Intel
also told him that it plans to lower Pentium prices by 60 percent.
     Citigroup Inc. analyst Glen Yeung on June 7 published a list
of price cuts he anticipates from Intel in July, based on
discussions with makers of computers and their components.
     Pentium prices will fall 61 percent, Yeung said. Advanced
Micro also told Gigabyte that it plans to cut prices, though not
by as much as Intel, Tsai said.

                          `Fighting Back'

     Intel typically posts its prices on its Web site. The most
recent change was May 1.
     Anand Chandrasekher, Intel's sales chief, declined to
comment on the company's chip prices earlier this week.
Chandrasekher, Yeung and the components makers are among
attendees of the Computex trade show in Taipei.
     Shares of Intel have fallen 33 percent since Otellini
succeeded Craig Barrett in May last year. Advanced Micro's stock
has gained 77 percent during the same period. Intel fell 31 cents
to $17.08 at 12:06 p.m. New York time in Nasdaq Stock Market
composite trading. Advanced Micro dropped $1.55, or 5.5 percent,
to $26.45 on concerns that Intel will lower prices.
     ``Intel is fighting back,'' Ray Chen, president of Compal
Electronics Inc., the world's second-largest maker of notebook
computers, said yesterday in an interview. Such competition
``means the consumer will get the benefit and the unit price will
get lower so we can stimulate demand.''

                        Lowered Estimates

     Citigroup's Yeung, citing conversations at the Computex
trade show, predicted ``a more aggressive price war in
microprocessors is forthcoming'' and cut his profit estimates for
Intel and Sunnyvale, California-based Advanced Micro.
     In a research note, Yeung lowered his prediction for Intel's
2006 profit to 77 cents a share from 86 cents and cut his revenue
estimate to $34.5 billion from $35.4 billion. Yeung kept his
price target for Intel shares at $21. He rates the stock ``buy.''
     Yeung cut his Advanced Micro profit estimate to $1.14 a
share from $1.28 and reduced his target for the stock price to
$33 from $42. He rates the stock ``hold.''

                           Not Prepared

     Advanced Micro isn't positioned for a price war, Yeung said.
Discussions with customers at Computex signaled Advanced Micro
hasn't responded to the planned cuts.
     ``If Intel chooses to create a more aggressive market
environment over the long term, that's something we'll have to
respond to,'' Advanced Micro President Dirk Meyer said earlier
this week at the conference. He declined to give details on
Advanced Micro's price cuts.
     Advanced Micro spokesmen Dave Kroll and Drew Prairie didn't
immediately return phone calls seeking comment.
     Intel's share of computer processor chips fell to 74 percent
during the first quarter, according to Cave Creek, Arizona-based
Mercury Research.
     ``They want to kill AMD market share,'' said Micro-Star's
Lin. ``I believe Intel will steal at least 3 percent'' because of
the price cuts.
     Intel will introduce the Woodcrest chip for computer servers
this month, the Conroe processor for desktops next month and the
Merom for notebooks in August.
     ``From the second half, we believe Intel's product can
stimulate the market demand, and will have pretty good
performance,'' said Sunny Han, marketing director of Asustek
Computer Inc., the world's largest maker of motherboards.

                        Dell Breakthrough

     Advanced Micro had a breakthrough in May when it won its
first order from Round Rock, Texas-based Dell, the world's
biggest PC maker. The contract for processors in some server
machines ended Dell's 22-year exclusive use of Intel chips.
     Taiwanese companies made 98 percent of the world's
motherboards, 30 percent of desktop computers, 82 percent of
laptops, and 72 percent of LCD monitors last year, according to
Taiwan's Institute for Information Industry.
     ``The idea of price competition or competition in general is
new to the other guy,'' Advanced Micro's Meyer said of Intel.
``Price competition doesn't scare us.''

--With reporting by Young-Sam Cho in Taipei and Jason Kelly in
Atlanta. Editor: Teo (ekm)

Story illustration: See {INTC US <Equity> ANR <GO>} for a chart
of analysts' recommendations on the stock. To chart Intel's
earnings against estimates, see {INTC US <Equity> SURP <GO>}.
For Intel's gross margin history and other financial ratios, see
{INTC US <Equity> FA <GO>}.

To contact the reporters on this story:
Tim Culpan in Taipei at (886) (2) 7719-1541 or
tculpan1@bloomberg.net

To contact the editor responsible for this story:
Teo Chian Wei at (886)(2) 7719-1536 or cwteo@bloomberg.net.

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-0- Jun/08/2006 16:32 GMT