Intel cuts prices to claw back market share

Intel is cutting the prices of its microchips in an effort to claw back market share from Advanced Micro Devices (AMD).

The move is the latest in the increasingly vicious chip wars, and comes as Wall Street is hailing AMD as a significant new rival to the once-dominant Intel.

Earlier this month, the world's largest computer maker, Dell, said it would start using AMD chips in some of its products, breaking an exclusive relationship with Intel. Dell had been the last manufacturer to adopt AMD chips and its decision was seen as a vindication of AMD's technology.

Intel, based in Santa Clara, California, is hoping price cuts and discounts will help shore up its market presence while it rolls out a new generation of microchips over the next 12 months.

Charlie Glavin, a technology analyst at Needham & Co, said Dell is likely to play AMD and Intel off against each other, potentially leading to dramatic reductions in the price of components for servers and other computers. Although the Dell-AMD tie-up extends no further than high-end servers for the moment, analysts believe it gives AMD a foot in the door to offer its products throughout Dell's product range.

"If AMD and Intel paste each other on price, you will be able to get PCs at a better price," he said. "And if server prices come down ... your cable or wireless bill may come down in time."

AMD was set up 37 years ago to make copies of Intel components under licence, but began developing its own products in the Eighties. Now it supplies the chips used in 25 per cent of the biggest servers sold to power corporate networks and internet sites, according to the latest market-share data from Gartner. That has come mainly at Intel's expense, thanks to the launch of its Opteron chip three years ago. Its products are faster and, crucially, use less power. That cuts electricity bills for intensive users and fewer malfunctions from overheating.

AMD shares have doubled in the past year, while Intel's have lost a third of their value. Bullish executives at AMD say the company is moving from a "follower position to a leadership position". Alberto Macchi, the head of European sales and marketing at AMD, said: "The fact that companies like Dell have chosen to use AMD for high-end servers shows that they believe our technology is good enough and we can sustain that technology for the future."

Intel's response goes beyond ordering its sales force to focus on market share rather than price. The company has already told Wall Street that margins will contract this year and revenues will be down 3 per cent. It has also launched a business review aimed at cutting 8 per cent from costs.

Earlier this week, Paul Otellini, Intel's chief executive, denied speculation that the company could spin off its memory chips business.