Processor Price Wars Roil Custom Market

Still, the battle is sure to have an effect, particularly in the so-called "value segment" of the custom market where white-box systems sell in the range of $399 to $499. That's where AMD is aiming its new Sempron processor, which consists of seven desktop and five mobile CPUs, ranging in price from $39 for an entry-level chip to $126 for an advanced, Socket-754 processor.

Sempron is seen as a shot across the bow of Intel because the unit prices AMD has set for the new CPU family generally hover between $4 and $8 less than those for Intel's competing Celeron D processors. While such price differentials might seem small, AMD believes Sempron will enable resellers to squeeze a little bit of additional profit out of sub-$500 boxes. "Margins in that space are fairly thin, but I think with Sempron we're better positioned to offer a value proposition," says Kurt Holman, AMD's marketing manager for desktop microprocessors.

As for Intel, its salvo in the processor pricing wars consisted of a broad list of price cuts on its microprocessors in late August. Those included slashing the list price of its high-end 3.6-GHz Pentium 4 with Hyperthreading by 35 percent, from $637 to $417. The Celeron desktop processor line received smaller cuts, such as the reduction of a 2.8-GHz part from $117 to $103. Intel's cuts dovetailed with the end of its long-time channel rebate program on all its boxed processors. In theory, the cuts are supposed to put money in VARs' pockets at the time of sale, rather than requiring them to fill out paperwork and wait for their rebate checks.

"The price moves today coincide with the removal of our rebate program in an attempt to end back-end rebates on products and replace them with up-front discounts," says Steve Dallman, Intel's director of North American distribution and channel marketing.

Along with reductions to many of the Pentium 4 and Celeron processors, Intel has pared back prices on most of its 64-bit Itanium 2 server CPUs. For example, the 1.4-GHz Itanium 2 was cut from $2,247 to $1,980. Prices, however, weren't reduced on Intel's Xeon commodity-server CPUs, nor on its $999 "extreme edition" version of the Pentium 4. And, with the exception of several mobile Pentium 4 devices, prices on most mobile processors weren't touched.

Dallman says the company's mobile processor products "may experience their own price and compensation changes later this year."