Intel Moves To Nix Special Pricing Deals For Some OEMs
The changes are believed to most significantly impact second-tier OEMs in the United States and abroad, which have been able to negotiate special deals with Intel on some CPU SKUs, according to distributor and system builder sources, who requested anonymity because Intel has not publicly disclosed the information.
An Intel spokeswoman declined to comment and said the Santa Clara, Calif., chip maker does not divulge communication about pricing with customers.
Some system builders say they also are concerned about online mass marketers, which they believe negotiate special prices from Intel on large volumes and then dump the excess on the gray market.
"Intel is doing this [reversal] to try to level the playing field and eliminate the gray market," said one distribution source briefed on the changes. "Whenever they give someone special pricing, they risk it going out the back door and creating gray-market issues."
The changes are seen as affecting OEMs overseas the most because there is a larger cadre of second-tier organizations in developing markets.
But how the price schedule changes—described by many as a "leveling" of the pricing structure—would impact U.S.-based mass marketers and top-tier OEMs, if at all, is unknown.
Sources said special pricing deals done in Asia and other countries have increased the flow of gray- market activity in the United States. "Hopefully this eliminates some of the gray-market activity," one source said. "There are a lot of special pricing deals in foreign geographies that are spilling over into the United States."
Sources contacted for this story viewed the news as positive for system builders that buy through distribution. "I think this will be positive for the channel," said one system builder briefed by Intel. "It looks like everyone will be treated equally."
The elimination of special pricing is expected to begin in late July at the same time that Intel officially rolls out its Core 2 Duo desktop processors, code-named Conroe, sources said. Core 2 Duo, based on Intel's newest microarchitecture, is the company's greatest hope to win back market share that rival Advanced Micro Devices has been gaining in the desktop space.
At that time, sources said Intel will enact deep cuts in its desktop price schedule. Also, sources said prices will be lower than initially anticipated when Intel on Monday rolls out another comeback chip—the Xeon 5100, code-named Woodcrest. One distributor of Intel CPUs said the lower-end Core 2 Duo parts will be priced aggressively. For example, the distributor said a 1.8GHz CPU with 2 Mbytes of cache and a 1,066MHz front-side bus will be priced in the $200 range.
Another source familiar with Intel pricing plans said pricing on the older Pentium 4 chips will be slashed, coming in at about $80 for some SKUs to fill a price point Intel has been missing in the past.
On the server side, one channel executive said Intel's pricing for the high-performance Xeon 5100 will not be far off current pricing for the Xeon 5000, code-named Dempsey, which was launched last month as a low-cost server option. This channel executive wondered how relevant Dempsey could be given Woodcrest's pricing schedule.
Some system builders believe Intel's decision to put the kibosh on some of its special pricing deals has to do with the July pricing schedule. With current pricing, there is only so much discounting that can actually be done, they said.
At least one system builder said the new discounting helps level the playing field with top-tier OEMs as well. "They have already cut prices 50 percent, how much lower can they go for Dell or anyone else?" he asked. "At the end of the day, they still have to answer to their shareholders."
One source familiar with Intel's pricing plans believes CPU price is only a small portion of the overall deal negotiated by the top-tier buyers. They haggle over heatsinks, pallets and other components that give them an edge in pricing the final system. System builders are interested in pricing available to top-tier OEMs such as Dell and Hewlett-Packard because of their aggressive pricing and advertising tactics.
Another manufacturer of custom servers said he expects Intel will still offer special pricing on large deals when it believes it can convert a new customer. These "meet-comp" programs are practiced by both Intel and AMD, he said.
STEVEN BURKE and SCOTT CAMPBELL contributed to this story.