Intel's Conroe processor roils chip market

Intel plans to launch its 'Conroe' chip for desktops Thursday, triggering a cascade of steep price cuts in the chip market.

Intel is planning to launch its "Conroe" chip for desktops this week, triggering a cascade of steep price cuts in the chip market and a raft of new PC designs.

Dell will launch a series of desktops and workstations powered by the Conroe Core 2 Duo chip, and Gateway will use the chip in its high-end FX510 desktop PC, designed for gamers.

Anticipating a marketplace battle, chip-making rival Advanced Micro Devices (AMD) slashed prices Monday on some models of its Athlon 64 X2 desktop processors by as much as 57 percent.

AMD also cut prices for its Turion 64 notebook chips to make them more competitive with Intel's "Merom" Core 2 Duo chip, which could also launch this week.

AMD hopes those price cuts will preserve its growing share of the market for desktop PC chips. AMD's market share by units sold has risen from 19.1 percent in the first quarter of 2004 to 20.6 percent in the first quarter of 2005 and 24.7 percent in the first quarter of 2006, according to research firm Gartner.

The rest of the market belongs to Intel, with IBM hovering between 1 percent and 2 percent.

As it struggles with layoffs and slumping profits, Intel has been promising investors that it had a silver-bullet solution -- its new family of dual-core chips.

They will replace Intel's former flagship Pentium line, trading lower clock speed for better power draw and faster productivity, thanks to a dual-core design.

The first member of that family, the Woodcrest Xeon 5100 chip for servers, launched in June. Now Intel is set to unveil the desktop and notebook versions.

The launch of Conroe will also make waves in other corners of the PC marketplace. Intel is expected to cut prices on Pentium chips, selling them cheaply enough to win share in cost-sensitive emerging markets.

Both AMD and Intel have staked their success on this contest. The price war has already hurt both companies, as each missed earnings estimates when they announced second quarter results last week.

One challenge faced by Intel is ramping up production fast enough to meet demand. If the company doesn't reach peak production until the fourth quarter, it would miss the back-to-school season, said Nathan Brookwood, an analyst with Insight64.

"For the last few months, they've been dissing their Pentium 4 architecture chips, saying 'Just wait until you see the new one.' But are they in a position to open the floodgates and ship enough Conroes so people don't need to buy that chip?"

When it does arrive, Conroe will make Intel much more competitive on desktops than it has been for the last few years. That will have an impact on AMD's sales, but not enough to force AMD back to its position as a niche player with single-digit market share, Brookwood said.

The two-player chip market is here to stay.

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