Featured Story: Multi Core, Price Drops – How Will the Market React?

Sunday, 15 April 2007 18:00

Multi Core, Price Drops – How Will the Market React?

Todd Traylor

• Impact of Dual-Core to Quad-Core Migration
• Intel and AMD April Price Drops

The release of Intel and AMD first generation quad-core processors, and price drops which took effect April 9 for AMD and April 22 for Intel have created ripples rather than the big waves in the open market that are traditionally associated with new product introductions and price changes. Following are some thoughts on how past CPU introductions compare to this latest push to quad-core technology.

With the quad core processors, there are now dozens of new chips that support a wider variety of specialized capabilities (battery optimization for mobiles, desktop versions with an equal mix of efficiency and optimized interaction with graphics chips, and more). The result is that PC OEMs are offering specialized machines with specific capabilities and target markets. While this offers the consumer greater choices, CPU manufacturers may face more variable demand product by product, making production planning and inventory management more challenging; especially if CPU product life cycles continue to shorten.

The April Price Changes

Price change announcements generally impact open market demand in one of two ways: either an abundance of excess components hits the market as manufacturers attempt to clear their inventories of more expensive product, or brief shortages occur as manufacturers scale back direct ordering to buy at the new lower price. Open market activity for dual core processors has been limited. This could be the result of OEMs holding out for lower prices or waiting for the introduction of the quad core family. Additionally, since dual core processors have not been available for very long, there is not as much excess being offered as the price reductions are taking place.

Intel and AMD have traditionally employed a cascading price strategy, in which the newest technology is released at the highest price points while previous models’ prices are reduced. There will likely be a similar effect as the release of quad core processors drive dual core models down the pricing scale. This will allow early adopters to integrate quad core technology into their systems, and also allow dual core models to reach the masses with more favorable pricing.

Consumer Demand for Vista and Dual Core Features

Meanwhile, projections of increased PC demand from the Microsoft Vista launch have yet to materialize in a meaningful way. Some speculate that consumers may be waiting for corporate clients to adopt Vista before they purchase new systems for personal use.

Home users also do not yet seem to be aware of the benefits of systems that use multi core technology. These benefits include improved multitasking (AMD uses the term ‘mega-tasking’), such as being able to stream video, download pictures, upload music, surf the Internet, run a virus scan, and create a document or spreadsheet simultaneously without a drop in performance.

Open Market Outlook

A surge in demand for PCs with Vista and dual core technology may not be as unlikely as some media reports indicate. As we have seen a number of times in the past, the exact point new technology takes hold in the marketplace is difficult to predict. But what we have also seen is that our customers who do the best job of reacting quickly to a pick up in activity tend to be the big winners. While Intel and AMD have been doing a good job of meeting current market demand for their products, this could change quickly if particular products take off.

Weeks or months into a new activity cycle, we frequently read about the success of the first-movers who secured critical parts or sold off less desirable components for their product lines in open market transactions. It is not always easy to distinguish first-mover activity from normal open market adjustment of inventory positions, but when demand becomes more broad-based, the more aggressive customers who locked in supplemental supply are usually the best positioned.

If you need open market insight for components that are particularly important to your production plans, please contact your Smith account representative.

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