Goldman Sachs Conference: Price War Isn't Hell, Intel Finds

Price wars typically leave many casualties. But comments from Intel (INTC) suggest the giant chip maker isn't being seriously hurt in its price-cutting clash with Advanced Micro Devices (AMD).

Intel's financial chief, Andy Bryant, told investors Monday at the Goldman Sachs technology symposium that the Santa Clara, Calif., company was well prepared for the competition. He went on to say that no one should be surprised by Intel's aggressive pricing to regain market share in the low end.

Intel was once the undisputed leader in selling all kinds of chips. But as Intel focused on more profitable products, AMD snuck in and stole more than 50% of the cheap-chips market. Intel, determined to regain across-the-board leadership, began cutting prices to stem the tide.

The price war has come at tremendous cost to AMD. Last week the company forecast an operating loss in the current first quarter, knocking 46% off the stock in less than a month. But had AMD extracted its pound of flesh from Intel?

It seems the answer is no. "We said we wanted to take back the lower end, and we've had some success there," Intel executive Bryant said Monday. "It's all very consistent with what we said in early January."

Bryant said "the margin and revenue guidance we gave [last month] remain valid." In other words, business is good and the price-cutting is not squeezing profits. He said any losses from lower prices would be made up in volume, particularly in the higher end of the market.

Bryant says that, "but I don't buy it," said one investor who owns Intel stock. "He says Intel has announced these price cuts before but you had to read in between the lines. Intel says they want to regain market share, so you have to see that the only way to do it quickly is to slash prices."

Bryant also said he saw no impact on business due to year 2000 fears. "It may be happening, but we haven't picked up any Y2K related patterns yet," he said. He noted that different parts of the world were addressing the issue at different paces, which means that a slowdown in one area is often met with higher demand in another and keeping business buoyant.

To add more optimism to Intel's outlook, Bryant said the constraints that Intel saw in the beginning of the quarter are starting to ease and should be remedied this month. "Right now, we still have a problem, but we're much closer to being in balance across the product line," he said. "Customers who were upset with me are not quite as upset as they used to be. In the mid- to late-February time frame, we should not be constrained anymore."

So if business is doing so well, what does Intel plan on doing with all the profits it reaps? Acquisitions, the one area where Intel is proud to admit it's becoming more aggressive. "We'll use some of the cash to be more aggressive in acquisitions," he said. "The one area we are publicly talking about is in networking."

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