Channel to suffer as price war continues

Channel to suffer as price war continues

In a move to apply the blowtorch to its low-end competitors in the PC market, Intel has announced another cut to its Celeron chip prices, but the real victim could be the channel according to IT analysts.

Bernie Esner, senior analyst of desktop systems at IDC, believes that at a global level - with the big vendors moving into Australia and reducing prices - the extent of these cuts could be "the final nail in the coffin" for decent margins for the channel.

"Price wars are part of the climate at the moment," Esner said. "Sure anyone can gain market share if they're willing to drop prices to any level, but from a business point of view it's not sustainable. It just leads to further market instability."

Set to be announced on February 28, Intel's price cut has been brought forward to win back market share from rival chipmaker Advanced Micro Devices (AMD).

However, AMD is looking to expand its focus on the limited low end of the market so that such manoeuvres do not make them vulnerable. "Intel has a price grenade with the low-end PCs that they can drop anytime," said Steven Fraser, AMD business development officer for Australia and New Zealand. "So as a strategy we're moving our product range closer to Intel where we can compete at both the high end and low end of the PC market."

With AMD facing a possible first-quarter loss, Fraser says the company has been investing a lot in developing market share through products and the business resulting in a short-term "strategic loss".

Esner claims "vendors don't seem to be looking at the end user", when initiating price cuts.

"Cutting prices doesn't necessarily relate to increased sales; if anything, I think it stalls people's purchasing with the sheer volume of choices and prices available," he said.

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