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What’s the Possibility of Intel’s Resorting to CPU Price Cuts?

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Jun. 21 2019, Updated 3:39 p.m. ET

Could the CPU price cut rumor be true? 

DigiTimes recently reported that Intel (INTC) planned to slash the prices of its eighth- and ninth-generation desktop CPUs (central processing unit) by 10%–15%. Though Intel hasn’t confirmed the rumor, its previous announcements have signaled that it could resort to price cuts if need be. Let’s look at these announcements.

In April, Intel lowered its full-year revenue guidance by $2.5 billion, stating that it expects its PC-centric revenue to fall in the low single digits YoY (year-over-year).

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Intel’s Investor Day comments

At Intel’s 2019 Investor Meeting in May, CEO Bob Swan provided a three-year outlook stating that the company’s revenue is expected to grow in the low single digits, with its PC-centric revenue flat or slightly down between 2019 and 2021. He expects the company’s gross margin to contract below the ~60% average to as low as 57% by 2021 due to the increased costs associated with the accelerated ramp-up of future-generation products. Intel plans to launch its 10 nm (nanometer) PC chips later this year, its 10 nm server chips early in 2020, and its 7 nm chips by 2021. Intel is accelerating its road map to catch up with Advanced Micro Devices on the process technology front.

At the meeting, CFO George Davis admitted that competition had been affecting Intel’s ability to charge premium prices for its chips. When asked if Intel would resort to a price war with Advanced Micro Devices, Swan stated that it would be challenging for Intel to charge a higher price for the incremental performance.

The above comments indicate that Intel will not charge a higher price for its future-generation CPUs due to strong competition. However, they don’t rule out the possibility of the company’s resorting to price cuts to improve its competitiveness.

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