Intel Corporation (INTC) Enjoys More Pricing Power In Server Segment

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Intel Corporation (NASDAQ:INTC) now commands a higher average prices for chips for server systems, $629 in the first quarter this year, compared to $429 in first quarter 2007. This marks a 47% increase in its price, according to Mercury Research. Given lower sales due to the declining PC market, Intel has adopted a power pricing strategy to compensate for the drop, says a report from the Wall Street Journal.

Intel enjoying near monopoly in PC chips

However, Intel Corporation (NASDAQ:INTC) denies any surge in the prices, and says that increase in customer’s preference for higher end models is the key to increase in the average. Mercury Research notes that Intel powers 97% of the servers sold today through its chips, which gives customers very little alternative.

In the wake of intense competition and gains in manufacturing efficiency, the prices of most of chips eventually decline. For instance, the average selling price of Intel Corporation (NASDAQ:INTC)’s chips for mobile computers dropped 33% to $88 over the past seven years.

Albert Mu, general manager of Taiwan-based Tyan Computer Corp., a unit of MiTAC International Corp, says, “the customer base is saying Intel is more reluctant to offer very competitive pricing, because competition is no longer there,” and adds that it is costing the industry a lot.

Big tech firm eying the segment

Advanced Micro Devices (AMD) has been an arch-rival of Intel Corporation (NASDAQ:INTC) for decades, but its hold in the x86 server chips is growing feeble with a market share of as little as 3%, compared to 25% in 2006. AMD and ARM claim that their chips will save both electrical power and space in data centers.

Big companies like Google Inc (NASDAQ:GOOG) (NASDAQ:GOOGL) and Facebook Inc (NASDAQ:FB) are finding it hard to ignore the astral chip technology segment and are making efforts to expand in that direction. Facebook, Dell and Hewlett-Packard are looking forward to using ARM-based options in the future. Recently, Amazon Inc hired chip engineers with experience in ARM circuitry and related technology to help develop its web service operations industry.

On the other hand, the search engine giant Google is collaborating with Tyan among others to popularize the chip technology developed by IBM for web data centers.There will certainly be a demand for chips to meet the unique Big Data computing needs of web data centers, and this competition is likely to help in the development of lower price standard processors.

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