Intel (INTC) is starting to make good on its promise to price its CPUs more aggressively as it contends with tougher competition from AMD (AMD) .
On Tuesday, the chip giant unveiled four new Core i9 CPUs for workstations and high-end desktops. The chips are codenamed Cascade Lake-X, feature between 10 and 18 cores and will ship in November. They rely on the same Skylake microarchitecture as the prior-generation chips (codenamed Skylake-X) that launched in the fall of 2018, and also rely on the same 14-nanometer (14nm) manufacturing process node. As a result, it looks as if the chips will deliver only moderate performance gains relative to comparable Skylake-X parts, courtesy of slightly higher base and turbo clock speeds and a handful of other enhancements.
However, when it comes to price-performance, Cascade Lake-X delivers major improvements relative to Skylake-X. Whereas the four Skylake-X chips that can bear the closest resemblance to the Cascade Lake-X chips that just launched were priced between $989 and $1,979 at launch time, Cascade Lake-X CPUs are priced between $590 and $979.
It's hard to ignore the fact that Intel's move comes ahead of the expected November launch of third-gen products for AMD's Ryzen Thradripper workstation/high-end desktop CPU family. As it is, with the help of large core counts and aggressive pricing, Threadripper has been making headway over the last couple of years in a market segment that Intel has historically dominated.
AMD's second-gen Threadripper CPUs, which launched last year at prices between $649 and $1,749, feature between 12 and 32 cores. Moreover, as AMD has rolled out its first third-gen Ryzen desktop CPUs this summer, prices for some Threadripper chips have fallen sharply. AMD's 12-core Threadripper 2920X CPU now sells for just $380 on Amazon, while the 16-core Threadripper 2950X sells for $699. For comparison, Intel's 12-core and 14-core Cascade Lake-X CPUs are respectively priced at $689 and $784.
This isn't an apples-to-apples comparison, since Cascade Lake-X will (like Skylake-X) have a meaningful edge on second-gen Threadripper when it comes to instructions processed per CPU clock cycle (IPC). But it does drive home the extent to which Intel had no choice but to start pricing a lot more aggressively, even if one assumes the company can maintain some kind of premium thanks to its brand power and the loyalty that some of its long-time customers have.
Meanwhile, AMD's upcoming third-gen Threadripper launches could allow it to retain a healthy price-performance lead heading into 2020. Like AMD's third-gen Ryzen desktop CPUs, third-gen Threadripper parts will rely on a 7nm Taiwan Semiconductor TSM manufacturing process, which provides sizable improvements in transistor density (this enables higher core counts and a lower price per core) relative to the 12nm Globalfoundries process used for second-gen Ryzen and Ryzen Threadripper CPUs, as well as performance and power efficiency gains. They'll also rely on a revamped CPU core microarchitecture (known as Zen 2) that provides a double-digit percentage improvement in IPC.
The workstation/high-end desktop market might not be the only one in which Intel, which has ceded its historical manufacturing process lead to TSMC amid delays in commercializing a 10nm process node that's competitive with TSMC's 7nm node, is starting to price more aggressively. Recently, Mizuho analyst Vijay Rakesh reported that his firm thinks Intel is now providing discounts of up to 15% to 25% for its (14nm) Xeon server CPUs to certain U.S. cloud giants (i.e., hyperscalers). That's up from discounts of 10% to 15% during the first half of 2019, and about 5% in 2018.
Rakesh, who maintains a Buy rating on Intel and a Neutral rating on AMD, did indicate that such discounting isn't taking place with other Xeon buyers. But given that cloud giants tend to be faster than other service providers and traditional enterprises when it comes to adopting new server CPU platforms, and given that Intel's reported discounting follows the August launch of AMD's second-gen Epyc server CPUs (codenamed Rome), it could be a sign of things to come.
Rome, which also relies on 7nm and Zen 2, delivers major performance gains relative to AMD's first-gen Epyc CPUs, which launched in mid-2017. And while performance can vary a lot from one workload to another, third-party benchmarks often show Rome CPUs soundly beating chips from Intel's latest 14nm Xeon family (codenamed Cascade Lake) that have similar list prices.
It might also be just a matter of time before Intel starts pricing more aggressively in the sub-$500 desktop CPU market. AMD's third-gen Ryzen desktop CPUs, which have seen a pretty favorable reception, often claim a solid price-performance edge on comparably-priced Intel desktop CPUs, at least when it comes to workloads involving multiple CPU threads. AMD's 12-core Ryzen 9 3900X CPU, which has a $499 list price, has been sold out at many retailers and has often been selling at healthy premiums on eBay and Amazon's marketplaces.
Moreover, while Intel recently began shipping 10nm notebook processors and has promised to ship 10nm server CPUs in volume during the second half of 2020, it hasn't yet shared when 10nm desktop CPUs will arrive.
Those tuning in to recent Intel investor events might not be stunned to hear the company is stepping up its discounting. During Intel's January Q4 earnings call, CEO Bob Swan said his firm will "fight to protect our market share position" amid tougher competition, and indicated that this would affect Intel's CPU average selling prices (ASPs).
Separately, during Intel's May Investor Day, the company guided for its non-GAAP gross margin, which was at 63.8% in 2018, to be in a range of 57% to 60% from 2019 to 2021, with a 57% GM expected for 2021. Costs associated with Intel's 10nm ramp and its subsequent 7nm ramp are expected to weigh on margins, but so is ASP pressure.
Intel deserves credit for not ceding market share to AMD without a fight, as it contends with a difficult manufacturing tech position in the desktop and server CPU markets. And certainly, consumers and businesses stand to benefit from how Intel and AMD are each pricing their newest offerings in these markets. However, Intel's traditionally-high margins appear likely to take a hit along the way.
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