Intel Just Created a Big Problem for AMD

Semiconductor giant Intel (INTC -2.42%) is in the middle of an existential crisis. The company lacks a permanent CEO, its foundry-centric strategy is up in the air, market share losses are stressing financials, and its artificial intelligence (AI) chip efforts have largely floundered. While a lot is going wrong for Intel, the server CPU business is one area where the company has made legitimate progress. Rival Advanced Micro Devices (AMD -0.73%) leapfrogged Intel a few years ago with its Genoa family of chips, trouncing the market leader in core count, performance, and efficiency. It's taken a while, but Intel finally came up with an answer last year with its Granite Rapids server CPUs. Granite Rapids is a critical product for Intel. The chip family finally moved the company's mainline server CPU products from the aging Intel 7 manufacturing process onto the more advanced Intel 3 process, a shift that brought with it significant performance and efficiency gains. Intel was able to up the maximum core count to 128, doubling the core count of its predecessor, and reviews indicated that Intel had largely caught up with AMD in terms of performance. A surprise price cut One somewhat surprising thing about the Granite Rapids launch was the pricing. Intel decided to go big, setting the pricing for the flagship model at the highest level ever for an x86 server CPU. Given that Intel was still playing catch-up, this pricing decision was either a sign that Intel was extremely confident in Granite Rapids, or an indication that the company hasn't accepted that the competitive landscape is very different today than it was a few years ago. Tom's Hardware reported earlier this week that Intel had drastically slashed the listed prices for Granite Rapids CPUs without any formal announcement. The flagship model is now listed at $12,460, a full $5,340 less than the original launch price. Other models received price cuts as well, bringing pricing below comparable AMD alternatives. Notably, the price cut has brought the price per core on the highest-end Granite Rapids chips far below AMD's top-tier chips, making Granite Rapids an attractive proposition for customers building out densely packed cloud data centers. There are a few ways to interpret this price cut. First, Granite Rapids may not be selling as well as Intel had hoped. While the product family looks like a winner, the pricing was elevated and could have driven customers away. Intel is set to report its quarterly results on Thursday, so hopefully the company will provide an update. The second way to interpret this move is that Intel is taking aggressive steps to win back market share. The company is still the leader in the server CPU market, but AMD has made enormous gains over the past few years. AMD's x86 server unit share stood at 24.2% in the third quarter of 2024, up from just 6.6% in the third quarter of 2020. The truth may be a combination of the two. Slashing prices could hurt Intel's margins, but that's not a foregone conclusion. Because Intel manufactures Granite Rapids in-house on its Intel 3 process, if the price cut boosts unit sales and improves utilization rates in the company's fabs, profit margins may not take that big of a hit. Intel 3 is a process that Intel offers to foundry customers, and it's possible that the company has excess capacity that it needs to fill. Blunting AMD's momentum No matter the reason for the price cut, Intel's latest server CPUs are now far more attractive compared to AMD's. AMD outsources manufacturing to TSMC, so if the company were to cut prices in response, it would eat into its profit margins. One thing to remember, though, is that the list prices for Intel and AMD server CPUs are not what large customers are actually paying. Rather, they're a ceiling. Intel may have been giving large discounts to cloud computing customers all along. Regardless, it looks like Intel is taking off the gloves as it tries to get its data center business back into shape and win back some of the market share it's lost over the past few years. With a solid and competitive product lineup, aggressive pricing could be just what the company needs to turn things around.