Why are AMD K6 prices so low?
A. AMD’s state-of-the-art manufacturing facility in Austin, Texas (Fab 25) makes the AMD K6 processor using AMD’s 0.35 and 0.25-micron, five-metal layer process technology. AMD has invested more than a billion dollars in Fab 25, which is dedicated to producing x86 microprocessors. AMD needs to keep this plant output full to justify its investment, and this leads to aggressive pricing of the K6. AMD can also keep their production costs low thanks to the K6’s small die size. Because AMD is highly motivated to gain market share, it is willing to accept a much smaller profit margin than Intel. AMD has vowed to keep their prices 25% below Intel s. So far, they have kept that promise. Intel has been using this fact to their advantage by dramatically cutting prices on their parts, making it very difficult for AMD to remain profitable. Intel has executed this strategy very well because pricing pressure and manufacturing problems have caused AMD to post financial losses. Given the fact that the
