More emerges on Intel flat pricing

It isn't so much flat as it is flat tiers, it mainly gets rid of the spot incentives that lead to the grey market.

To paraphase one person who is in a position to know, when asked about pricing Dell the same as Al's Breakfast and CPU Emporium, he/she/it said roughly, "You just don't do that to them". Fair enough. He went on to say that what the channel pays a hair under $300 for, the mid-tier players pay under $250, and Dell, HP and IBM types pay that same hair under $200. The numbers work out that the big guys pay around 60 per cent as much as the little guys for mainstream CPUs, but that may move a lot depending on the chips.

So, what Intel has done is end spot discounts for everyone, so they should pay the same all the time.

How does this affect the grey market? Well, imagine that there is a large company, let's just make up a name, 'HP' for instance. This company has a huge wad of CPUs, and the quarter is about to end, so these will be on the books as a negative. Say this theoretical company 'HP' does not want the year to end with said dead weight, so they blow them out at fire sale prices, causing much embarrassment to Intel in a quarterly conference call a few weeks later. This is bad for Intel.

Now, say you are another hypothetical company - lets call this one 'Dell' -and you get an offer that if you buy a set amount of CPUs, you get a discount on everything for the quarter. With a few weeks left, if you spend an extra $50 million on CPUs, the total cuts amount to $100 million for the quarter. A quick bit of maths says it is worth it even if they have to go to the landfill with those CPUs.

You do it, and send the CPUs out the back door at any price you can get quickly, say $25 million. Smaller vendors are suddenly very happy, they get CPUs at half what Dell pays if they buy a lot. Sold! Dell pockets $75 mil, and Intel is out the sales that the little guys would have bought at a much higher price. Dell wins, little guy wins, Intel sucks it down.

This whole grey market is not a universally bad thing, however. If Intel decides Via or SiS is getting uppity, it bundles chipsets with chips in short supply. You can either wait a month, or buy as many as you want today with a chipset. Suddenly, there are a few million chipsets on the market that no one wants, but Intel was paid near full price for. What does the person with a warehouse full of these chips do? Blows them out however they can of course, and drives the price of chipsets down for all competitors.

So, it is a double edged sword for Intel, a weapon for and against. Intel wants to get rid of the against, so it is cutting out the 'crazy Eddie' pricing schemes. If the big boys pay the same regardless of how many they buy, there is no incentive to play the spreadsheet games that end up biting Intel in the end. Magic with only a lot of enmity, but that always fades with time.

The problem here is what happens when Intel finds it needs to make a quarterly target, how does it sweeten the pot? The short answer is it doesn't directly under this scheme, but I am sure there are less direct ways to accomplish the same thing.

Let's see how long this all lasts. µ