Intel's chip glut could lead to price cuts for Christmas

WHILE AMD is having difficulty, providing chips to its channel, Intel and Texas Instruments have too many on hand and might be forced to make price cuts.

According to Bloomberg News , Chipzilla was sitting on more than $4.48 billion in stockpiled chips at the end of September, which is up 59 percent on last year. Texas Instruments, which makes processors for mobiles, had more than $1.4 billion in spare chips which is 28 percent more than it had to play with last year.

Analysts say that the only thing the two chip makers can do is reduce their stockpiles over the Christmas holidays by cutting prices.

While this may be bad news for the bottom line of the chip makers, it is great news for those wanting to buy cut-price chips for Christmas.

It will also have a knock-on effect in the battle against AMD. As we reported yesterday, AMD has just given most of its spare chips to its new chum Dell and is finding itself short for its regular channel.

This means that Intel will be in the unique position of flogging chips that are much cheaper than AMD, who might even be forced to raise its prices because of the shortage.

However, Intel does not really like this idea because its shareholders hate the idea of price cuts eating profits.

Chief Financial Officer Andy Bryant told analysts recently that the record inventory was built up to make sure the company has enough of its new Core 2 Duo chips to meet expected demand.

The implication was that Intel was banking on a huge boom in sales after Microsoft releases Vista.

Bryant might be right, but it's unlikely the industry is buying that as an excuse for stocking up too much. What is more likely is that chip makers still have not worked out how to assess demand correctly, either making too many or too few chips.

Looking at some analysts predictions, it looks like the glut in computer chips will continue well into the second quarter of next year. µ