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Friday, July 28, 2006

Intel's New Chips Can't Fix A Broken Industry

Stocks: (INTC)(AMD)(DELL)(GTW)

Intel's new Core 2 Duo chips are a marvel. The deliver more processing power, use less battery power, and throw off less heat. But, as gun owners will tell you, people get killed as often with a 22 caliber as with a 45 model. The market may not want a better chip.

Intel cut the prices on its older chips as much as 61%, which hurts competitor AMD, but does not necessarily help Intel. The PC manufacturers are squeezed. Companies like Dell, Lenovo, and Gateway are desparate to increase sales and margins, and a chip that is a better mouse trap may not be the solution.

PC companies that want to improve margins want the old chips at a 61% rake off, not an expensive new chip that most consumers cannot tell from the Pentium 4.

Dell may have wanted AMD chips when they had better performance that Intel's. But the new Core 2 Dual can run as much as $999, and that may not be much help to a manufacturer pressured ny margin problems.

Don't look for the Core 2 Dual to save Intel's bacon. Nice product, but how many people really want it? Maybe that's why Intel's stock, trading near its 52-week low at $17.60 is only up 1% on the product launch.

Douglas A. McIntyre can be reached at He does not own shares in companies that he writes about.

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