Advanced Micro Devices (AMD -6.08%) is breathing down Intel's (INTC -3.79%) neck. With AMD's Ryzen chips for PCs and EPYC chips for servers offering solid value, Intel's dominance in the CPU market is being slowly whittled away.

Already, Intel has done some price cutting, both directly and by introducing new models at reduced prices. For the PC, Intel introduced a new lineup of high-end X-series chips with significantly lower prices than their predecessors. For servers, Intel slashed prices for certain high-memory variants of its Cascade Lake chips.

On Monday, Intel did some more de facto price cutting by introducing new second-generation Xeon Scalable processors. These chips offer improved performance, but also substantially lower prices on a comparable basis. Intel didn't come out and say it, but the price reductions are a direct response to the success of AMD's EPYC.

Intel Xeon chips in front of a wafer.

Image source: Intel.

Improving performance-per-dollar

On average, Intel is claiming a 1.36-times performance improvement and a 1.42-times performance-per-dollar improvement compared to its first-generation chips. The company has added more cores, increased cache sizes, and raised frequencies. The new processors are split into three tiers: Bronze, Silver, and Gold. Intel's list prices range from $306 to $3,950.

At the high end, the Xeon Gold 6258R features 28 cores, a 2.7 GHz base clock speed, a 4.0 GHz boost clock speed, and 38.5 MB of cache. The comparison is a little tricky due to Intel's naming structure. As Anandtech pointed out, prices are unchanged when compared to the direct predecessor in terms of naming. But in terms of specifications, this launch represents a major price cut.

The Xeon Gold 6238R, for example, is very similar to the older Xeon Platinum 8276. Core count, frequencies, cache, and power usage are the same, with one major difference being the number of sockets supported. The $2,612 list price for the new Gold chip represents a price cut of about 70%. Not quite apples-to-apples, but pretty close.

Solid data center performance, but the threat is very real

For the moment, Intel isn't feeling any real pain from AMD's resurgence. In the fourth quarter, the semiconductor giant reported a 19% rise in sales for its data center group. On a year-over-year basis, unit volumes were up 12%, while average selling prices increased 5%.

But Intel's move to lower prices is a clear sign the company is worried about the competition. According to Anandtech, "Rival AMD's second-generation EPYC processors have Intel beat in almost every metric, offering better performance and greater energy efficiency, all at lower prices."

Because decisions are made slowly when it comes to enterprise IT, AMD has been slow to win significant share in the server chip market. In the fourth quarter of 2019, AMD claimed a 4.5% unit share. That's up 1.4 percentage points year over year, and the highest share for AMD since late 2013. But it's still peanuts compared to Intel's dominant position.

If Intel doesn't act now by closing the price-to-performance gap with AMD, it runs the risk of customers eventually switching over to AMD products. This de facto price cut is aimed at making sure its current customers don't defect.

Intel's profitability may take a hit from lower pricing, but this is a necessary move to protect its market share.