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The economic slowdown is hurting everyone, but if you are a chip company with deep pockets, the recession can be your friend.

Intel announced Tuesday that it plans to accelerate its production of 32-nanometer processors and cancel some of its 45-nm integrated graphic chips in a bid to increase its lead over rival AMD. At the same time, Intel is cutting prices, betting the move will coax reluctant consumers to open their wallets. The two moves are a one-two punch that AMD, whose annual revenues are one-sixth of Intel's, will have a hard time matching.

"It's a form of stimulus package for the worldwide demand for processors," says Shane Rau, an analyst with research firm IDC. "Intel is showing that it can invest through the downturn and be ready when the demand returns."

Intel is reportedly cutting prices up to 40 percent on its older processors, a move that many have interpreted as a sign of economic pressure.

That's just one part of the strategy, say Intel executives, touting the chip giant's plans to invest $7 billion to upgrade its 32-nm–chip manufacturing facilities in the United States. And it has accelerated its schedule to have those chips for notebooks and desktops in production in the fourth quarter of the year, says Steve Smith, vice president at Intel.

Worldwide microprocessor shipments fell significantly in the fourth quarter and are likely to decline further in the first half of this year, says IDC.

Intel has felt the pain. In January, the company said it will close four assembly and test facilities internationally and lay off about 6,000 people. But analysts such as Rau see those announcements as Intel's short-term reaction to slowing demand.

Intel's long-term bet is its decision to scrap its 45-nm processors with integrated graphics, codenamed Havendale and Auburndale, in favor of more-advanced and faster 32-nm processors.

Intel started shipping its 45-nm chips more than a year ago. In November the company said it is set to release a desktop version of the 45-nm chip called Core i7.

Now Smith says Intel has "de-prioritized" the 45-nm technology family and will instead focus on 32-nm products, whose family codename will be Westmere. The first 32-nm chips will be in production later this year, including the dual-core chips codenamed Clarkdale and Arrandale. Intel also plans to have 32-nm quad-core chips (Lynnfield) next year.

"We are hoping consumers will be motivated to buy these," says Smith. "It is good products that lead us out of the recession."

AMD won't have a desktop chip comparable to the 45-nm Core i7 until next year, and its 32-nm chips are not expected until 2011.

"By transitioning to 32 nm aggressively Intel is pressing its advantage competitively," says IDC's Rau. "Now instead of competing against AMD or others, Intel is effectively competing against itself and the market forces."

See also:

AMD Fields New Chip, Battles for Survival Against Intel

Photo: Jon Snyder/Wired.com