Advanced Micro Devices Inc (AMD)

[bobs10]

Oh I see. No wonder you are so bullish on AMD. Since you've boiled it down so easily, I'll do the same. During the same time period, I see AMD suffering from inferior designs, an inferior process, and a huge overcapacity problem. They will try to drag Intel into a pricewar, but it will be theirs to lose.

Me...

Yes, the likelihood of a price war and its results are what I'm primarily interested in. Both companies are going to have a lot of extra capacity on their hands that's going to have to go somewhere.

You've already stated your belief that INTC is soon going to catch up to AMD in the design area. And you have mentioned more than once that you think INTC has solved the design problems that lead to the process problems. Further you seem to believe that all the INTC minions will remain DELL-like loyal no matter what happens.

Frankly, I find it touchingly naive to expect that one of the three assumptions will prove correct let alone all three. But then you guys have your own world you live in so anything is possible.

The way I look at it INTC feels threatened like never before. Further, the way INTC seems to look at AMD is as a usurper worthy only of INTC's contempt. Kind of like AMD is stealing nickles from the tooth fairy. As a result, like this discussion, there is probably little common ground that would interest either party. In fact one might say that AMD has been preparing for this fight ever since the Athlon and fab30 were conceived.

Back in the Athlon days I remember an article in the Inquirer, (I think) that talked about a red light Barrett had in his office that glowed anytime AMD got over 20% market share. It was as a direct consequence of that experience that INTC enacted the dirty tricks AMD is suing them for today. That loss of market share girded INTC like no other event so there is no way that INTC is going to let it happen again if they can do anything about it.

Obviously, given the relative market shares and similar cost structures INTC would have the most to lose in a price war, but because of its' superior fiscal condition INTC has the resources to stand a lot of pain. The trouble is that AMD and INTC don't have similar cost/profit structures.

Traditionally AMD has charged less for its' products and made less profit while INTC has charged more and made more profit. This sort of arrangement suited INTC just fine and AMD had little say in the matter as long as it was a one trick pony. However, starting a couple of years ago AMD turned things upside down first in the server/workstation areas and lately in the laptop area. I won’t get into the reasons AMD was able to pull off such a coup, but suffice it to say that the result was a leveling of the profit field.

So what we're seeing today is a rush to ASP parity largely because of the inability of INTC to fix the problems WBMW seems to think INTC will soon resolve. This at a time when INTC and AMD are soon to be looking for new outlets for their soon to be excess capacity.

According to IN-Stat INTC's cost per chip averages $40.

http://www.networkworld.com/news/2005/091405-intel-chips.html

While I have no figures pro or con to dispute that amount I assume AMD's 90nm costs are similar. Given the 300mm advantage INTC has had at 90nm one would have to conclude that AMD will be at least as competitive at 65 nm. This is especially true if INTC fails to deliver on the agenda WBMW is so sure INTC has fixed.

So the way I see it AMD goes into the fight in the best shape of its' career, with the best products and ASPs it could only dream about a few years ago. I still remember Jerry getting tears in his eyes as he wistfully talked about $100 ASPs. INTC on the other hand goes into the fight of its life with a paunch and a wheeze that confirm serious health problems.

INTC may take the first few rounds but the fight is 15 rounds and by the end of the 6th INTC should be totally out of gas and getting pummeled severely.

To summarize:

INTC will not fix all the problems that have lead to the current situation in time for the fight. INTC's ASPs will continue to fall as AMD's rise(AMD will continue to expand its' presence in the high profit markets while INTC continues to lose share in those markets). AMD will continue to extend its' relationships with the OEMs and channel suppliers. AMD will take more and more market share.