Six degrees (or more) of separation.
Price wars are seldom entered into out of spite or vindictiveness, but rather are the result of the convergence of circumstances at a particular time that dictate such action. Of course one could point to INTC's flash pricing a couple of years ago as the exception, but in reality that was probably a calculated move by INTC to restrict AMD's access to the capital markets.
In a way one could say that today’s pricing action by AMD is the result of a decision Jerry made better than 8 years ago. That decision to hire Dirk, Fred, and the rest of the old DEC gang resulted in the K6 first and then the K7, which in turn led to the need for a new fab, which led to the creation of fab30 with a design that allowed another fab to be built on the same location. Continuing on, the success of the K7 then led to the K8, which in turn led to the need for fab36 and ultimately to the situation AMD is in today. Namely, AMD has a new fab that needs to be filled.
Of course the completion of fab36 isn't the only reason for the current pricing environment. Other factors such as the timing of the INTC lawsuit which resulted in INTC calling off the marketing dogs from hell, and the clear superiority of AMD processors to the hot and power inefficient P4 contributed to the current pricing environment. Inevitably, increased consumer demand for AMD's processors plus the muzzling of INTC's marketing resulted in more OEMs using AMD's processors and the expansion of product lines into new areas. All of these circumstances combined with lower costs due to 300mm production have now dictated that the time is correct to trade ASPs for market share. This is notably happening at a time when INTC is most vulnerable, not having competitive product and unable to fully meet chipset demand.
As one can readily see the pricing situation AMD finds itself in today isn't an accident, but rather the culmination of a carefully orchestrated plan implemented over many years.
From the INTC point of view, I fully expected INTC to use its' dual advantages of 300mm and 65nm last fall to adjust prices in an attempt to regain market share. But as it turned out certain factors intervened that precluded that course of action. Among those factors was a very strong global market demand for processors. This would normally have been an aid to INTC in its' desire to reduce prices, but due to typical, incredibly incompetent planning of chipset production and probably 65nm bining problems INTC didn't have a surplus of chips. I bring up the bining problems as a possible reason why INTC wasn’t able to free up space in the older fabs for chipset production.
In any case the demand for INTC processors has been declining for quite some time now which was another reason INTC wasn’t too keen on lowering prices. Since there was no guarantee that increased production could be sold due to insufficient demand the logical thing to do was to try and maximize revenues and hope for better days in the future. Up till now INTC has been fortunate that AMD was capacity restricted or things would have been much worse. For AMD the party is just beginning.
I know I keep harping on the subject, but from the above it should be obvious that the most important items affecting AMD and INTC success has been the quality of the decisions the companies respective management have made. Without a doubt, for the last 10 years or so and particularly under Barrett's watch, INTC has made a whole sting of unbelievably bad decisions. If INTC's management had wanted to destroy INTC and hand AMD the keys to the gold mine it's doubtful that they could have come up with a more effective plan. The jury is still out on Otellini, but thanks mainly to Barrett he has a very deep hole to extract himself and INTC from.
AI
