Why Won't Intel Kill AMD?

You've heard all about Intel (Nasdaq: INTC  ) killing its only rival, Advanced Micro Devices (NYSE: AMD  ) , in the high-end part of the processor market. Nehalem-class chips are pretty much untouchable in a fair fight, and AMD's Istanbul chips are putting up a fight only by essentially putting more chips into the same processor package.

But it's a very different story in the lower regions. Reviewing AMD's latest slab of budget-friendly processors, longtime industry observer AnandTech noted that AMD is "killing Intel" below the $90 price point. Compared to Intel, the reviewer would take AMD's new three-core chip -- but it's not the best deal AMD can offer. The gaming gurus at FiringSquad concur: "Obviously Intel's willing to concede this business to AMD for the time being," and "you'll just have to pick which value AMD CPU to choose from."

Intel could become more competitive in this space by simply dropping the price of a few strategically chosen processors -- but that has arguably been the case for a while, and Intel ain't going there. In part, I'd imagine that Intel wants to protect its nice, fat gross margins by keeping unit prices on the high end. That strategy also reinforces Intel's image as a luxury brand next to AMD's budget proposition -- a tactic that has worked well for Apple (Nasdaq: AAPL  ) against cheaper but not always worse offerings from Hewlett Packard (NYSE: HPQ  ) , Lenovo, and Dell (Nasdaq: DELL  ) . Image and branding makes a difference when you're talking about consumers.

Then again, Intel's pricing plans could be designed to keep antitrust regulators at bay. AMD and Intel are playing a high-stakes game of whodunit in courtrooms and government agencies around the world, and Intel would be silly to give its prosecutors fresh ammunition today. Yes, price changes are an everyday tool for every business. That's not important; it's the perception of strong-arming the competition that Intel needs to avoid.

That's how these reviews illustrate one reason why I believe that AMD will be around for years to come. At worst, the company could be buyout fodder for longtime partner IBM (NYSE: IBM  ) or hungry multinational giant Samsung, but that's no disaster. Many investors would happily settle for the mandatory buyout premium. And in the meantime, AMD remains unmatched in a high-volume (albeit low-margin) market segment.

That's good enough for me. How about you? Share your thoughts in the comments below.

AMD's share price has nearly tripled since Anders explained that you need AMD in 2009. Fool contributor Anders Bylund owns shares in AMD, but he holds no other position in any of the companies discussed here. Apple is a Motley Fool Stock Advisor recommendation. Dell and Intel are Motley Fool Inside Value recommendations. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


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Comments from our Foolish Readers

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  • Report this Comment On October 20, 2009, at 4:03 PM, TEBuddy wrote:

    Ummm....Shanghai is only competitive by using more cores??? Is that an expert analysis? Did I just read that the next great supercomputer for nuclear research is using over 2000 AMD Shanghai cpus, is that possibly because of its uncanny performance, extreme memory bandwidth and awesome efficiency?

    The Nehalem is Intels attempt to copy AMD's architecture and I believe they are trying to get away from it as soon as possible. Look for Intel to kill its own Nehalem in less than a year for a more well thought out architecture like AMD has.

  • Report this Comment On October 20, 2009, at 4:07 PM, TEBuddy wrote:

    Sorry I meant Istanbul that author referenced

  • Report this Comment On October 20, 2009, at 4:22 PM, austec wrote:

    Does anyone have any thoughts on why the FTC refuses to do anything about the illegal/exclusive rebate strategy that Intel was using to keep AMD from gaining substantial market share (particularly a few years ago when AMD was kicking Intel's Netburst arse)?

    Even HP refused to accept FREE CPUs from AMD, because they feared Intel's verbally-declared threats of retribution. Intel has been so dirty, yet regulators do nothing. The evidence is damming, yet nothing! It seems that antitrust regulation has been just as bad as bank regulation in the last decade. Perhaps FTC staffers are getting "rebates" from Intel? haha!

    Intel will make sure that AMD stays big enough not to die, yet small enough to not gain market power. It's like mowing your lawn every week.. You need to keep it short but not kill it.

    Otellini is no different than those financial cronies who believe that "Might is right as long as you don't get caught".

  • Report this Comment On October 20, 2009, at 4:26 PM, Redwood1205 wrote:

    The reviews are confusing and foolish. The case is actually the opposite. Take Anandtech for example. In the most important SYSMark 2007 benchmark the $113 Intel Core Duo E7500 closely follows the Phenom II X4 which sells for $245. Below that the old $74 Intel Pentium 6300 slightly outperforms the new $122 Athlon II X4 630. The relative performance is slightly better for the AMD quads in multi thread apps but the Intel processors overall have far better price/performance.

    Wait until Intel 4 threaded-dual cores hit the market in Jan. AMD will not be able to compete in desktop against these or Atom processors. It will indeed be over for AMD.

  • Report this Comment On October 20, 2009, at 4:35 PM, Inept wrote:

    On the bright side for AMD, they offer the best bang-for-buck graphics cards presently available and the top performer in the market as well, I believe. I'm not 100% clear on whether they will indeed spin off their fabs, but if they do they have a solid IP business in place. AMD doesn't offer the best performing CPUs but they have plenty to offer. They just can't make money manufacturing it.

  • Report this Comment On October 20, 2009, at 4:36 PM, asH95 wrote:

    I think most folk can’t see the potential paradigm shift of the direction AMD is moving, all the while remaining consistent to their eccobeliefs- "less power more production". Their Opteron multicore processor stresses low power with multiple cores- I think it’s clear looking at the Opteron and their other recent chips that AMD is not competing with Intel for the top speed honors or the fastest Giga chip. We have also seen perhaps closer relationships between AMD Apple, AMD Microsoft directly connected by AMDs graphic card products 4000 series, OpenCL, directX11, direct Compute... The giga-chip wars are over, AMD has been preparing for the end-of-day future is now, for a while now. It’s no longer about pumping the power of the CPU, because all the processing power one ever needs goes unused; we've all had this river of untapped processing power in our computers for some time now. The power is in the GPU; coupled with current low watt multicore processors, while using OpenCl, DirectX11, direct-compute, CPU-GPU becomes both a reality and the dragon slayer at one time. The second stage is the bonding between GPU & CPU, the all in one Llano

    On another note- I personally don’t believe Larrabee will be developed in time, if at all work as promised. I belive they were late in seeing

  • Report this Comment On October 20, 2009, at 5:05 PM, Redwood1205 wrote:

    I think Intel is moveing faster in the direction of low power for a given performance ie. faster performance per core at a given clock, hyperthreading, turbo boost and most importantly hi k process technology with lower power. AMD is behind in all of these. Intel has both dramatically increased performace and reduced power. To just stay in the game, AMD has had to run its processors hot, use more die area to make them and discount them heavily.

  • Report this Comment On October 20, 2009, at 5:06 PM, memoandstitch wrote:

    Intel can't kill AMD simply because AMD is backed by Abu Dhabi, one of the largest sovereign wealth funds in the world. All these pricing/market share wars are about maintaining the status quo.

  • Report this Comment On October 20, 2009, at 5:56 PM, asH95 wrote:

    Hyperthreading, Turbo boost and all that technology in the i7's i5s, are the reasons Intel cant drop the price..extreme reduced margins, they are stuck. All with much higher R&D money going into Larabee

    asH

  • Report this Comment On October 20, 2009, at 7:31 PM, chezwhiz wrote:

    so, is AMD still a good buy?

  • Report this Comment On October 20, 2009, at 8:08 PM, Redwood1205 wrote:

    Once Intel is all I7,I5 and I3 at even lower per die costs how does AMD sell. They will not be able to give their products away.

    Abbu Dhabi doesn't give a hoot about AMD. After all the losses and capital calls, they will own Global Foundaries outright and merge into Charter. How long do you think they will sell AMD processors at just above manufacturing costs. This is all just a big scam on AMD shareholders

  • Report this Comment On October 20, 2009, at 9:30 PM, TEBuddy wrote:

    Most of the commenters are very ill informed about what benchmarks are important and how the Intel processors actually perform. All just Intel fanboys and shareholders.

    AMD beats in price for performane and performance per watt every day, and you do not have the data to dispute it, so don't say it. Regardless of the highest speed of whatever, AMD cpus can still do more work, regardless if your one app runs faster on the single thread, which makes like 0.3% of the people that have computers happy to know.

    People make foolish claims about Intels next thing is going to kill AMD, thats a big fat NO. Intel wants to get away from Nehalem as fast as they can because its too expensive and is not as efficient of design as AMD's.

    And unqualified commenters talking about the Global Foundries as if they had a bit of knowledge about it. Get the facts. AMD is GF's only customer at the moment, and AMD owns more than a third of the company and is not required to invest further capital in it. Their share will be diluted if Charter merges, but they will still own a significant share and always be on the board. And where do you think their libraries and technology come from, AMD made them, AMD has the ties to IBM. AMD is the technology source.

  • Report this Comment On October 21, 2009, at 12:03 AM, here2stay7777 wrote:

    Most of the commenters are very ill informed about what benchmarks are important and how the AMD processors actually perform. All just AMD fanboys and shareholders.

    Intel beats AMD in price / performane and performance / watt every day, and you do not have the data to dispute it, so don't say it. Intel cpus do more work in less time and using less power, regardless if your applications are single threaded or multi-threaded.

    People make foolish claims about AMD's next thing are talking out their behind. AMD wants to get away from competing on price as fast as they can because their larger chips and poor yields make for and expensive CPU to fab, the sooner AMD can escape from the low price CPU ghetto the better. But AMD needs to get performance up. Its a catch 22.

    And unqualified commenters talking about the Global Foundries as if they had a bit of knowledge about it. Get the facts. AMD is GF's only customer at the moment, and AMD owns more than a third of the company and is not required to invest further capital in it. Kind of funny to own only 1/3 of a subsidiary, but there you have it, plain and simple. Even worse, AMD's share will be diluted if Charter merges.

    The big question is how long AMD can keep suckling from the IBM teat. Where do you think their libraries and technology come from? IBM made them, AMD is glued to IBM for process technology. IBM is the technology source for AMD, which is way behind the technology of Intel. The performance tests prove it.

  • Report this Comment On October 21, 2009, at 6:14 AM, asH95 wrote:

    A Mulligan:

    I think most folk can’t see the potential paradigm shift in the direction AMD is moving, all the while remaining consistent to their ecco-beliefs- "less power more production"...Scotty?. Their Opteron multicore processor stresses low power with multiple cores- I think it’s clear, looking at the Opteron and their other recent chips, that AMD is not competing with Intel for the top speed honors, or the fastest Giga chip. We also see perhaps closer working relationships between AMD/ Apple, AMD /Microsoft, connected by AMDs graphic card products 4000+ series, OpenCL, directX11,and DirectCompute... THE GIGA-CHIP WARS ARE OVER! AMD has been preparing for this end-of-day; future is now scenario for a while now. IT will no longer be about racing to pump up the power of the CPU (MORE PORER SCOTTY!), because all the processing power one ever needs goes unused, untapped. In each of our computers has a reservoir of processing power we've yet to unleash; we have had it for some time now- it’s in the GPU. Coupling the GPU to current low watt multicore processors, through OpenCl, DirectX11, or direct-compute, CPUGPU becomes realized as both redeemer and the dragon slayer simultaneously. The second stage is the physical bonding between GPU & CPU- the all in one Llano

    On another note- I personally don’t believe Larrabee will be developed in time, if at all work as promised. I believe they were late in seeing, and are desperately shoveling recourses to catch-up ..but this is just me

    asH

  • Report this Comment On October 21, 2009, at 9:52 AM, TEBuddy wrote:

    You can see above from here2stay7777 that Intel fanboys just copy the work of others, just like Intel. No orignial thought. AMD has been introducing the technology that got you a decent Intel chip for the last 10 years.

    Look it up, who first brought you to 1Ghz cpus, larger cache sizes, faster FSBs, 64-bit cpus, higher memory bandwidth, on board memory controller, multiple core cpus.

  • Report this Comment On October 22, 2009, at 8:45 AM, catdancer40s wrote:

    TEBuddy Asked:

    "Does anyone have any thoughts on why the FTC refuses to do anything about the illegal/exclusive rebate strategy that Intel was using to keep AMD from gaining substantial market share"

    First of all FTC evaluates mergers and acquisitions (i.e. if two big companies merge, would there still be meaningful competition). The Antitrust Division of the Justice Department does antitrust prosecution.

    I would agree that the Libertarian permissiveness that led to the financial crisis, does seem evident in antitrust prosecution as well. America invented antitrust law and used to lead in it's development. For the last several years there have been few meaningful prosecutions. In May of 2007, the Roberts Court reinstated price fixing as an allowable practice by manufacturers and in November of 2008 the Antitrust Division of the Justice Department issued a policy guide scaling back enforcement against monopolies.

    Congress will probably have to pass a law overruling the Supreme Court if America is to return to a general ban on price fixing.

    The new head of the Antitrust Division, Christine Varney, declared the November 2008 policy guide inactive and is threatening to enforce Antitrust law. No action yet. She has a lot of opportunities to act if she wants to. A network of insurance companies including AIG (yes "that" AIG) was busted in 2004 for bid-rigging but the only sanction was that Hank Greenburg had to step down from the company. Nothing against the company. Just what we need, by the way, insurance companies colluding behind the scenes to fix prices instead of compete.

    Opportunities to enforce the law abound. Now we just need someone willing to do it.

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