A large amount of time and energy is spent on the battle between Intel (Nasdaq: INTC) and Advanced Micro Devices (NYSE: AMD). Heated discussion topics include competing chip speeds, chip architecture, business strategies, and market share. AMD claims to be winning market share, and in Europe it must be. That said, Intel claims that its market share is gaining or holding steady. How can both claims be possible? And does it really matter?
Today we share thoughts from two Fools on these issues. One Fool owns shares in both Intel and AMD. The other Fool owns shares of AMD. We start with thoughts from Cameron Jones, an AMD shareholder:
Cameron, on the euro...
"While Dell (NYSE: DELL) and Intel both blamed revenue shortfalls on a weak euro, Hewlett-Packard (NYSE: HWP), Gateway (NYSE: GTW), Compaq (NYSE: CPQ), and AMD all came forward saying that their European sales were tracking with or above estimates. The common thread? The latter companies are all hedged against Intel's problems."
...on Intel's production problems
"As recently as the second quarter, Mercury Research reported that AMD was outselling Intel 10-to-1 in 1 gigahertz (GHz) chips, despite the fact that Intel has more than five times the capacity of AMD. The 1.13 GHz Pentium III recall only underscores the problems Intel has with scaling the Pentium III above 900 megahertz (MHz).
"By the time this article is printed, AMD should have further exploited Intel's problems by launching a 1.2 GHz Athlon processor, shortly after Intel delayed the launch of the Pentium IV to late November, too late for PC makers to sell the chip in Christmas PCs."
...on the next six months
"Intel will launch the Pentium IV in limited quantities (necessarily, because of the huge die size -- more than twice the Pentium III) until mid-2001, during which time AMD will have the only chips shipping at speeds from 1.1 GHz to 1.3 GHz, and relegating Intel to the low end of the market. The problem was the same at the launch of the Pentium Pro, but Intel dictated the pricing, so AMD could not benefit. This time, AMD is ready and waiting for this moment, and is poised to steal market share and mindshare from Intel. The launch of dual-processor, mobile, and DDR chipsets by AMD will only [improve] this process. AMD has a chance to drive through a truck-sized hole in Intel's lineup."
Beginning on a related note, we now hear from a Fool named Ed Arenz, of Beyond Communications, who owns both Intel and AMD. Ed writes:
"What appears to be happening is that Intel is taking the low-end x86 marketshare from other companies, while AMD is biting into new territory: the high-end PC processor market that was previously 100% Intel. AMD has been notably outselling Intel at speeds above 900 MHz.
"The [upcoming Intel] Itanium chip was never meant to be a replacement for the Xeon [as I wrote last week quoting Red Herring], but more as a challenge to Sun Microsystems (Nasdaq: SUNW), IBM (NYSE: IBM), Hewlett-Packard PA-RISC, etc. It's designed to be used in much-higher-priced servers than the Xeon ever was. The Itanium enthusiasm in the marketplace has been waning, as delays and unimpressive sample chips have been distributed. Now the word seems to be: 'Wait for McKinley,' but even H-P appears to be hedging by redoubling its PA-RISC efforts.
"The real competition to the Xeon will be AMD's upcoming Mustang, which will most likely outperform the Pentium III-based Xeon by quite a margin. Intel's Foster chip may be a viable challenger to Mustang's performance -- we'll have to wait and see. Same with AMD's Hammer series due late next year, which we know is based on dual enhanced Athlon cores, LDT, and large L2 cache sizes. We should be seeing a spirited competition for some time.
"[However], did you ever consider that maybe nothing is really going wrong at either Intel or AMD? They're the only two viable competitors in a huge market. Can't they both be doing well? If people would quit the constant bashing of one company or the other, maybe the whole semiconductor sector wouldn't be tanking so badly. Both made record sales and profits this quarter, and should again in Q4.
"Possible price war? While a price war [might] hurt them both badly, Intel will probably be affected more simply because it sells four processors for every one AMD sells. At even the lowered prices we saw this week, AMD is still making margins that it has never seen before. The best thing these guys could do is call a truce and try to live together in maximum profitability, a tacit duopoly if you will.
"Intel owned the PC processor market. If I read the roadmaps correctly, Intel is not going to own the x86 market again in the foreseeable future. These companies better get used to living together instead of trying to kill each other, for the good of us all."
Not either/or, but both!
In summary, I agree that AMD is rockin', but I also agree with Ed's thoughts that both companies should be able to perform well. Often only one company dominates an industry, but a handful of companies earn strong long-term returns in the industry, too. Therefore, it needn't be an either/or situation. It might be both. Amazon.com (Nasdaq: AMZN) and Wal-Mart (NYSE: WMT) might both succeed in the long run. Microsoft (Nasdaq: MSFT) and Oracle (Nasdaq: ORCL) both serve very large markets and both win... and so forth.
The chip battle is very interesting, and leadership roles on different measures do play in the balance. However, to the long-term investor, the most important factor is earnings creation, which results in value creation -- and both companies are poised to deliver more of this over time! Don't you agree? Share your thoughts on the Drip Companies board.
Drip Port's next investments
We wrote last week that we'd send our November investment to Intel. We're still going to do that, but we're going to send money to Johnson & Johnson (NYSE: JNJ), too. So, tonight we'll send $50 to Intel and $50 to Johnson & Johnson for our November investment. (If this small change bugs you for any reason, please post your thoughts on the Drip Basics board.)
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