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Rise of a Competitor

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By RobertBianchi
March 13, 2001

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As many are aware, I have been following AMD for the last year or so. When AMD was soaring and the market was still up, I wrote this post, "Fall of a Titan".
 
With almost six months passing since I posted that message, what has happened? Here is a list:

Market:
1) The market and especially the semiconductor sector has cratered

AMD:
1) AMD scrapped the Mustang just before its launch
2) The Mustang deratives have been delayed 3-6 months
3) DDR at 266MHz was delayed two months
4) Integrated Chipset hampers Duron acceptance
5) Premature switch in Austin from Athlon to Duron builds Duron inventory
6) AMD warns of slower sales for 4Q00
7) AMD about to launch 1.3 GHz Thunderbird Athlon
8) AMD about to launch Mobile Athlon (Palomino Core)
9) AMD announces Hammer sampling on 0.13 micron in 4Q01

Intel:
1) Intel delayed the Pentium 4 Launch - minor chipset bug
2) Intel recalls 1.1 GHz Pentium III - unstable
3) Integrated Pentium III for low cost systems cancelled
4) Pentium 4 doesn't beat Athlon 1.2 GHz on most benchmarks
5) Intel Warns of Slower Sales for 4Q00
6) In 3Q00 - Itanium delayed another quarter
7) Intel warns of 25% decline in revenue and 13% decline in Gross Margin for 1Q01
8) In 1Q01 - Itanium delayed another quarter
9) Market collapse has eliminated much capital gains used in previous quarters

It looks like both vendors have had their setbacks, as Sander's goal of shipping a 1.5 GHz Athlon in January looks more like June.

The Pentium 4 is looking like what it is, a product rushed to market to fill a gap in Intel's product line created by a nimble competitor (AMD). The slips by AMD, with the notable exception of the Duron chipset problems, have really not hurt AMD much, as they have had the processor with the highest performance for almost one year.

I guess the biggest surprise for me is the huge discount AMD has to give to sell higher MHZ Athlon parts and Duron parts. I expected discounting at the equivalent MHz, but not at higher MHz. On the positive side, AMD's flash business seems to have formed a cushion for AMD's earnings and the ramp in Dresden has been flawless.

The biggest negative so far is AMD's inability to sell its full capacity in 4Q00, and even more so in 1Q01, even with significantly lower prices than Intel.

I think the good news for AMD is that 1Q01 seems to be holding well. I think selling only six million processors would, if just achieved, represent a significant setback.

One thing that is for sure, Ashok Kumar's prediction of "Road Kill" for AMD seems to be way-off base. In fact, it is Intel's gross margins and portfolio that has suffered Road Kill.

While Ashok's prediction of AMD's earnings seems to be particularly unfounded, but this should be no surprise to any serious analyst following AMD.

All this has happened while AMD has not broken into the high-end mobile market or corporate PC market. Both of these areas will spell big trouble for Intel.

Soon, we will see AMD's gross margins rising as Intel's continues to decline even further. AMD is likely to earn at least twice as much per share as Intel and maybe even have their gross margins pass Intel's; won't that be a shock for Ashok Kumar!

As AMD gains financial strength -- and when it retires a significant chunk of its long-term debt in April -- Intel's long-touted financial strength will be exposed for what it is. If Intel chooses to continue to engage AMD in a price war, expect Intel's margins to decline even further.

Isn't it funny that something we knew all along is coming to pass. If Intel fights AMD on price, it is Intel who will loose billions of dollars in profits, not AMD.

Even with all this, the biggest problems for Intel are still ahead of it. The Itanium eventually will be a disaster of enormous proportions. When AMD launches the Hammer series and it outperforms the Pentium 4 and "Itanic," the full extent of the fall of this titan will be clear to all. The market will then realize that Intel is at least two years behind AMD and even Intel's 0.13 micron processor will not save it!

Bob