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Advanced Micro Devices
Some Conclusions I've Reached

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By KvHagedorn
August 16, 2001

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AMD is really lucky to have had Craig Barrett as CEO of Intel for the past couple of years. It helps when your own bad decisions are matched by those on the other side of the net.

AMD sells the best-designed, most cost efficient, best yielding chip available for the PC. They have the best fab in the world, producing these chips using copper interconnects. They are truly the technological leaders. So why doesn't IBM want to use them? Why does AMD management seem to feel forced to sell a 1.2GHz Athlon at a lower price than Intel sells their 700MHz Pentium III for? Why can Intel still charge over $400 for their flagship processor when AMD's flagship, which performs better, is being sold for $117??? Why were most of us caught completely unaware by the announcement that our company was going to make just a few measly pennies in profits this past quarter?

Here are some interesting conclusions by some folks on another forum about why IBM dropped AMD, and why others may do so in the future.

The guy who posted the second message to that thread is a friend of mine who works for Intel. He is also a computer hardware enthusiast who knows what he is talking about. Notice that this Intel employee has nothing bad to say about AMD's technology. While you have heard some of the same things coming from me for the year or so I've been posting here, I haven't really talked to him about this much, and not at all lately. His post was quite illuminating to me, though, and confirms in my mind what I've been saying all along about chipsets and why AMD should produce them.

Customer support is a major expense for companies who build computers. To make money in that business, expenses must be held to the lowest level possible. If your volume of phone calls and service calls goes up significantly because the chipset being used is crud and has all sorts of stability issues and so forth, of course you aren't going to want to use boards based on that chipset anymore. "What do you say? That's the only chipset being produced in enough volume to satisfy the demand for Athlon systems? **sigh** Alright, we'll use them, but AMD had better drop its prices by another $100 per chip to make up for all these service calls, and if that still doesn't do it, maybe we should consider dropping AMD altogether."

Declining to build chipsets for our own processors robs us of potential profits to be made from those processors. Do you think speed is really such a selling point to OEMs who sell boxes to soccer moms who do their taxes on them and surf the Internet? No. They want that soccer mom to NEVER have to call tech support because the southbridge on her motherboard suddenly can't communicate with her modem, making her mad as hell because she couldn't get online to sell her stock in that loser of a company that warned at the last minute and made her lose $1200. Stability is king, folks. It always will be. For every techie tweaker there will always be 100 soccer moms who just want the thing to work.

Why does AMD management not understand this really simple stuff? Why don't they make chipset development and production the #1 priority now that they have an excellent processor design? Well I think I heard the answer the other night when I was watching Lawrence of Arabia for the umpteenth time. Lawrence quotes Themistocles: "I cannot fiddle, but I can make a great state from a little city."

Truly, AMD knows how to make great technology, yet their management team lacks an ability to grasp the big picture. They cannot understand how a $30 chipset will make them more profits than their newest killer processor, which they (used to be able to) sell at a nifty high margin. They are so buried in making things better that they utterly neglect business strategy.

There remains no reason in the world why this company should have to sell a processor as killer as a 1.4Ghz Thunderbird for a measly $117.00. It's pathetic... pathetic!! The people making these decisions have no respect whatsoever for the excellent product they produce. They refuse to give it proper chipset support. They beg OEMs to take it for half of what it's worth, even in the midst of a price war. Then they wimp out about telling investors that they aren't making any profit doing this.

I should have invested in a software company. No wonder Microsoft has such killer business strategists... they write operating systems, so they can appreciate the big picture, how everything must work together in a computer system, and they know how to capitalize on this wisdom.

My conclusions:

1.) AMD is being run by a bunch of myopic technical whizzes who have only the most elementary grasp of how to run the business end of things.
2.) AMD makes the best processors around, but AMD management are the only people who seem not to have confidence in this fact, as evidenced by ridiculously low pricing below any meaningfully competitive level.
3.) Unless it becomes a steal (goes below $10 per share) I will not be getting back into AMD until they come to realize that they need to produce the whole package of support for their products, they begin to have a sense of self-respect by pricing their product for what it is worth, and they hire some savvy folks to market and spin things properly so that the bad news doesn't sound so horrible and the good news gets its proper due.

Kind regards,

KvH