Advanced Micro Devices
Is AMD a Reliable Supplier?

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By eachus
November 27, 2001

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Yawn, AMD is offering 128 Mbit parts now for under twenty cents per Megabit. Intel is talking about parts to be available next summer at 32 Mbits and a year from now at 64 Megabits, and at higher prices per Megabit.

As usual, Intel is speaking of glowing futures, and AMD is talking now. That isn't necessarily a condemnation of Intel, just a marketing difference. Of course, if you think that AMD should be selling more sizzle, you might take it as a criticism of AMD's marketing. But AMD can't afford to spend too much effort hyping the future until it once again has a reputation as a company that can deliver. IMHO, AMD has done a lot better in that area than Intel over the last five years, but the K5, K6, and K6-III were overhyped and therefore perceived as underdelivering. In the case of the original K6-III, this was true. The K6/2 on the other hand really did deliver--sure the floating point performance didn't match the Pentium III at the same clock speed--but the integer performance was better. The K6/2+ and K6-III+ were nice chips that got totally lost under the Athlon.

In any case, AMD is building back all the reputation it squandered. Intel, meanwhile, is going through a phase of spending theirs. My guess is that by the middle of next year, the shoes will be on the other feet. (How's that for a mixed metaphor?) AMD will have the reputation to spend, but still be hoarding it. Intel will be running around trying to patch their reputation using advertising and the Customer Relations department. Doesn't work.

Let me explain what I mean. Let's say you work in purchasing. Doesn't matter what you buy, but let's put you in one of the major OEM's. You have three grades of suppliers. Those whose commitment to delivering what they promise, and to delivering a quality product means that you don't need an alternate supplier. (Orders are fire and forget. If the shipment doesn't arrive at the production plant on the day specified, the plant was probably closed by the same blizzard.) It doesn't matter if the product is CPUs or 10-32 pan head screws, you have a preferred supplier. The second tier of suppliers are those where you have to stay on top of things, you like to have a second source, you keep track of the amount of inventory you have, and jump on the supplier or call the second source when supplies are tight. The third tier are those erratic suppliers you don't count on. They may have a good product, and you will use it if you have it, but if you don't, well you do have a better--but possibly more expensive--supplier.

Everyone starts out in the third tier until they have a track record, and getting into that first tier position takes years of excellent execution.

Now let's look at AMD and Intel. AMD started 1999 in the third tier, not because of inferior products, but because of poor behavior as a supplier. Quantities were overshipped, undershipped, or shipped late, etc. Intel was clearly in tier one. If they told you it would be there, it would be. Then came product delays at Intel, Caminogate, and the Coppermine shortages. Intel no longer belonged in tier one. At the same time, AMD started executing very well. By the middle of 2000, AMD deserved a promotion to tier two, and if you still had Intel as a tier one supplier, your job was in serious danger. (Unless you were Mike Dell.)

Does Intel deserve to be dropped another notch? Maybe. The recent problems with the Pentium 4 and 900 MHz Cascades mean that they are at best a second tier supplier. Does AMD belong in tier one? Don't know, but if you called around--and knew the purchasing managers well enough to get an answer--my guess is that many are still waiting for a little while longer before upgrading AMD. Note, I am not just talking CPUs here, flash also counts, and I think it is clear that AMD is perceived as a tier one supplier by some flash customers.

As for CPU buyers, I think that they are going to seriously reevaluate things in the first quarter--the traditional time for looking back in consumer industries. I don't think that Intel will get dropped to tier three--but if next year is like this one, they will be.

On the other hand, I think that AMD now has a very good track record, and several major OEMs will have no problem from a technical or purchasing/supply perspective with AMD as a tier one supplier. (The marketing issues are a different matter.) The sea change will be the one from "No one every got fired for buying Intel," to "Can we afford to continue to deal with Intel?" Once a company decides it has to be prepared for a three-month, hell a three-week delay, in Intel deliveries, they might as well drop Intel to second-source status.

If, in the best of all possible worlds, both AMD and Intel are perceived as tier one suppliers, then technical and marketing factors will determine who wins what accounts. If both are seen as tier two--or worse--suppliers, then technical and other factors won't matter. All major OEMs are going to have to sell both for survival reasons, and executing in the distribution process be the major determinant of which company gains market share.

Right now that seems to be where we are, and AMD is gaining market share when it outperforms Intel in the nuts and bolts of business--getting the product to your customer when he wants it. (The other way to look at it is that Intel loses market share when it fails to deliver.) But if AMD is considered to be a tier one supplier--as defined above--and Intel is not, then the market undergoes a radical shift. OEMs will plan their product line around AMD processors, and will offer Intel as an option to those who insist on it. Intel will only be able to maintain this foot in the door by competing on price, and advertising heavily.

Is this a fairy tale? Nope, although a couple of months ago it would have seemed like one. This is the third Christmas where Intel has left the OEMs in the lurch. Last year wasn't too bad. The Pentium 4 was introduced officially on October 31st, but they were very scarce before January. Then again, not many people wanted one for Christmas. Of course, to the computer makers, not selling because no one wants the product is just as bad as not selling because you can't get the parts.

But this year is the worst of both worlds. The Intel parts that are available assemble into machines that have to be discounted heavily to sell. And of course Intel telling [mother board] makers and OEMs not to use the Via P4X266 is particularly galling. Companies can sell DDR based Pentium 4 systems--and they can get delivery on the parts--but Intel will fall on them like a ton of bricks if they try.


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