A tale of two companies
Any discussion of AMD (NYSE:AMD) must also include Intel (NASDAQ:INTC), the 800-pound gorilla that separates AMD from market dominance. Intel is used to operating from a position of strength, setting industry standards as it pleases, and simply assuming that others will stumble as they attempt to copy the company's latest and greatest innovations.
That strategy only works when you're ahead, though. Over the past several years, AMD has gone from a plucky upstart with Pentium knockoffs to the real innovator in the business, to the point where Intel is adapting to AMD's initiatives and adding the 64-bit standards introduced by AMD to its own chip designs. Microsoft (NASDAQ:MSFT) plays an important part in that drama, having been so impressed with AMD's 64-bit work that the upcoming Windows Vista will ship in a version with full support for those extensions. Intel had no choice but to swallow its pride and follow along.
It's true that the Core Duo 2, Intel's latest product, outperforms AMD's best in many ways and that the smaller rival won't have a real response until sometime next year. But the damage has been done. System builders like Hewlett-Packard (NYSE:HPQ) and Gateway (NYSE:GTW) have been selling AMD Athlon 64 systems in droves, and even longtime holdout and market leader Dell (NASDAQ:DELL) has followed suit lately, abandoning its Intel-only stance, held since time immemorial.
What now?
Dell's jump aboard the AMD bandwagon just weeks before Intel released the chip that would put it back on top of the performance heap speaks volumes to me. The company surely knows more about upcoming chips than the average hardware enthusiast on the street does, myself included. And Dell sees something in those plans that says, "You need AMD." What's that all about?
AMD's next-generation platform includes support for a whole new range of coprocessor units with direct access to important system resources and a promise to transform the computing industry. Imagine, if you will, a dedicated drop-in physics processor that can make short work of 3-D gaming calculations or advanced scientific calculations, for example. AMD has many partners working on solutions like that already, using the platform as a springboard for hitherto unknown computing possibilities.
Building the perfect beast
And the acquisition of ATI Technologies (NASDAQ:ATYT) is exactly what AMD needed to solidify its future prospects. In one fell checkbook signature, the company gained a solid chipset solution that gives AMD an equivalent to Intel's Centrino concept and guarantees system builders a solid road map going forward. It may be the best $5.4 billion the company ever spent.
The company just opened new research facilities in Shanghai, China, and Fort Collins, Colo., showing a commitment to innovation. It also earmarked $2.5 billion for an upgrade of production facilities in Germany and announced a $3.2 billion chip factory in upstate New York, so the company clearly believes that it will need more capacity in order to meet future demands.
Market research firm Mercury Research pegged AMD's market share in desktops at 25.4% in August, up 5.1% over August 2005. There's real competition in the marketplace now, and it may be just a matter of time before Intel becomes the underdog in the industry it once built.
Further Foolishness:
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Fool contributor Anders Bylund holds no position in any of the companies discussed here, but he wrote this article on an AMD system with ATI graphics and core logic, built by HP. You can check out Anders' holdings if you like. Foolish disclosure is well-rounded in and of itself.
