A World Without AMD . . .

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As reported a few days ago, AMD’s CPU marketshare dropped six points.

There’s been some squabbling that part of this drop was due to excess Christmas inventory being used in the first quarter, and that’s probably true, but all that means is that AMD’s estimated 25% marketshare in Q4 was too high. You can’t count the chips twice. 🙂

Nonetheless, it’s clear that any Big Mo AMD had has ended, there’s been a bit of a rollback, and there will probably be more the next quarter or two as excess inventory gets sold. It’s probably safe to say AMD’s “real” marketshare will hover around 20%.

With this rollback has come more than a few cries to the effect of “Buy AMD!! Save the competition!!”

This raises two points:

1) Just how uncompetitive is AMD at the moment?

2) What would happen if AMD actually did go out of existence (or, more likely, sufficiently crippled to pose no threat to Intel)?

Just How Uncompetitive Is AMD At The Moment?

That answer changes quite a bit depending on what part of the market you’re talking about, and what you mean by “competitiveness.”

For instance, if you’re an overclocker interested in maximum performance, AMD has been out of the picture for quite some time. An overclocked C2D simply performs better than an overclocked X2. Period. AMD isn’t competitive on a performance level.

(A strategic advantage is one in which one company has an overall edge over another. A tactical advantage occurs when one company can offer a better product at a given price than the other.)

However, the overclocker market is just about the only market for which you can make such a blanket statement. For the other, bigger, markets, AMD can certainly often be competitive tactically, but because the top C2D is better than the top X2, AMD is uncompetitive strategically, and must offer low prices in order to compete tactically.

For the dude buying a Dell, it does not matter one little bit that an E6300 can run at 3GHz or more. It’s always going to run at 1.86GHz, and there are certainly AMD chips that can beat that level of performance.

The question then becomes, “Can AMD be competitive on price/performance?” They certainly can for the vast majority of the desktop marketplace, and with their latest cuts, they will. But tactical advantage comes at a big price to AMD, literally a small price to you. Intel’s strategic advantage has a corrosive, not destuctive impact here: it doesn’t stop the other guy from getting the sale, but it makes the sale (relatively) unprofitable.

Mobile is pretty much the same. AMD is probably trailing a bit more there right now, but the introduction of a bit faster 65nm Turions, combined with price cuts, supposedly next month, ought to be good enough to keep AMD “competitive,” if not solvent.

And yes, for those overclockers willing to get less if they pay a lot less, AMD now has a tactical advantage, but it comes at the price of a $66 dual-core CPU.

So to those folks who say, “We must help AMD out!” I say, first, this is a lot bigger than a few or a few thousand extra purchases at Newegg, and second, if you really want to help AMD out, buy the most expensive processor they have, not the one they’re probably losing money on. 🙂

A World Without AMD

That being said, let’s look at the other part of the issue, the thought that an AMD-less world would inevitably mean a catastrophic “Intel Goes Wild” with high prices and low development.

How likely is that?

While I don’t think this is going to happen, let’s assume, just for argument’s sake, that AMD goes completely belly-up, just vanishes (which is extremely unlikely even if AMD went bankrupt).

What would happen? Not as much as you might think.

Would prices go up? Definitely, and especially in the short term and at the low-end. Mainstream CPUs would probably start at about $200; Celeron-class processors at around $100. Upper-end prices probably wouldn’t go up that much (they never went down much), but Intel’s gross profit margin would quickly go from a bit under 50% to well over 60% pretty quickly.

Would the pace of innovation slow? Definitely, and especially in the short term. These promised two year cycles would probably turn into three year cycles pretty quickly.

But more than that? I’m not even too sure it would be as much as that, for three reasons:

Computers: They’re Not Just For Rich People Any More

If you live in a rich country, if you want a computer, it’s very likely you/your family already have one, and if you don’t, you probably don’t want one. There is no longer a big pool of people waiting to buy their first one.

If you’re in a country that’s on the road to getting rich, there are plenty of people awaiting their first one, and for most of them, affordability remains a big factor. There lies the future of PC growth, and Intel knows it; it didn’t build the Classmate PC for the hell of it.

The computer genie is out of the bottle. You can’t just yank up prices and restrict them to the relatively rich anymore. The demand is there, and if Intel doesn’t fill it, someone else will.

This will help temper any excessive Intel greed in the developing world, for the developed world, there are:

Consoles

Should Intel ever get too greedy, there’s a ready-made, cheaper competitor at hand: consoles, and the companies that build them. We need look at only one of them.

Do you think Intel really wants Microsoft to get into the PC business with a modified XBox (if they didn’t just buy AMD’s assets with petty cash)? Don’t think an XBox wouldn’t be good enough for Grandma?

Going from AMD to MS as your main competitor is like going from a frying pan on a low flame to the fire.

On the Upper End: IBM

On the development side, Intel can’t slack off too much because if AMD vanishes, IBM won’t. Even assuming that IBM wouldn’t want to take Intel on directly in the mainstream CPU market (and they certainly would indirectly by supplying the CPUs for any XBox challenge), IBM would still be developing their own processors, enough to keep Intel honest about R&D.

Conclusion: Probably A Little Worse, But Maybe Not

Most people who contemplate a PC world with Intel standing alone without Green at least nipping at its heels as a opened Pandora’s Box with all the evils of monopoly spilling out.

And yes, if Intel kept standing alone, aloof from the world, this would most likely happen.

But it won’t. There are economic forces too big to let Intel do anything it wanted. Yes, Intel would take advantage of an AMD demise to some extent, and that “some extent” would likely be rather painful to most reading this.

But if they get too greedy, there are counterbalancing economic forces (and I’ve hardly listed them all, and left out government altogether) that will stay Intel’s hand.

Indeed, if some of those forces get provoked into action, we may end up seeing a more competitive PC world than usual, or even now.

I wouldn’t bet on that happening, but I would bet that the PC world wouldn’t go to hell if AMD did.

Ed


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