AMD’s 'Criticality 1' failure

The following comments are in regards to this article from Overclockers.com, posted 7-18-2006:

One aspect of the current situation in the CPU market which I think Steve has overlooked here is the "cheapness factor":

Steve said:

Intel’s sales are about 7 TIMES that of AMD, in fact Intel’s Net Income is more than AMD’s total sales

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It will be interesting to watch this metric over the coming months. Currently, S939 A643200+ processors are hovering around the $80 retail mark and PENTIUM 4 506's are hovering around $100. Once Core 2 Duo is available within the wider market place, the price war will likely heat up and the axiom of "high volume, low margin" (relative to current market share and existing production capacities) will come into play.

Steve said:

Intel is releasing these CPU’s at murderous price points, namely the E6600 (2.4 GHz with 4 MB cache) at $316 (which is smoking the FX-62 at $1000 in benchmarks posted all over the web) and, on yeah, they can overclock that by 75%!

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Companies such as Dell (who are now using AMD processors in some models) and Joe Six-Pack aren't looking for high-level processors, or even middle-of-the-road processors and could care less about overclocking (apologies to the audience). They are looking at the cheap processors. While it's indisputable that AMD stands to loose major market share in the enthusiast market, I'm not so sure about the rest of the world.

It may be a bit premature to start shouting "fire!" in this crowded theater of the mind, as AMD has survived worse stock drops and persevered in the face of Intel's might for the duration of its existence. Although it will loose a relatively small percentage of its market share due to losses in the enthusiast market, it stands a chance to gain a bit elsewhere.

hafa said:

While it's indisputable that AMD stands to loose major market share in the enthusiast market, I'm not so sure about the rest of the world.

It may be a bit premature to start shouting "fire!" in this crowded theater of the mind, as AMD has survived worse stock drops and persevered in the face of Intel's might for the duration of its existence. Although it will loose a relatively small percentage of its market share due to losses in the enthusiast market, it stands a chance to gain a bit elsewhere.

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Yeah, I think many people forget about the average joe's out there when the start shouting AMD is toast. These will be interesting times for AMD, though.

Hafa / PWatterson,

whoa! I'm not yeling "fire!", I'm simply saying that there's some guys with flamethrowers outside.

"cheapness factor" and "companies such as Dell"
I definitely didn't overlook it....I know that Product Management at Major OEM's (and obviously they drive the real volume) look at long term commitments to players they think will survive within the economic constraints. You, me, and Joe-six-pack almost do not matter. Competitive squeeze, upcoming Vista horsepower needs, the markedly changed competitive landscape from a pure technology standpoint, AMD's precarious long term position, and (most seriously) AMD's poor ability with their cost structure to follow on a $/horsepower race with Conroe will all come into play. These factors MAY limit their thinking for AMD. It certainly creates the potential for some product line decisions that have serious long term impact...... AMD may end up keeping the "joe-six-pack" level machines... but only if they can PROVE an ability to make these ultra low price points happen and convince OEM's they will be around in 3-5 years in this context.... a very tough sale.

"interesting to watch this metric"
It will be... my point was that Intel has such mass and diversity of product (only about 50% of Revenue is desktop + server CPU's vs AMD's 67% with the CPU space revenue about 10:1) that they can effectively "sit on" AMD for a while now. It appears that AMD does not have the resources or cost structure currently to fight the "high volume / low margin" battle unless they get a competitive advantage AND a huge cost structure improvement (their margins are already so low that they can't move down much).

I genuinely feel that AMD's "rest of the world" desktop and server CPU business is up for grabs now, like always in business it will be an execution thing....also... I personally think it all stinks because of the potential for future lack of competition and that was the real story....

steve

Intel is the loss leader in this market, no doubt.
Managerial economics to scale says theoitcly you make units untill the last unit = cost, the simiconductor market doesn't seem to follow this, the units dont cost anywere near this much in reality, I can only guess marketing is causing the inflation that has been seen over the last few years. That or lack of enough competetion.
I don't think AMD is in any trouble to be honest, whats the actual net cost of producing a unit? Thats right beans

and back in reality billions of beans exist and have value.....

Intel is not loss leading... they're now charging roughly the same prices for superior product with lower per unit cost and already have a 5 year Net Profit Margin of +17.6%

AMD is losing bunches of beans because they have a Net Profit Margin over the last 5 YEARS of -7.6%.... which is now going to go down,



BTW Intel looks like they will be flooding the "joe-six-pack" CPU space with low cost offerings:
http://www.xbitlabs.com/news/cpu/display/20060718232600.html

You pretty much defined the loss leader in the market (the company doesnt have to act on the abilty to still have it)

And the E4XXX isn't new news.. the E4300 (with a x9 multi) is though. Yes Intel is producing the new processors for all markets, that was apparent when they released the inital pricing.

hafa said:

Companies such as Dell (who are now using AMD processors in some models) and Joe Six-Pack aren't looking for high-level processors, or even middle-of-the-road processors and could care less about overclocking (apologies to the audience). They are looking at the cheap processors. While it's indisputable that AMD stands to loose major market share in the enthusiast market, I'm not so sure about the rest of the world.

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re-read what you quoted. It says that intel's ~$300 CPU is > AMD's ~$1000 CPU. now i'm reading that as though it's NOT over clocked when it's doign so much better, but maybe i'm mistaken in which case please let me know.

DvBoard, yes, the non-overclocked, eg:
http://www.tomshardware.com/2006/07/14/core2_duo_knocks_out_athlon_64/page12.html#games

,,

AMD just spent a few years trying to dig themselves out of a hole of low average selling prices that was putting them in difficult financial situations. They have recently climbed out of that hole, but they are right about to be thrown back into it.

Their best processor is going to be beaten by a $300 Intel processor. Couple this with the historical fact that when AMD price and performance equal Intel price and performance, AMD sells poorly. AMD has to beat Intel in either price, performance, or both. So, the most they can probably charge for a CPU and have it sell well is $280-$250. The high end product line pricing is toast, which had helped them keep their ASP up. If they have to try to survive on bargain basement chips, they are in big trouble. Personally, I think their best chance to survive is to make the best performing chip possible (don't skimp on L2 cache, etc.) and sell it at a mid-range price that's low enough that people just simply have to have it. ...and hope that Intel doesn't respond. Then, price the rest of their processors just low enough to sell their capacity.

Meanwhile, they need a vastly improved design and to catch up on manufacturing as much as possible.

so what boards do we all go for next - AMD or Intel?. AMD will pull something out of their hat and have been producing good gear for years which has built them a solid reputation. Ive used them for 6 years. The price to performance is still good as now you can get cheap X2 4400's which are certainly futureproof for a while, AMD isnt dead yet, they are just behind a little bit. Conroe isnt everything and its only for the enthusiasts which doesnt exactly represent a controlling demographic

If intel has a chip that for a third of the price will beat AMD's, then the only people that will buy AMD will be "fanboys", or those who don't know better.

This is of course assuming that intel is cheaper down the whole line, as well as better performing.

the AMD price cuts for Monday have been leaked by Monarchcomputer.com... the highlights are (vs Intel pricing of closest comparible CPU as near as I can tell)... bear in mind these are bundle prices to buy a configured system so they will be higher at newegg etc.... the Intel prices are the published ones.

A64 3800: $111 (I dunno which Intel CPU but I'm thinking about inline price after the cuts)
X2 5000: $289 (E6400 $224)
FX62: $812 (E6600 $316)

http://www.monarchcomputer.com/Merc..._Code=M&Product_Code=80169&Category_Code=AMDC

look in the CPU selection dropdown

Intel was the "average joe" as far as procs for a long time and beat out other competitors such as Cyrix. That's why Intel can do what it can right now. Let's give AMD the benefit for a sec and wait six months before we make presumptions.

Just out of curiosity, in one of the benchmarks the X6800 was oc'd by 8.5% but showed an incredible 67% improvement in the benchmark. How is that even remotely possible?

Give it time.....AMD's ruled before, now for the time, intels will.....AMD hasn't even came out with anything that you can even compare with the intels (k8's are OLD, conroe's are NEW...how can u compare?)

That's like comparing a x800xt to a 7800xtx....give it time, then you can say if AMD is really in the crapper.....

iLLestOne said:

Give it time.....AMD's ruled before, now for the time, intels will.....AMD hasn't even came out with anything that you can even compare with the intels (k8's are OLD, conroe's are NEW...how can u compare?)

That's like comparing a x800xt to a 7800xtx....give it time, then you can say if AMD is really in the crapper.....

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Well, you start with that sentiment and then look down the road to what AMD is going to come out with. The problem is, AMD doesn't appear to have any new architecture cards available to play. They appear to be stuck with making tweaks to the current architecture for at least a couple years. So, they are left with making their improvements on the manufacturing side of things, which has never been their strength against Intel and they are as far behind on that front as I can ever remember them being.

So, how long do you wait before you HAVE to start making the current comparison? 6 months? 12 months? 18 months? Longer? At some point, people are wanting to buy/build a system NOW and they have to choose from what's available. Maybe they can wait a little bit if they know something new is coming down the pipe very soon, but right now the pipe is practically empty as far as the eye can see.

Again, AMD isn't a dead man walking or anything right now, but it's very likely they will be in serious trouble within 6-12 months. They're going to have to get out of "business as usual" mode very soon.

i read that article and it seemed kind of one-sided towards AMD's impending destruction. IMO conroe/merom is just the pendulum momentarily swinging intel's direction. we'll have to wait and see though

benbaked said:

i read that article and it seemed kind of one-sided towards AMD's impending destruction. IMO conroe/merom is just the pendulum momentarily swinging intel's direction. we'll have to wait and see though

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AMD has given no indication of anything to come that would make it swing back, or even return to center. AMD's boat is tipping, and it better start working on somethign before it reaches the point of no return and capsizes.

steve1 to the forums

hafa, u should be the Buisness Analyst of the forum yea, AMD is ok now, they have all the dell fans now MWahahaha, dell sells a lot, AMD is with dell. AMD makes good sells. Is elemental

AMD is going to be hard to beat out of the 4way+ server market (they have Intel beat soundly there even with the new Xenon's)

Intel is FSB limited at that point, and will continue to be untill they can manage to produce the CSI platform.

Where is the big bucks at??? right there.

AMD got the contract from dell for 4way+ servers that = alot more sales (Dell's server support is what has sold alot of inferiour Xenon systems in the past)

AMD has some time to produce a competive product on the desktop.
Intel is just fighting with bigger guns on the desktop platform now