The Snow White Strategy . . .

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For the moment, due to lack of money and/or the inability to get any more from outside sources, AMD is going to hunker down in its new $270 million office complex and start starving itself.

Renovation of Fab30 will be minimized; R&D projects will be at least delayed. Outside of 45nm conversion (and even that is being done on the cheap), it’s going to be “We going with what we already got.”

Of course, if this lasts for any prolonged period of time, the company will just wither away, and even a relatively short hiatus will hurt AMD down the line.

For us, unless there’s a miraculous improvement switching over to 45nm (which is very unlikely given the second-rate process technology that’s going to be implemented), the company will be in a technological coma for a while, which will mean even further delays in the only projects that can get AMD out of its current hole.

So why is AMD doing this, and what are they trying to achieve by doing this?

In one word, the goal is survival. To be a bit more detailed, we’re going to call this the Snow White strategy.

(You might want to get up to speed on Snow White before continuing.)

In a nutshell, faced with Evil Queen Intel out to kill it with poisoned price cuts, AMD Snow White will seek refuge among the dwarves (I guess those are the AMD fans) and deeply chill out until her Prince shows up.

Who’s the prince? Well, in this fairy tale, it’s probably serial princes, short-term and long-term.

The short-term goal is to at least make it look like AMD is doing much better, and since they can’t really expect serious revenue growth in 2008, that means cutting expenses that don’t have an immediate payoff at least for a while from somebody, either publicly or privately. This is very much like a divorced middle-aged woman going on a starvation diet before dating again.

With “better” results, the stock price ought to start heading back up. This is essential because as of now, the last AMD prince, the Mubadala people, are down $250 million on their $622 million investment. Being down 40% on an investment after just six weeks is hardly an advertisement for other princes to join in.

Once the Mubadalas stop looking like complete fools for their investment, AMD can start looking for more fools princes for fresh money, and once they find one (or more), like that middle-aged woman, then they can start eating again.

That’s the short-term goal. The long-term goal is to get another set of princes, the real princes in this tale, to punish Evil Queen Intel so AMD can live happily ever after again.

I speak, of course, of the European Commission, other government commissions, and the American court system. What AMD really wants from any/some/all of these princes is not so much cash coming from Intel (though they’ll certainly take that) but restrictions on Intel competition that will dictate, directly or indirectly, that AMD will be effectively guaranteed a protected share of the CPU market. This will let AMD raise its prices, which is the only way it can live happily ever after.

Intel will of course appeal any substantial negative decisions for years and years to come, but even preliminary decisions favorable to AMD are likely to help it greatly in its other financial efforts.

How Will It Turn Out?

Fanciful as it may seem, this description is an accurate, if sketchy, portrayal of AMD’s short- and long-term strategies.

Is this just fantasy, or does AMD have any real chance of having its dreams come true?

Despite its more than slight resemblance to a scam, unless the world economy goes seriously south over the next year, AMD will probably be able to pull off part one.

However, that by no means ensures AMD’s long-term survival. AMD used to be able to scrape by with low prices and 15-20% marketshare. In an age of multibillion fabs, it no longer can, at least not as any kind of real competitor against Intel.

Ruiz and Company weren’t stupid in deciding that they had to get big or die. That strategy was correct. They were stupid in implementing the strategy without extra money, even when they could have easily gotten it, then using it both to make sure they stayed ahead of Intel and to have a piggy bank as insurance against any price wars.

Now that the do-it-yourself route has failed, Plan B is now in effect. Even Plan A gave a sizable role to the governmental/legal princes to protect AMD from Intel, but they become essential under the Snow White Strategy.

The problem facing these governmental commissions and the U.S. courts is the point Intel is bound to make, maybe quietly, maybe not so quietly, which is, “Our competition does poorly because they’re a weak and/or badly-run company.”

There is much to be said for that argument, not in the sense that it makes any shady Intel business practices OK, but in determining how or even if you can establish “fair” competition.

How do make a fair match between David and Goliath in a mud wrestling contest “fair.” What if David, besides being small, is also a bit of a slacker or screwup?

Take right now. Intel is basically pounding AMD into the ground because they have better processors and can use that advantage to push AMD into the bargain basement. Is that illegal? Is that unfair? Just how is Intel supposed to fix that? Spend less money on R&D? Be told to charge more money for its processors so AMD can get more, too?

I could go on and on about this, and sometime in the future, I no doubt will :), but for now, it’s this part of the story, that a government or court can somehow magically level the playing field between two such unequal competitors in an industry where Size Still Matters that is really a fantasy.

Ed


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