AMD’s Criticality 1 failure

In the long running chess match between Intel and AMD, extending wayyyy back to pre-Win95 days, there has been a basic competitive paradigm at play:

1. Intel plows along, multiple product sets, monster revenues, monster R&D, and pretty good innovation
2. AMD takes the current state, reinvents it a little, gets some type of technology advantage, exploits it against Intel, and gains a little share
3. repeat

Enthusiasts (like us) like it because we get a great product like Opteron or Athlon at a good price and (we might as well admit it) we like the ”power to the people” feeling of rebelling against companies like Intel and Microsoft. “Ha”, we say, “I got a better 3DMark score without having to pay you an extra 10% for the CPU you capitalistic pigs!”

In this case, I ask you to consider these rough observations (I didn’t break out the calculator or anything):

1. AMD stock is down about 45% from the peak this year and they haven’t made money in a long time
2. Intel is down more like 30%, but in general they make money
3. Both of them have been stymied by slow PC sales due to lack of: new horsepower / strong need for it at the current software “bloat level”
4. Intel’s sales are about 7 TIMES that of AMD, in fact Intel’s Net Income is more than AMD’s total sales
5. Market rumors are that AMD is going to buy ATI, a valid strategic move if you want to defensively get larger and diversify real fast
6. Intel is getting ready to release new architecture with BIG performance and power usage improvements
7. 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%!
8. Intel is uncharacteristically talking it up ahead of time, engineering samples are all over the joint, press are looking at it 3 months in advance

9. AMD is saying NOTHING about new competitive architectures – no rumors, nada, zip. AM2 and new dies and 128bit FPU’s do not make up this much ground and everybody knows it. If AMD had something, they would be talking about it. If you’ve got a product defense, there is no reason to allow your competitor to gain ground like this

NASA has a term for spaceflight events that could cause the loss of the spacecraft and crew. It’s called a “Criticality 1” failure. Generally it’s relatively mundane stuff that chain reacts into a major event, typically in a short period of time, and results in a fireball, like O-rings, flying foam, putting metal in the microwave… you know.

AMD, by most accounts out there, is FAR (12-18 months+) away from an answer and looks as if they were caught resting on their laurels. Doing nothing is the worst strategic error of all.

Intel has already taken the stock price and inventory hits. They’ve got cash. They’ve got completely superior product now. What’s the downside to getting brutal with pricing and forcing 70% price cuts to your already bleeding competition? Nothing. Upside: Charging much higher margins when your competition is almost non-existent next time around. Next time around is only six months off, by the way.

I’m not a genius or prognosticator, but…..

Good News: Enthusiasts get some big performance improvements for a great price now, software will follow with some good innovation to use up the new horsepower

Bad News: While not certain, there’s a real potential for AMD’s CPU business to get cut in half or more and their company / product set to get completely transformed (their planning screams it if you read between the lines).

The real shame is that because of their Criticality 1 failure, we are all but assured of a less competitive future.

Steve