Falling Down On The Job . . .

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You run a company. Your company made $2.5 billion the Christmas quarter, and almost $9 billion for the year.

That’s pretty good money.

First quarter 2006, you expect the normal seasonal dropoff of 5-10%. Two months into the quarter, it looks like it’s going to be
5% more than that. Instead of making $2.5 billion, looks like you’re going to make $2 billion, or maybe a bit less than that. On top of that,
you suffered a slight loss in market share.

Since the SEC likes it when you tell the world when results are a bit different than you expected, you do.

It’s hardly champagne cork-popping time, but would you describe a company that makes two billion dollars profit in three months to be in financial trouble?

Only if you’re in the media.

“Strike three for Intel” yells one article. Perhaps some of our non-US audience might be unfamiliar with the connotations of this baseball term, but “three strikes” means you’re history.


I’ve even heard terms like “financial trouble” being used around Intel’s name. Well, the stock market may not like it, simply because Intel isn’t growing the way or as much as they expected, but the choice isn’t between “grow rapidly” or “die.”

Just to give an example, a factoid recently being tossed out is that some beancounter reported that AMD had an 80% marketshare of the U.S. retail market.

To many, this sounds like Intel is most of the way down the tube, but that’s just because you don’t know the following:

  • The “U.S. retail market” consists of sales by places like CompUSA and Best Buy. It does not include mail/Internet-order OEMs like Dell.
  • The U.S. retail market is only 9% of the world market, or about 28% of the U.S. market, a bit over eighteen million computers a year.
  • Dell sells more PCs in the United States (about 33% market share) than “the U.S. retail market.”
  • Unlike many other market segments, the marketshare of Intel/AMD can fluctuate a lot. Historically, so long as AMD had a decent (and relatively cheap) product out there, they’ve done disproportionately well in this market. During the
    Thunderbird era, AMD was even or a bit ahead of Intel. When things weren’t going too well for AMD, it shrank to about 20%. Last year, AMD got back to even or better again.

  • Cost matters a lot in this market, and the typical AMD machine sold during this 80% period cost about $200 less than the typical Intel machine.

    Even after taking all that into account, it’s still a very good performance from AMD, better than they’ve ever done before, but it’s not “Intel execs go on welfare” news.

    There’s no denying AMD has been doing well lately, but “doing well” and “killing Intel” are two quite different things. Overall, AMD’s marketshare of the x86 marketshare still hasn’t reached the peak it set back in the Thunderbird (though they could well hit or slightly exceed it this quarter or next).

    It should be noted that AMD got to 22-23% during the Thunderbird era primarily due to Intel pushing the PIII design until it broke, then filled in with a less-than-inspiring stand-in called Willamette. Once Northwood showed up, AMD’s gains receded.

    AMD is making gains today in large part because Intel pushed the PIV design until it broke (well, overheated), and currently is filling in with a less-than-inspiring crop of products today until they can get the Conroes and Meroms out.

    Haven’t we heard this story before?

    I’m not going to say history is going to exactly repeat itself and AMD is going to get rolled way back. I think they’ll do better than that. However, even if you heavily discount what Intel said about their new processors at IDF yesterday, it’s pretty hard for anyone but an AMD fanboy to argue that processors like Conroe will not at least level the playing field (and if AMD is delayed in 65nm, do more than that).

    Pretty good for a doomed company. That ought to at least delay Intel’s bankruptcy finding. 🙂

    What makes all this gloom-and-doom even more farcical is that for most of the time Intel’s cupboard was bare and Prescott was on fire, hardly anyone in the “official” media noticed, but just before the long-standing problem get fixed, everyone starts yelling that the sky is falling. Why? Because Hector Ruiz just told them so? Is that what passes for investigative reporting these days? Shouldn’t they have noticed long before hearing it from Hector?

    It ought to make you really, really wonder just how much of a clue a lot of these people have.

    No, Intel’s not out of the woods yet, and yes, matters will get worse before they get better, maybe a lot worse the second quarter.

    But reports of Intel’s demise are greatly exaggerated.


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