Supply and Demand

There are reports that some AMD CPUs are in short supply.

Actually, if you read the article, it only refers to supply in Taiwan, though if you look at Pricewatch, Athlon 64s are hardly all over the place (for that matter, neither are most Intel Prescotts)

The reality is most of AMD’s current production is still Athlon XP-based. While Hammer unit production is no longer a tiny fraction of total AMD CPU production, it still is much less than half AMD’s total unit production.

On the other hand, that is going to change quite a bit over the next three months, and even more in the next three months after that. By this time six months from now, Hammer-based products should represent a fairly large majority of CPUs made.

And then will come the moment of truth for the company. After long delays, it looks like they have their manufacturing act together, and will finally ramp up production.

They will make it, but will people come? More accurately, at what price will they come?

Until not too long ago, there was a very small supply of desktop Hammers, which allowed AMD to charge artificially high prices. The supply has expanded (but still to no high levels), and prices have come down.

What is going to happen when AMD makes three or four times or five times as many Hammers as they do now? Will they be able to keep charging a sizable premium over Athlon XP prices, or not?

AMD needs to get roughly $100 a CPU to be in fairly rosy financial health. They probably could live with $90 (that’a about what they’re getting now).

Can they get it?

That will be the biggest issue in this field for the next six-nine months. AMD will have to sell a lot of Hammers in 2005; they won’t have anything else to fall back on. If people don’t want to pay the going rate, the going rate will have to go down.

No, this is not a retread of the “AMD is charging too much” sentiments we’ve expressed in the past. We don’t find pricing on the lower end terribly unreasonable today; it’s OK.

But we’re not going to buy six million CPUs a quarter. Nor will enthusiasts. The people who answer that question will be everyone else in the world looking to buy a new computer.

Some may say, “Of course they will; AMD will have a better product than Intel.” History would say otherwise. I remember those days just a few years ago when AMD had a 1.4GHz Thunderbird to a 1GHz PIII, and they could only get $110 for it despite a performance gap that if anything was greater than we’re likely to see next year.

That doesn’t mean AMD is doomed to repeat the experience. The Thunderbirds back then ran hot, and had less-than-optimally-reliable motherboard support. Those are two strikes not against AMD this time around.

Will that be enough to make the outcome different this time around?

I honestly don’t know. It may, it may not. I can’t say history is going to repeat itself, but I can’t say it won’t, either.

I don’t have the answer, but that is going to be the big question the next six-nine months.


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