Intel vs. AMD: Is the market share war worth it?

Intel vs. AMD: Is the market share war worth it?

Summary: Perusing analyst research notes and Intel's financial results a few key facts stick out: --Revenue was above expectations by a good bit yet earnings were just above consensus. Translation: The price war with AMD is hurting Intel too.

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TOPICS: Intel
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Perusing analyst research notes and Intel's financial results a few key facts stick out:

--Revenue was above expectations by a good bit yet earnings were just above consensus. Translation: The price war with AMD is hurting Intel too.

--Intel may have benefited from a buildup among OEMs preparing for the Vista launch instead of actual demand.

--Analysts expect Intel to gain market share on AMD--at the expense of profit margins--and that's allegedly a good thing.

It's that last item that I just don't get. After a year where AMD's technology was better, Intel still has a market share topping 75 percent. Of course, it had been at about 80 percent, but it's not like Intel isn't still dominant. Meanwhile, gaining back that market share is going to cost Intel's profitability. Gross margins appear to be down for the long haul at about 50 percent at best.

"We do not expect the price competition between Intel and AMD to end anytime soon. We expect a painful, prolonged, aggressive pricing environment throughout at least the first half of 2007," wrote Eric Ross, an analyst at ThinkEquity, in a research note.

In other words, Intel and AMD will duke it out over market share and kill each other on pricing. Intel, which has more manufacturing prowess and scale, will win a long price war barring an AMD leapfrog move, but what's the point? It's like these two chip makers haven't gotten the memo indicating that they have a duopoly.

"I continue to believe that our shareholders are best served by Intel using its capacity to retake market share that we lost this year," said Intel CEO Paul Otellini on the company's conference call last night. "Nothing has changed there, except that we perhaps now have a much better product portfolio to do that with. The flexibility and the breadth of that product portfolio gives us a number of pricing options."

OK, fine, but the chip industry isn't like the auto sector where there are many players scrapping for market share--and trying to topple General Motors, which in turn got consumers hooked on incentives to keep its market share lead vs. Toyota. In the semiconductor industry, Intel could ease up on the pricing pressure, AMD could get some wiggle room and both companies could book more profits.

That aforementioned duopoly truce wouldn't be good for technology buyers, but you've got to wonder if this price war in a duopoly makes a lot of sense.

Topic: Intel

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19 comments
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  • Simple, a monopoly is better than a duopoly

    If you happen to be in the monopply position. ;-)
    No_Ax_to_Grind
  • Intel's attempt...

    I think intel thinks that if they bring the chip price to the lowest price possible AMD will have to do the same and they figure that Intel can lose more profits longer than AMD can because of their size. I guess that is what competition is all about.
    bobiroc
  • Duopoly?

    Memo to Intel - Bring those 80-core processor chips online WAY before 5 years from
    now!
    pritchet1
  • The Strategy: AMD Manufacturing debt

    Keep in mind that AMD had a production problem which they have been fixing by building fabs which are hugely expensive. That means massive debt. Intel his hurting AMD at the very point they are most vulnerable.

    It sounds nasty but basically what you do is let AMD ramp up production (means cost) then wipe out any profit from it. What's worse for AMD is that Intel has a technology lead too. And at this point AMD has less money for R&D.

    But AMD has good management and they know how to spend money wisely. Right now Intel has got AMD in the corner and is pounding away but AMD still has stuff in the basement.
    DevGuy_z
  • Contradictions...but overall, I agree...

    "it's not like Intel isn't still dominant"

    Well...then it's not a duopoly, is it? Anyway, I agree with the main point - which is that these two can kill their profitability by dogfighting over that 5-7% marketshare that they keep exchanging...or, they can both have higher margins and be more profitable. I never did understand giving up 10% on margins in order to gain back 5% share. Someone else finally noticed?
    Techboy_z
    • Your not looking at the long term

      "I never did understand giving up 10% on margins in order to gain back 5% share."

      Simple, run AMD into the ground and then raise prices back up.
      No_Ax_to_Grind
      • You're right, but add:

        A higher share of a growing market produces more revenue.

        Vista is coming!
        Anton Philidor
      • They have been trying

        [i]"Simple, run AMD into the ground and then raise prices back up."[/i]

        Intel has been trying to do that since (if not before) the introduction of the original Pentium. And back then AMD wasn't even really a mainstream competitor.

        I just wish Intel would learn that AMD is here stay and find a way for them to peacefully co-exist and both make money.

        But I firmly believe if AMD never stepped up to the plate Intel could have continued on its slow pace of releasing products and we would probably be barely over the GHz Mark now and paying exorbitant prices for our processors. But thanks to a little healthy competition we get faster/more innovative products earlier. This is what Intel does not like, being forced to bring then Bigger and Better out on someone elses terms.
        bobiroc
        • Why?

          "I just wish Intel would learn that AMD is here stay and find a way for them to peacefully co-exist and both make money."

          Seriously. why would any for profit company do this? You don't see GM telling Ford to go ahead and take market share do you?
          No_Ax_to_Grind
          • You misunderstood.

            I am not saying Intel should roll over and submit, I just think they seem a bit too focused on putting AMD out of the market instead of delivering innovative products to its consumers. Now that has changed this past quarter with the "core duo" line of processors, but the past few years with the Pentium 4 has been a joke. Hopefully this will be a new Trend Intel will continue and both Companies will be forced to keep up the pace.
            bobiroc
      • *ding* *ding* *ding* We have a winner.

        Your assessment is also quite correct. That's how the game works.

        Rather like folks praising companies like malwart* right now. Once they kill the competition they really tighten the thumbscrews**...

        * name changed to protect the "innocent"
        ** somehow, "nutscrews" sounds more apropos despite sounding dirty...
        HypnoToad72
  • Competition is always good....for America

    Sure, they may have to sacrifice some profits, but in their scramble, they sell more
    chips to more people, and probably enhance their offerings.

    This is all good. And, I believe it is good not just for consumers, but for the
    individual companies too. As long as both are strong enough to keep on fighting,
    they will both get better.

    And we get the gravy.

    It always amazes me that Americans are always trying to circumvent the free
    market model. It's what made us great....makes us great...and will keep us great!
    Hameiri
    • Yes, properly structured competition also makes parts cheaper and better...

      ... = [b]properly structured competition[/b] is good for everybody in a normal society (by/of/for the people).

      The question is how normal is what we have now?
      .. and is there any treatment available and how much does it cost?

      I understand that "doctors" are not Gods and cannot give any guarantee, but any working anti-monopoly/dictatorship solution for the situation is better than no solution.

      Add here that without counting the resistants of those who stand behind the scenes - any solution is not complete.
      Vily Clay
  • The lesser evil is always beter (?)

    It was obviously good for AMD to become a significant competitor to Intel thus forcing it to at last improve iys aging/ailing net-burb chips.

    Unfortunately, the better IA32 implementations and their 64-bit extensions are only short term benefits for the computing industries and communities.

    The infamous and out-date IA32 / EM64T got a reprieve from its phasing out. This is getting like the COBOL in the 80s.

    I sure hope that the more efficient datapath designs which were the result of the intense Intel/AMD competition will now motivate the birth of a more modern instruction set (not one stuck in the late 70's).

    We will see.
    michael_t
    • Superior ISA

      [i]I sure hope that the more efficient datapath designs which were the result of the intense Intel/AMD competition will now motivate the birth of a more modern instruction set (not one stuck in the late 70's).[/i]

      Oh, that happened a long time ago. It was the DEC Alpha, which [b]still[/b] stomps the IA32/AMD64 and Itanic architectures at equal process nodes. Some of the 5-year-old Alpha chips still deliver quite competitive performance.

      Intel bought up the rights and plowed the Alpha under to prevent competition for the Itanic. That sure worked well, didn't it?
      Yagotta B. Kidding
  • To pay triple more for the same thing is better than triple less, right?

    When AMD was better ? Intel did not let AMD go.

    To prevent it and the like ? we need a WORKING law ? offering at least two same-level competitive products is mandatory. (The procedure how to choose a competitive product to maintain a decent competition is a separate story)

    It needs to be not limited the CPU market only;

    OS, software, mice, monitors, etc. need to be included too. (It?s in short).

    E.g. no more Macs with an Apple mouse only; no more Windows/Mac-only PC-manufacturers - offers other OSs too (as a stand alone and with dual boot, parallels desktop, etc.).

    [b]It will save taxpayer?s money on antitrust[/b] and more.

    Plus, the less law-suites ? the more possibilities for useful activities.
    Vily Clay
  • More market share makes it easier to lock people in.

    That's not about capitalism (aka building the better mousetrap). It's entrapment (being the sodding mouse...)

    However, let's face it, Intel's dual and quad core CPUs are faster than AMD's counterparts (when applicable!) and AMD has catching up to do. And, unlike Microsoft, Intel doesn't fudge up chip designs just to make matching compatibility more difficult for the competition...

    Unless AMD can up the ante, I will probably be going back to Intel by 2010 (the next time I'm due to upgrade my PC... with XP because I refuse to be superglued to Vista and pay for a new license every time I replace the system board!)
    HypnoToad72
  • Yeah, AMD and Intel should agree on prices

    What a goof ball article. Are you suggesting price fixing to keep margins high?
    Prognosticator
    • You are never going to get that many competors

      In a market with such a high start up cost. 2-3 is probably the best you can hope for
      mrjonno