Intel's diversification not backdoor for AMD

Intel is moving up the stack to provide software and services alongside its processors, but an analyst thinks this will not leave room in the chips market for AMD to exploit.
Written by Kevin Kwang, Contributor

Aiming to expand its reach into smartphones and the consumer electronics markets, market-leading chipmaker Intel is focused on building up its software and services offerings. But this does not mean that fellow competitor, Advanced Micro Devices (AMD), will be able to sneak up unawares to wrest the former's market share, said a Gartner analyst.

According to Christian Heidarson, principal research analyst at research firm, Intel's push up the stack was born out of a necessity to provide a more complete solution for its customers, as well as to become less dependent on third-party vendors, particularly in the smartphones and consumer electronics markets.

He went on to add that Intel has a "great high-margin business" selling chips, and that currently, revenues from software and services are insignificant compared with its hardware revenue. So, if the company could stick with just a pure-play chip business, it would have, the analyst noted.

"In [the smartphones and consumer electronics] markets, Intel's software and services offerings are comparable to its chipset business in PCs. These offerings allow Intel to offer a more complete solution to companies wanting to reduce their research and development (R&D) overheads," said Heidarson in his e-mail to ZDNet Asia.

"[This push up the stack] gives Intel a greater degree of control over its own destiny as it becomes less dependent on third parties for critical components of the platform," he added.

Heidarson was responding to an Ars Technica article in which author, Jon Stokes, conjectured that AMD might benefit from Intel's plans for diversification. He argued that AMD should focus on providing value-for-money chips in the notebook and server sectors to carve out a larger share of the chips market for itself.

"[If] Intel starts competing with its customers' products...OEMs (original equipment manufacturers) may well decide that they have more opportunity to differentiate themselves by pairing an AMD platform with some in-house engineering than by rebadging an Intel-made hardware/software combination and selling it at a markup," Stokes commented in the article.

However, the Intel spokesperson ZDNet Asia contacted disagreed with Stokes' argument.

According to Nick Jacobs, he said Intel refuted the view that its focus on emerging growth segments in software and services detracts it from its commitment to mainstream computing.

"We would contend that a strong software proposition actually makes Intel more competitive, especially in the [mobile] phone and tablet [computer] space where the benefits of x86 ubiquity is yet to be felt," he added.

Jacobs also pointed out that the industry is moving in Intel's direction. Citing the examples of Motorola's Droid and Apple's iPhone smartphones, he said these devices are becoming much more PC-like, featuring social media and Web surfing, among other applications.

Similarly, this "trend" is replicating itself in consumer electronics, which includes more intelligent televisions and in-vehicle entertainment, he noted.

"So we have a good growth business in mainstream PCs, which will continue to grow, particularly in Asia, and we also have the opportunity to take our PC chips and put them inside a whole bunch of devices that are becoming more connected and PC-like," said Jacobs.

Even AMD, the beneficiary of Stokes' proposition, feels that adopting a pure-chips play would not be beneficial to its overall business.

Speaking to ZDNet Asia in a phone interview, AMD spokesperson Jason Coates said the chipmaker is "focused on its Vision strategy", in which its value proposition is being a platform provider that offers the CPU (central processing unit), GPU (graphics processing unit) and chip set.

He also mentioned that AMD is committed to working within the industry ecosystem to meet consumer needs, and since its acquisition of graphics maker ATI Technologies in 2006, have been beefing up its software capabilities, too.

Besides coming up with software support for its ATI graphics card, Coates pointed out that the chipmaker is constantly working with software developers to optimize the latter's usage of AMD chip technologies. One example is its Eyefinity 6 technology that allows a single GPU chip to power six display panels simultaneously.

"We were talking with game developers about our Eyefinity technology and worked with them to produce games that are more realistic by adding greater depth and 180-degree field of vision, thereby improving the entire user experience," the AMD executive said.

Acquisitions key to AMD's expansion
Gartner's Heidarson believes AMD is "doing a good job" of targeting specific markets with optimized solutions, and this is backed up by various PC makers including AMD chips in its latest laptop lines. In fact, a separate ZDNet Asia report noted that AMD is expecting its partners to introduce 109 mainstream notebooks and 26 ultrathin notebooks based on its chips in 2010.

"AMD has done a good job of targeting the mid-range with cost-optimized solutions...and the same can be said of its graphics business where it has done well with a similar strategy against Nvidia. [The company] seems to have found a nice existence focusing on the parts of the PC market that are receiving less attention from its more visionary competitors," noted Heidarson.

However, this strategy may not be enough to see the company penetrate into the smartphones or tablet PC markets, the analyst said.

He thinks that just like in the mobile PC market, where AMD could not make a significant dent before its acquisition of ATI, the chipmaker will once again have to dole out the cash and acquire the necessary capabilities in order to catch up with Intel.

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