ASSIGNMENT ON COMPETITIVE STRATEGIES OF INTEL & AMD SUBMITTED TO: PROF. BHARATHI GOPAL SUBMITED BY: NIHAD ALI (0920318) Introduction We live in a digital age. Music, video, phone calls, information creation and information consumption are all, by and large, done digitally. A huge proportion of this happens on the Internet. People use the Internet and its content via computers: As Internet content becomes more sophisticated with, for example, film, music and podcasts, more computing power is needed. The computer chips inside computers need to keep pace with that demand.
Intel is best known for producing the chips that deliver this increased computing power. Computer chips are essentially collections of transistors – tiny electronic devices that control the flow of electricity to create the 1s and 0s that underpin computing. Intel is the world’s leader in silicon innovation. Silicon is made from purified sand that is super-heated. Produced as a huge sausage-like shape called an ingot, it is sliced into wafers. The chips are manufactured on these wafers. Transistors are the building blocks of computer chips that Intel has been making for 40 years.
Intel has been working to make these transistors smaller so that more of them could be fitted onto the same area of silicon, making the chips more powerful. This came at a price. Until recently, the smaller the transistors, the hotter the chips tended to run. In 2007 Intel developed a breakthrough in the materials used to construct the transistors. Not only can these transistors work faster, they can also do this while generating less heat. Intel has started to use this new material for its latest generation of processors. These are made from transistors only 45 nanometres in size.
This means over 2,000 of them could fit on the full stop at the end of this sentence. A 45 nanometer transistor can switch on and off approximately 300 billion times a second. A beam of light travels less than a tenth of an inch during the time it takes a 45nm transistor to switch on and off. INTEL Intel began in 1968. It was founded by Gordon E. Moore who is also a physicist and chemist. He was accompanied by Robert Noyce, also a fellow physicist and co-creator of integrated circuitry, after they both had left Fairchild Semiconductor.
During the 1980’s Intel was run by a chemical engineer by the name of Andy Grove, who was the third member of the original Intel family. Many other Fairchild employees participated in other Silicon Valley companies. Andy Grove today is considered to be one of the company’s essential business and strategic leaders. As the 1990’s concluded, Intel had become one of the largest and by far the most successful businesses in the entire world. Intel has gone through many faces and phases. In the beginning Intel was set apart by its ability primarily to create memory chips or SRAM.
When the firm was founded, Gordon Moore and Robert Noyce had the idea to name their company Moore Noyce. However when the name is spoken it is heard as “More Noise” This idea was quickly abandoned and the pursuit of a more suitable name – one which was not associated with a bad interface. The name NM Electronics was shortly thereafter chosen and used for nearly a year, when the company experienced a name change to Integrated Electronics, or INTEL for short. The rights to the name however had to be purchased as it was already in use by a fairly well known hotel chain.
Though Intel had mastered the first microprocessor called the Intel 4004 in 1971 and also one of the world’s very first microcomputers in 1972, in the early 80’s the focus was primarily on Random Access Memory chips. A new client in the early 70’s from Japan wanted to enlist the services of Intel to design twelve chips for their calculators. Knowing that they did not have the manpower or the resources to complete this job effectively, Ted Hoff agreed to the job just the same. His idea was: What if we can design one computer chip which could function the same as twelve microchips?
Hoof’s idea was completely embraced by Moore and Noyce. If this project were successful the chip would have the ability to receive command functions. This is where the 4004 model came from. After a painstaking 9 months. It measured 1/8th inch by 1/6th inch long and contained 2,300 transistors. History was made and changed that day. The Pentium Pro processor had 5. 5 million transistors, making the chip so affordable that it could be imbedded in common household appliances. After this success Intel decided to completely embrace this and to pursue its production. Competitive advantage
Competitive advantage means a company has or does something better than its rivals. The ‘tick-tock’ strategy was announced in September 2006 by Intel’s CEO, Paul Otellini. It is a blueprint for Intel to maintain its technology leadership and competitive advantage. It plans to take advantage of Intel’s product research, development and manufacturing capacity to deliver improved products every year. This regular improvement will ensure continued market leadership. In ‘tick’ years Intel will introduce a new manufacturing process (of which the 45nm process is the latest). Tock’ years will see the introduction of new designs (architectures) of CPUs (central processing units). Intel is competitive because: • It has a regular cadence (or rhythm) to the development of new products or improvements to existing ones. • It integrates teams from R&D and all areas of manufacturing, all working to the same schedules. Intel is the only company that can combine and optimise manufacturing process technology, product design, leading-edge capacity, design tools, masks and packaging in-house. • It sets the highest standards in high-quality clean production.
The company invests vast sums in R&D and manufacturing. This makes it is difficult for rival companies to match Intel. • It designs quality products. Intel continually develops new technologies that combine product-led, user-led, and market-led features. • It is able to leverage its manufacturing capability. This means it can increase production to bring product to market in large volumes. Increasing volume and getting the product onto the market as quickly as possible are important elements in creating and maintaining a competitive advantage.
In order to protect its advantage it is essential that Intel registers intellectual property and patents in new product development. This registration is vital for Intel. This gives legal protection against copying by its competitors. The protected time allows it to sell its products without direct competition. These help to recover the investment costs of designing, researching and developing the new products. Desktop Market The desktop market is comprised of several large computer companies that sell too many individual buyers of all demographics worldwide.
It is currently the largest and most valuable processor market, but has experienced slow growth recently compared to the notebook market. Current sales are around 150 million units worldwide, but projected future growths are not large4. Intel currently has strong advantages in technology and resources over AMD in both the high and low end markets, and can try either pressing its advantage to squeeze out AMD, or accommodate AMD by giving them one part of this market. Low End Market The common person orders computers online or buys them in large computer stores.
These people will mostly care about the price or the name of the computer company. They will pay little attention to the actual processor, and will not be knowledgeable about the benchmarks of each processor. The power of the processor is not very important, as all current processors can handle mundane tasks like using the internet or uploading photos. It is important to get deals, particularly exclusive ones, with the major computer manufacturers. Since these companies buy in bulk, Intel can offer them special rates, or wield its dominant position in the market to assert pressure.
However, Intel must be careful about pressuring for exclusive deals, because AMD can retaliate by suing them with antitrust cases. Intel should continue developing integrated platform solutions, which combine the CPU, graphics, and sound together. Although they are usually on the low end for each part, these platforms can cost substantially less than buying each part separately, making them very attractive to low-end consumers. This is particularly good for computer manufacturers because of the significant cost reduction.
The average consumer does not need a better graphics processor, so any cost reduction is extremely beneficial. By utilizing their current dominant position, Intel could convince computer manufacturers to buy platforms from them instead of graphics cards from somewhere else, thus giving them an advantage in the processor and graphics card markets. AMD is currently trying to utilize its acquisition of ATI by creating its own platforms. They are currently developing the AMD GAME! Line that will utilize ATI graphics cards. Intel can only compete on the lower end by making their platforms cheaper than AMD, which is possible.
Intel will have to cede the higher end to AMD unless they can reach a deal with Nvidia to incorporate their graphics cards. The low-end market is much larger than the high end one. Around 80% of the market is comprised of PC’s costing less than $1000. Thus, it is essential that Intel keep a lead in this market. The Core 2 line is currently more cost effective than AMD’s new Phenom line, and it will be at least a year for AMD to be able to catch up. Also, given Intel’s significantly larger resources, they can invest more heavily in research to keep ahead.
Overall, the low-end market is the more profitable one, so Intel should not accommodate AMD, especially given their early lead. This is the desktop market portion that should be concentrated on most heavily, with aggressive price-cutting and landing exclusivity deals with computer manufacturers. Intel can continue to invest heavily in research. Intel invested almost 6 billion in 2006, about half of their total operating expenses. This is compared to only 1. 2 billion for AMD. Given Intel’s huge financial advantage, they can continue to improve on their technological lead over AMD through even more research.
There is little AMD can do about this because of their weaker financial position. AMD can try to fight back in this market by greatly cutting their prices, but this will only hurt them in the short run, and Intel can fight back by cutting its own prices, thus triggering a disastrous price war neither side wants. Unless AMD can get lucky with the next round of chips, they do not seem to have many options. High End Market There is a much smaller market composed of knowledgeable individuals who purchase separate parts online and build the computer themselves.
Intel sells OEM products to websites, which these people then buy from. Frequently, the people that build their own computers are high-end gamers who actively read benchmark tests in order to discover the best processor. New games present a wonderful complement because they constantly push the technological limits of a machine and demand better hardware, forcing gamers to upgrade. Marketing is not as necessary, because these consumers actively search for all products by each company. Price and technology are the most important factors, as consumers will go for the optimal mix of cost and performance.
This market is too small to be a focus for Intel, but given that they need to do very little to reach this market, it can be a profitable one. Currently, Intel has both a price and technological advantage over AMD, so it has captured the majority of this market. This could be a potential market to accommodate AMD in. It is much smaller than the low-end mass market, so it would not be extremely costly for Intel. Intel could possibly scale back development of the high end chips and let AMD do it instead. AMD would probably be happy in this role, as they would be able to make decent profits through lowered competition.
On the other hand, if Intel pushes aggressively into AMD on all fronts, AMD may retaliate by either pursuing massive anti-trust lawsuits, or concentrate its efforts on an area that Intel is weak in, as it has done in the past. A cooperative strategy would avoid such potential destructive competition. However, the risk is that once AMD controls the very high-end market, they may extend their grasps into the slightly less high end, entertainment PC segment. Also, AMD would be able to build a reputation as having the very best chips, which may impact the less educated consumers for whom reputation is more important than actual chip performance.
Intel does not really need to accommodate AMD currently given its favorable position, but it may be propitious to back off the competition in this area to give AMD room to breathe. The desktop processor market is a highly volatile and unpredictable one. Given the extremely price competitive nature of the market, each company must constantly be on the forefront of new technology and breakthroughs. Products may see less than a year of life, so companies must be agile enough to constantly change their product lineups in accordance with quickly changing demand and technology.
On the other hand, the market is changing towards a longer, 6-year cycle. This is because software has not been able to advance sufficiently to require constant computer updating. This definitely slows down potential future growth, since the market will be much more easily saturated with a longer chip lifespan. As stated earlier, the desktop market will soon be eclipsed by notebooks, so Intel should anticipate this by shifting research from desktops to notebooks. Laptop Market In contrast to the desktop market where achieving high processor performance ith front-end technologies constitutes the primary focus of competitive strategy, the mobile market demands a best balance between performance, energy efficiency, and wireless connectivity. Due to the trend of growing emphasis on mobile computing by consumers along with the proliferation of wireless connectivity in the world, there is seen a shift in sale from desktop microprocessors to mobile microprocessors. The sales of microprocessors in the Mobility Group as a percentage of the Intel consolidated net revenue has increased steadily from 22% in 2005, to 26% in 2006, to 28% in 2007.
The following are some key strategies for success in this market. “The Heart of a New Generation” The emerging trend for thinner and lighter laptops places high demand on energy efficiency because higher energy efficiency diminishes the need for larger batteries and CPU cooling devices. It is this trend that completely separates strategy for the laptop processor market from that for desktops where performance is often maximized at the expense of energy and size. Intel’s forthcoming Atom line of processors revolutionizes the field by combining high performance and energy efficiency with low cost.
The technologies employed in this product, including the 45-nm CMOS for high performance and the Deep Power Down (C6) power management system, neither of which has appeared in AMD’s products, will keep Intel ahead, but not for long. Due to cross-licensing agreements, AMD will have access to certain patented technologies developed by Intel after some time. It has already matured its 45-nm technology and is ready to release product in the second half of 2008 as a part of its new generation Puma Platform8.
To secure its dominance in the mobile market, Intel should heavily reinvest in R & D, especially in developing more advanced energy efficient performance technology in order to maintain or even elongate the technological time gap ahead of its rival AMD. Differentiate Product via Bundling and Specialization AMD is capable of imitating or improving on most of Intel’s technologies. Without such technological barriers, competition often degrades into price wars, causing both companies to lose profit. It can avoid costly price wars by differentiating its products towards the specific orientations of the customer.
This can be done by bundling components into platforms, as it has successfully done with the Centrino platform, and also developing technologies fit the specific needs of a certain customer group, such as with the vPro technology which enhances security for businesses. However, AMD has followed suit with its own bundling and differentiation schemes. The forthcoming Puma platform includes a powerful GPU unit by ATI, which AMD has acquired9, fits the taste of the high-end gamers. Intel can potentially compete directly by acquiring NVIDIA, but this move would be costly, and the long-term benefits are uncertain.
Unable to gain dominance in the general markets, AMD is likely to concentrate efforts in the niche graphic market for gaming machines. In the short term, Intel should try to keep up at least technologically in the graphics end by cooperating with NVIDIA, since falling behind would potentially allow AMD to establish a reputation in this high prestige market first that can proliferate to other sectors. Control Low-End and Emerging Markets The cost effectiveness of the Atom processor makes it Intel’s best weapon for waging an aggressive campaign against AMD in the market for low-end laptop processors.
Among all sectors, the low-end market was one of Intel’s weakest points both because of the lack of focus as well as the success of the AMD Athlon 64 processor which cost less than Intel’s equivalent Core 2 Duo and performed better than Intel’s low-end Celeron. But now armed with a cheap high performance processor better suited for this market than anything AMD can immediately offer, Intel should take this golden opportunity to “Atom” bomb the low-end market before AMD can respond in kind. There are several risk factors for this move.
Since the Atom’s performance understandably trails that of AMD’s low end processors, AMD can defend its low-end laptop market share by lowering prices and appeal to customers’ need for performance. AMD can also hit the desktop market, which in the shortrun is still dominant, if Intel decides to shift focus away from it now. Intel would still maintain an impregnable position in the high-end business market with its various business class solutions like vPro, but AMD can potentially snatch away the high prestige gaming market with its emphasis on GPU integration.
In the long run, AMD can even hope to develop similar or even better inexpensive energy efficient performance technologies. Despite these possible challenges, the benefit of controlling the low-end market far out-weighs the snag of losing shares in the niche markets because of the much larger growth potential in inexpensive portable low-end laptops in the long-term perspective. If this strategy is adopted, Intel should try to maintain its position in the other markets with its large quantities of diversifiable resources and also continuing innovation of the Atom line to prepare for future competitions in this field.
In the emerging markets of affordable Mobile Internet Devices and classmate PC’s targeted toward first time users10 (e. g. Asus Eee PC), the threat of competition is even higher due to Intel’s lack of a well-established position as in the traditional PC market relative to the numerous competitors, but the potential for growth here is incredible. Intel must plant a strong foothold early by continually improving the Atom processor and developing strong ties with manufacturers of these products.
Consolidate Reputation and Customer Base AMD has in recent years attracted many new customers, especially in the world market. However, its revenue has also become increasingly dependent on its major customers. AMD’s lack of success recently also caused it to be tight on capital, the lack of which can seriously impair its future competitiveness. Intel can exploit these weaknesses by attempting to win over major customers by persuasive advertising and obtaining exclusivity contracts through payments.
General advertising campaigns like the Intel Inside and for the Centrino platform have been great success for developing a solid reputation among customers. More ideas like the World Ahead program and Intel Talent Search should be implemented and expanded. Intel should also especially focus on the global market, such as China, where AMD has grown rapidly in popularity. Recent establishment of a fab plant in Dalian and cooperation with major Chinese electronic retailers like Suning are the first steps.
Intel should attempt to win the allegiance of large producers by convincing them the superiority and higher cost-effectiveness of its products. Similarly Intel should be flexible and specific with each of its computer manufacturer customer’s demands in all markets. In response, AMD’s most convenient tactic for undermining Intel’s reputation is to sue it for antitrust and anti-competitive practices around the world, like others have done to Microsoft, to produce an image of Intel as a ruthless monopoly. But as long as Intel’s products stay competitive, lawsuits are unlikely to harm sales.
Furthermore, Intel can counterattack in court by reporting AMD’s mistakes as causes of their lack of success. A strong reputation among future consumers will lead to a higher demand for laptops with Intel processors. Add to this pot contracts, such as one recently made between Intel and Apple, and Intel will be able to dominate the global market. Server and Enterprise Identify Oversight on EPIC Technology Initiative Among the four stratifications of Intel’s product offerings, enterprise technology comprises mostly of server microprocessors such as the Itanium and multi-purpose Xeon processors.
Contrary to the significant growth of low-cost mid-range end user PCs which disrupted overall Intel dominance of consumer microprocessors in 2000 to 2003, the enterprise server market remains in strong demand of ever improved performance. This fits well with Intel’s consistently high capital investments into research for both x86 and x64 architectures. However, the flagship server offering by Intel, the IA-64 Itanium, was in 2007 ranked only a distant fourth among all enterprise level server deployments by volume12, accounting for only 7% of all server orders by a 2005 survey13.
As a result, actual earnings fell substantially below projected amounts , with additional losses from the tremendous time and capital investment involved in implementing explicit parallel instruction computing architecture (EPIC), an accomplishment that was scientifically groundbreaking but commercially unsuccessful due to EPIC’s failure to deliver enough of a performance advantage over existing reduced instruction set computing (RISC) architectures to justify for clients the cost of switching13.
Despite extensive advertising and product partnerships, critical reception of Itanium and Xeon has continued to constrain Intel market share in enterprise server markets worldwide. To salvage market profitability and ensure future viability of both products, Intel needs to counteract negative reputation around its products and reevaluate its product placement. Redefine and Press Itanium Niche Market One of the major obstacles which limited Intel success in enterprise server markets was the nature of EPIC architecture (Fig. ). Initial responses to announcements of Itanium were enthusiastic, with hopes that EPIC would replace RISC and several companies making preparations for migration to Itanium. However, initial software platform development in Sun’s Solaris14 and IBM’s Monterey-6415 revealed difficulties previously unknown and necessitated compiler options which did not exist. Later iterations of the Itanium have improved compatibility issues, introduced faster performance, and added support for multithreading applications.
While these improvements are publically noted, the Itanium is still reputed as a niche processor enjoying small success against RISC because of the large investment Intel is putting into it. To counter negative image of the Itanium, Intel must shift current advertising for their server products in a different direction. Current web and media based advertising efforts for server products is nearly identical to that of desktop and notebook offerings, placing emphasis on high performance, low power, and reliability.
While this may work in the desktop and notebook market where Intel already has a significant lead in market share, the strategy fails to underscore any concrete merits of an already tarnished product. Instead, the Itanium and Xeon products must be portrayed as next generation enterprise server options, for which extensive software solutions already exist and can be readily deployed in any environment. Next, Intel needs to exploit the follower effect, citing HP, Bull, Hitachi, Unisys, NEC, and Fujitsu all as licensees of Itanium hardware for their server products.
As hardware support for the Itanium increases and compatible software becomes more accessible, Intel should take advantage of increased market share by implementing more aggressive pricing strategies, offering preferred customer rebates, and forming additional product partnerships as they become available. When confronted with any further discontinuations of support such as been done by IBM and Dell, Intel should respond by reducing prices on existing chips and offering cash incentives to discourage such behavior.
The Itanium has largely failed to become a mainstream server microprocessor due to its cost and interoperability issues. However, the Itanium has a small niche as a high end workhorse for growing enterprise databases demanding high reliability and performance. That niche will not cease to exist, and therefore the demand for Intel server chips will continue. To ensure success, Intel must start with that niche, positioning the Itanium as a powerful next-generation server solution scalable beyond RISC.
Aggressive targeting of that niche will build solid product reputation and develop valuable brand loyalty. Once the superscaling of RISC becomes terminal, Intel is poised to re-introduce EPIC from this niche and take over the market as the swiftest provider of the product. Xeon and the Low End Market The other server microprocessor offering by Intel is the Xeon. The Xeon is currently being adopted for a number of low-end applications. Due to product reputation and third-party benchmarking, the Xeon is identified as specifically a lower temperature, mid-range performance product.
As a result, the Xeon is not bought in large quantities by any large clients. It would be difficult for Intel to salvage this situation. Instead, the optimal strategy is to redefine all advertisement efforts for the Xeon and target specifically emerging server clients, such as new domain providers or small scale academic needs. This plan would largely salvage all current capital involved in the Xeon, such as advertisement and research costs, while positioning the Xeon in a market where it is most likely to succeed.
Together with the Itanium, this strategy leaves Intel most susceptible to missed revenue in the mid-range server market, but defines a superior long-term position and ensures short-term safety of the greatest number of existing assets. Embedded Systems An embedded microprocessor is a special-purpose computer system designed to perform dedicated functions, often with real-time computing constraints. It is usually embedded as part of a complete device including hardware and mechanical parts.
It is found in a wide variety of applications, including automobile information and entertainment devices, ATMs, information kiosks, wired or wireless communications infrastructure, tablet PCs, printers and network storage systems, as well as factory and medical equipment. Intel has been in the embedded microprocessor market for 31 years, and has longer experience in product technologies and industry application than any other company. Currently, the market is primarily dominated by Intel, with small shares by Samsung and AMD. Pursue Development Initiatives
One of the primary strategies for Intel is still to make use of its strong technological background and focus its energy and resources on research in order to maintain its lead in the embedded market. For example, the quad-core Intel® Xeon® processor 5300 series with extended life cycle support that Intel introduced recently was the first to bring architecture-based quad-core performance to the embedded segment. Since embedded processors are dedicated to perform very specialized tasks in different applications, developing such customer-tailored capabilities is very important.
Moreover, given the nature of the applications in which embedded processors are used, e. g. medical and communication devices, their reliability of the processors is of extreme importance. Thus, more resources should be spent on ensuring and improving the reliability of Intel’s products. Developing Low-Power Solutions Given that the demand for smaller and lighter devices, e. g. PDA, iPhone, continues to rise, the power consumption of the devices are increasingly being emphasized, since higher energy efficiency is intricately tied to portability.
Intel should therefore focus on developing low-power embedded processor solutions, and aim to offer a variety of processors for a broad range of demanding, low-power embedded applications, in order to meet customers’ demand of smaller processors with higher performance/power ratio and low power consumption. As Intel increases its R;D budget, it could be anticipated that Samsung or AMD will react similarly by pushing forward its own competing products, for example the Geode series of x86-compatible system-on-a-chip microprocessors.
Thus, Intel should constantly keep such response in mind and make sure its products are not technologically out-competed by its competitors. Regaining Mobile Phone Chip Market One important sector of the embedded market is the high-stakes, ultra-high-volume mobile phone chip market, which recorded its two billionth customers in 2006. However, both Intel and AMD currently do not have share of this market.
AMD sold its MIPS-based Alchemy chip line to Raza Microelectronics, and Intel sold its ARM-based XScale applications and baseband processors to Marvell, a few years ago. According to the latest market research from ABI, the mobile phone market is gradually turning towards the low-end, driven by the needs from developing nations. This is especially so for Asian markets, where the number of users are growing most rapidly. The near-term focus for handset manufacturers and operators appears to be on $40 handsets that do not even have separate applications processors.
Given that AMD is currently very much pre-occupied with the high-performance, highmargin chips for workstations and servers, as well as the fact that it lacks the engineering resources to compete outside its core strength, it is an opportune time for Intel to regain this market. According to Strategy Analytics, the reason that Intel quitted the phone chips market is due to its low profit margins, which were further constrained by low production yields. 2 And the last thing Intel needs right now is low-margin business. For example, in its 2006 first quarter earnings report, Intel reported earnings of $1. billion on revenues of $8. 9 billion with a gross margin of 55. 1%, down from the 59% forecast. 3 The gross margins were even predicted to fall below 50%, due to “a higher proportion of lower-margin product in the overall mix. “2 In other words, AMD’s success in the high-end chip market has forced Intel to lower prices on its highest-margin products, which in turn has driven down its overall margins. However, with its increased technological prowess in embedded processors over the past few years, Intel should be able to drive up the profit margin in this market, and thus re-entering might be a wise strategy.
Competition and Antitrust Before 1985, AMD had only a minority share of the x86 market but Intel was not close to a monopoly. Grove began what turned out to be a long legal struggle with AMD. Intel i386/16 was introduced in 1985 at $299 and in 1990 cost $171. AMD’s 386DX/40 appeared in 1991 at $281 and fell a year later to $140. AMD stock has performed irregularly for much of its life (Figure 1) peaking at 45 in 2000, then falling to 3 and recovering to 42 in 2006, and then dropping to 24. INTC grew rapidly with few interruptions until the dot. om crash in 2000, when it fell from 72 to 5, and then fluctuated with a downtrend and recovered until 2005, before dropping in 2006. Intel’s stock fell after the 2000 peak and never recovered. AMD’s stock trended downward after 2000, recovered after 2003, and then dropped sharply in 2006. Despite recovery in profits, the stock price dwindled deflecting doubts about the profitability of the industry and AMD itself. AMD had large tax losses carried forward which made its after-tax profits negative until 2000, when its net income was $1 billion, becoming negative from 2001 to 2003, before turning positive in 2004 and 2005.
Antitrust law is one of America’s most bizarre and self-destructive gifts to the world. Justice Abe Fortas said that antitrust law was in the tradition of the old American west. Every once in a while, a frontier sheriff would pistol whip a citizen at random pour encourager les autres. He failed to add that the sheriff would then sometimes hand the pistol to the European commissioner of competition and let her continue to beat and rob the American citizen.
It is a powerful tool with which a foreign government can harass great American exporters like Microsoft and Intel. The DOJ or FTC get the goods on an American firm and then had over the results of discovery to the foreign agencies. The coordinated international antitrust cooperative (or conspiracy) is aimed at American firms that give good deals and free goods to foreigners. The U. S. DOJ claims jurisdiction over foreigners’ antitrust violations only when American trade is impacted. The European commissioner claims jurisdiction over American firms whenever it wishes.
She seems to have an insatiable desire to redesign American soft-ware packages and steal trade-secret code to enrich her co-conspirators who would like to sell something separately that Microsoft gives away as part of Windows. Intel is able to make a better deal for German companies than AMD can even though Germany has granted it huge subsidies. Penalizing Intel for its mercantile acumen and economic strength is protectionism and illegal discrimination (violating WTO rules). The current Republican U. S.
Administration has violated trade law so regularly in protecting decrepit American industries that it has little ability to or interest in protecting American high-tech exporters. As a rule, foreign firms have not been able to compute with American IT firms, so government regulators have been called in to rescue them. AMD has outsourced all of its microprocessor manufacture to its highly subsidized Germany subsidiaries yet the U. S. IRS has allowed prior tax loss carry forwards to reduce its current U. S. tax obligations even though the losses were in large part caused by its mismanagement of its German and other foreign operations.
AMD spent only $1 million for U. S. lobbying in 2005, far too little to justify the favors this Administration has given them. In the 1990’s the FTC investigated Intel for several years but imposed no penalties. Intel signed a consent decree that it would not withhold technical data required by its OEMs to design products for six months before the announced date for release of the Intel product. Nothing was said about the complaints that Compaq, DEC, and Intergraph had made that Intel was retaliating against them for filing patent infringement suits.
It was widely suspected that Intel’s withholding of product specifications was a way of extorting a cheap license from a patentee. Even were Intel a monopolist, it would seem to be perfectly legal for one monopolist to exchange legitimate trade secrets for a legitimate patent license from another monopolist. In 2005, Japan Fair Trade Commission, acting on a complaint from AMD, recommended that Intel not continue rebate and incentive payments to OEMs. Bizarre behaviour indeed for a country where many business deals have side payments, secret clauses, and political payoffs. Intel is still the beneficiary of the 20 percent U.
S. share of the Japanese semiconductor agreement. AMD should not be, since with the sales of its flash facilities it no longer manufactures semiconductors in the United States on its own account. Korea’s antitrust agency raided Intel’s offices. In each of these cases, the suit was stirred up by complaints from AMD. The antitrust agencies in the U. S. have no way of getting information without cause to believe that the law has been broken. DOJ and FTC have, so far, failed to charge Intel with monopolization or unfair trade, and the court has dismissed the foreign counts for lack of jurisdiction.
Armed with subpoena powers, AMD will try to prove a prima facie case of abuse of monopoly, but first it must prove Intel is a monopoly. If AMD should win, it will have to prove damages. But AMD was doing quite well by past standards until it started the price war. The trial is not schedule to start until 2009. It is quite possible that by the time the trial ends, AMD will be out of money. It will be if the price war continues. Intel CEO Otellini has publicly claimed that the AMD suit is primarily defensive, to prevent Intel from starting a price war. But AMD has already started the price war.
Intel has cut Core 2 prices across the board, and AMD has cut back, always seeking a lower price performance curve than Intel has. As a result, 2006 has been a lousy year for both Intel and AMD: sales, profits, and stock prices have all fallen. In the past, Intel would have maintained a substantial differential price over AMD, based on a claimed superiority of performance. Intel be able to show necessity when it cut prices. Not even a monopolist is required sell a superior product at a higher price than a competitor charges for an inferior product unless it is trying to destroy a competitor.
The “rule of reason” applies to most acts. Behavior that a judge finds reasonable under the circumstances is legal. What is reasonable for a small struggling competitor like AMD need not be reasonable for a dominant firm like Intel. History indicates that few startups last very long, and few large firms remain large for very long. No dominant firm remains dominant for long. High tech firms fade after a few years when the firm is not able to produce successful follow-up products to the original innovative product. Dominant firms may innovate and invest in additional capacity at home and overseas in an attempt to preempt competition.
It may merge with or acquire dominance in related industries. IBM dominated large business computers in 1980 and had been sued by DOJ for monopoly, but it entered the PC industry that already had many small firms in it. If it had made any serious effort to exclude other firms from the PC industry, someone would have sued and won. It rose to dominate PC sales but did not control the industry. Intel designed the 8086, but only grew to dominate the x 86 compatible industries by moving up-market, and cutting prices on the newer more powerful chips.
AMD struggled to compete, even though it lost money many years. It carried out its own R&D program and acquired outside firms and got substantial subsidies from Germany and Saxony to build Fab 30 in Dresden. It survived, and now has some superior products. It continues to get huge subsidies from Germany. It can sell more chips than it can make. so it contracts foundry products from IBM and Chartered. AMD enjoyed a rise in stock prices from 2003 to 2006 (although though it has since fallen) while Intel’s stock price has trended down since 2001.
The antitrust suits may have helped preserve competition in mainframe computers for a while, but could not preserve the industry itself. Antirust and patent suits against Intel, may have helped preserve competition in the minicomputer industry, but could not preserve the minicomputer industry. AMD’s antitrust suit against Intel may preserve a competitor, but it is only German subsidies that keep AMD alive. Without the German subsidies, AMD would have had ten years of losses, but would not have been able to manufacture the microprocessors the sale of which kept it alive.
The antitrust laws did not prevent IBM from dominating the mainframe industry in the 1960’s and 1970’s when IBM sold about three-fourths of mainframes in the world, and the Department of Justice sued for violating the Sherman Act. Control Data Corporation (one of the “seven dwarfs”) also sued and shared discovery with DOJ. CDC settled for more than a billion dollars. IBM was smart enough to avoid signing exclusive deals with Intel and Microsoft which were able to supply companies making IBM compatibles. It required Intel to license competitors, so clone makers could buy compatible chips.
Antitrust law and IBM’s forethought prevented Intel from monopolizing the PC chip market. During the past 25 years, antitrust forbade Intel from acquiring or destroying AMD or from formally dividing the market with it. There were many times in which a merger or cartel would have been highly profitable to both corporations. The recent fall in the price of both stocks and chip prices means that active price competition between them has not benefited Intel or AMD. A well-behaved duopoly of Intel and AMD would have made both of them more valuable, but price concessions would have had to be made to the PC sellers to keep them quiet.
Antitrust laws has prevented PC makers from combining and forming a bilateral monopolies with the hypothetical chip or software monopolists. As a result, no one in the microprocessor and computer business is making any great amount of money. Most of the profit of manufacturing PC’s has been squeezed out over the years by Intel and AMD’s price structure. It is amazing that both firms in an implicit duopoly can maintain gross margins of 57 to 60 per cent. Intel’s recent price-cutting, discounts and concessions prompted AMD’s antitrust suit against Intel.
Had Intel quietly accepted an inferior competitive position (as AMD did when it produced inferior parts), AMD could have charged premium prices, built its capacity, paid down its debt, and piled up profits. Instead Intel launched a strong defensive campaign. The Core 2 Duo was introduced, and Apple signed on as a customer. While quality and performance issues remain, Intel is building two new giant fabs, hardly a sign of resignation. It has sold off money-losing divisions, and has cut employment by 13,500. It has sold several billion dollars of convertible bonds to finance its new construction, and continues to buy back stock.
It has repurchased $56 billion since 1990. Former CEO Jerry Sanders had earlier refocused AMD on the microprocessor and flash market and had negotiated Fab 36. AMD enjoyed at remarkable superiority in its Opteron aned Athlon chips in 2003. Intel’s response was slow. It may not be true, regardless of what Intel claims, that it has regained operational superiority. Intel’s Core 2 Quad chips has been promised for November will have the top end of the market to itself for a while. This might permit Intel to regain lost ground in servers.
The great game is far from over, but performance and capacity have moved far enough ahead that a restoration of stable duopolistic relations may not occur. Acquisition of ATI will reclaim more of the real estate in the PC for AMD.. The $7. 2 billion dollar price may very well be too much for it to handle and the debt burden may prevent profits for years, especially if Intel drives PC and chip prices even lower. It is obvious from recent stock price movements that the market is not optimistic about the future of the two microprocessor firms. The transformed industry will have much larger capacity and much lower prices.
Stock prices may not recover for many years. The struggle for new markets – such as chips for a billion very cheap student computers – over the next five years may look like a great opportunity for AMD or Intel, but it is not. Another example of competition is the 2B1 vs Eduwise struggle. On September 29, Intel it announced a low-priced ($250) “Eduwise” laptop design with a 900 MHz Celeron D microprocessor aimed at poor students, which has full features, including an embedded Windows XP operating system. Mexico has already ordered half-a-million pieces.
The Eduwise is planned to cost $110 more than the 2B1 produced by OLPC (one laptop per child) developed by Nicholas Negroponte of the MIT Media Lab. The screen is a 7. 5 inch 1200 x 900 pixel TFT self-refreshing display with 200 dpi resolutions. There are several potential producers of cheap, slow x86’s, such as via which has recently acquired Centaur, or Rise, both of which have x86 licenses and designs. China, Taiwan, and Singapore all have giant foundries which can crank out huge quantities of very cheap x86s. AMD has strategic value to Germany or China that far exceeds its market value.
AMD has already licensed Beijing University for some x 86 intellectual properties. It could easily and almost invisibly acquire control of AMD and present the corporation and the U. S. government with a fait accompli. If AMD built six or seven fabs with China’s money, and started producing the hundreds of millions of chips China’s will need the world price of top x86 chips would fall ’s market (protected by a 30 per cent tariff) and financial resources behind it would . There has been an implicit live-and-let-live conspiracy between the giant firms of the semiconductor industries. They are associated in the ITRS.
Thousands of employees exchange information about company plans and what they are working on. The CEO’s are very open about their plans when interviewers ask pointed questions about products and technology. Ruthless competition is inconsistent with the widespread practice of cross licensing. Workers come and go, and not all of them are diligent in avoiding conflict of interest between employers. In an unregulated industry like semiconductors, an innovator needs as second source because a canny customer will not willingly lock himself into a single supplier to form an indeterminate bilateral monopoly.
Competition that results from quality or performance improvement is welcome since most semiconductors are routine, low margin, products. Profits require that someone innovate, i. e. make something new, and someone else authenticate the innovation by licensing it from the innovator. Innovations tend to come in bunches. One example of contemporary innovation is the 2B1 computer, developed by Nicholas Negroponte of the MIT Media Lab and the OLPC not-for-profit. OLPC means “one laptop per child. ” The screen is 7. 5 1200 x 900 pixel TFT self-refreshing display with 200 dpi resolution.
It has a colour mode ( 1 W. ), and a high-resolution reflective mode that can be read in sunlight (0. 2 w. ). Total power is 2-3 W. It has an eight-hour battery, and it can be recharged by a hand-powered crank. It has internal video/still camera, internal speakers with stereo line-out jack, microphone, two USB 2. 0 slots, SD flash slot, 400 MHz AMD Geode processor with 128 MB SLC NAND flash on board, double wide touch pad and Linux, communication facilities, OS and other custom open- source software. All users will be able to tie into their neighbours and everyone will be able to sign onto the Internet.
The initial price for the 2B1 will be about $140, but the sponsors hope that the price will fall to about $50 in time. Nigeria has already ordered one million of them. Libya has agreed to spend $250 million to buy 2B1s for all Libyan kids. There does not seem to be any coordinated program for integration of these computers into the schools. Rather the inborn desire to hack computers will have them downloading music, movies, and pornography in the first few hours they get their hands on them. Intel has a grandiose 5-year plan, called “World Ahead. Intel hopes to introduce the “Eduwise” computer at $250, although $200 is the ultimate target. They will be serious full-powered machines, interconnected and on the Internet. Intel has pledged $1 billion over five years to train 10 million teachers in using computers in the class room, to teach 1 billion students to use computers in their education. Intel is contributing 100,000 computers for classroom in developing countries. If either or both of these systems actually improve education in remote third world villages, they will revolution education.
Demand will grow without limit until ultimately everyone will get a laptop when first they go to school. Intel has pronounced Ball State University the most computerized campus, and the average student spends more than 20 hours on-line. When one considers how slow, hot, heavy, awkward, short- lived and inconvenient today’s computers are, it is easy to recognize that computers will have to be markedly improved if most students are to accept them. Intel and MIT are not selling existing computers, but re-inventing them.
Kids will put up with today’s laptops if they are free, but many wil00l really bond with computers that put them in touch with their friends, music, sports, and entertainment. A few “mute, inglorious, Milton’s” with be excited by their access to the cultural treasures of the word. A few rural Einstein’s who would never have seen the inside of a physics classroom will make thought experiments and read (and maybe write) the papers on the physics archive. The computers that young people need are different from anything now on the market. It will be small, Nano pod size.
Or a cool pair of shades with flips up, high definition 3D display and surround-sound hifi headset. It will be connected broadband with the Internet, and live class interaction, lectures, exhibits and virtual field trips will be net cast during the school day, and saved for review. It will be verbally operated in the user’s preferred or school language, which it will learn as the user-owner trains it. Limited thought direction will become better as the student learns to control the pointer on the display. Much improved virtual translators and interpreters will make ost of the world’s literature, history and archives available first in the major world languages – English, French, Russian, Hindi, Portuguese, Arabic, Japanese and Chinese, and then with others as speakers of various languages develop them. Intel’s billion dollars is just a start. The great promise of Intel’s participation and technological leadership is integration of advanced computer and communications technology with ethnographic field work and dozens of coordinated projects that it has used to trained thousands of teachers in Sri Lanka. Intel is committed to educating the ten million teachers who will teach the 2 billion kids.
To support the effective use of technology in education, Intel will donate 100,000 PCs to classrooms in developing nations AMD Advanced Micro Devices, Inc. (AMD) (NYSE: AMD) is an American multinational semiconductor company based in Sunnyvale, California, that develops computer processors and related technologies for commercial and consumer markets. Its main products include microprocessors, motherboard chipsets, embedded processors and graphics processors for servers, workstations and personal computers, and processor technologies for handheld devices, digital television, automobiles, game consoles, and other embedded systems applications.
AMD is the second-largest global supplier of microprocessors based on the x86 architecture and also one of the largest suppliers of graphics processing units. It also owns 8. 6% of Spansion, a supplier of non-volatile flash memory. In 2009, AMD ranked ninth among semiconductor manufacturers in terms of revenue. Advanced Micro Devices was founded on May 1, 1969, by a group of former executives from Fairchild Semiconductor, including Jerry Sanders III, Ed Turney, John Carey, Sven Simonsen, Jack Gifford and three members from Gifford’s team, Frank Botte, Jim Giles, and Larry Stenger.
The company began as a producer of logic chips, then entered the RAM chip business in 1975. That same year, it introduced a reverse-engineered clone of the Intel 8080 microprocessor. During this period, AMD also designed and produced a series of bit-slice processor elements (Am2900, Am29116, Am293xx) which were used in various minicomputer designs. During this time, AMD attempted to embrace the perceived shift towards RISC with their own AMD 29K processor, and they attempted to diversify into graphics and audio devices as well as EPROM memory.
It had some success in the mid-1980s with the AMD7910 and AMD7911 “World Chip” FSK modem, one of the first multistandard devices that covered both Bell and CCITT tones at up to 1200 baud half duplex or 300/300 full duplex. The AMD 29K survived as an embedded processor and AMD spinoff Spansion continues to make industry leading flash memory. AMD decided to switch gears and concentrate solely on Intel-compatible microprocessors and flash memory, placing them in direct competition with Intel for x86 compatible processors and their flash memory secondary markets.
AMD announced a merger with ATI Technologies on July 24, 2006. AMD paid $4. 3 billion in cash and 58 million shares of its stock for a total of US$5. 4 billion. The merger completed on October 25, 2006 and ATI is now part of AMD. It was reported in December 2006 that AMD, along with its main rival in the graphics industry Nvidia, received subpoenas from the Justice Department regarding possible antitrust violations in the graphics card industry, including the act of fixing prices. 5] In October 2008, AMD announced plans to spin off manufacturing operations in the form of a multibillion-dollar joint venture with Advanced Technology Investment Co. , an investment company formed by the government of Abu Dhabi. The new venture is called GlobalFoundries Inc. This will allow AMD to focus solely on chip design.  The Future Is (Still) Fusion: One of the major themes of the event was AMD’s concept of heterogeneous computing. In heterogeneous computing, workloads are divided between the CPU and GPU, regardless of whether the graphics processor is on-die, integrated into the motherboard, or a discrete card.
The process of splitting and directing a given workload to the processor best-equipped to execute it is presumed to be intelligent in order to ensure GPU-centric tasks don’t end up being run on the CPU or vice versa. According to corporate vice-president Chekib Akrout, the amount of additional performance that can be achieved by focusing on single-threaded or multi-threaded performance is quite low. Heterogeneous computing on the other hand, has only begun to ramp, making it the logical focus for AMD going forward. While the term “Fusion” is often used to refer to a rocessor with a GPU on-package, AMD sees it as an overarching term for CPU+GPU execution. In the diagram below, APU stands for accelerated processing unit and represents the combined capabilities of the two separate processors. For all AMD’s discussion of heterogeneous computing today, however, its actual execution has lagged considerably when compared to NVIDIA. Where the latter has sunk millions of dollars into promoting the idea of the GPU as a processing unit, AMD has generally sat back and focused on the more traditional appeal of improved 3D graphics and frame rates.
There’s nothing stopping AMD from turning its focus towards GPGPU development, but there’s little evidence that this has been a top priority to date. Server, Desktop, and Mobile Updates The graph above represents AMD’s current server performance and the projected performance of both Magny-Cours and Interlagos. Magny-Cours is an Istanbul derivative presumably built on 45nm. The new processor will use AMD’s upcoming Maranello platform, which sports four memory channels instead of two. When Interlagos launches in 2011, it’ll be based on AMD’s all-new “Bulldozer” architecture.
Core counts are also going up—Magny-Cours is an 8-12 core processor, while Interlagos will feature 12-16 cores. In both cases, hexa-core and quad-core derivatives of these CPUs will be available for the 1P and 2P markets. There aren’t a whole lot of surprises on AMD’s desktop roadmap for 2010. As we’ve previously reported, the hexa-core Thuban processor (aka Istanbul) will drop into the enthusiast market accompanied by a new chipset. Mainstream systems will continue using dual-core or quad-core Athlon II’s, but should shift over to DDR3 by the end of the year.
Dorado’s integrated GPU won’t be DX11-capable—we won’t see that feature until 2011—but should be at least as fast as the current 785G. In 2011, AMD will roll out Bulldozer-based quad and octal cores in the enthusiast market. The mainstream segment will feature Llano, AMD’s first CPU+GPU hybrid. Llano will be built on 32nm technology, and the integrated GPU will apparently be DX11-capable. AMD has long struggled in the mobile segment, but the company’s 2010 roadmap is potentially strong enough to change its fortunes.
AMD will migrate to 45nm-derived mobile processors across all mobile markets next year, while simultaneously shifting to DDR3. Mobile DX11 GPUs will be available within the next 12 months, as will quad-core “Champlain”-class processors. Sunnyvale is scarcely guaranteed more market share in the next year, especially given Intel’s shift to 32nm processors, but the company should see an uptick thanks to 45nm mobile Turion’s presumably lower power consumption and better performance-per-watt. Conclusion:
AMD’s roadmap is currently an odd mixture of solid predictions and relative unknowns. Over the next twelve months, AMD generally plans to accelerate/improve already proven technology across both its CPU and GPU product divisions. In 2011, the emphasis is decidedly different. In the past, AMD has generally introduced new architectures in the server market first, with desktop parts launching 6-9 months later and mobile parts appearing last. The roadmaps AMD released today indicate that Bulldozer and Bobcat—the company’s two all-new architectures—may launch across all product segments.
If the two designs ramp as quickly as indicated, AMD’s competitive position vs. Intel could shift dramatically within a relatively short period of time. Heading into 2010, AMD is generally better positioned than it was a year ago, but the company still has precious little room for error. For the next twelve months, at least, Intel looks to hold the performance high ground; whether or not AMD can change that farther on will depend on just how good Bobcat and Bulldozer turn out to be. References www. wikipedia. org www. thetimes100. co. uk www. intel. com www. amd. com