I don't think it's that simple. There are many examples of smaller tech companies being highly profitable in the face of much bigger competition. As for the current state of affairs, AMD leadership made a number of mistakes (price war, timing of ATI purchase) which, in the face of evaporating technology leadership, have resulted in massive losses.
The AMD Execution Thread [2007 - 2017]
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I don't think it's that simple. There are many examples of smaller tech companies being highly profitable in the face of much bigger competition. As for the current state of affairs, AMD leadership made a number of mistakes (price war, timing of ATI purchase) which, in the face of evaporating technology leadership, have resulted in massive losses.
Much bigger competition that owns the proprietary technology you have to license to compete against them? Feel free to cite a case with similar circumstances.
When you put it that way, I don't think many other companies would be that stupid.
To make it more accurate, it is much bigger competition that owns the IP you need to license to compete, and the licensing agreement is replete with termination clauses that rule out excessive foundry use, overly large acquisitions, buyouts, bankruptcy, and basically any other outside means of augmenting a company's competitiveness.
And the agreement is only good for a few more years...
To put things in perspective: AMD went public in 1983 with a market cap of roughly $5B. Intel went public mid 1986 with a market cap of $2.3B.
Today, AMD has a cap of $7.43B. Intel is at $160B.
Some of their practices may have been questionable, but Intel is where it is today because they had (and have!) one of the strongest engineering minds in the industry, both in the field of architecture/design and production, and an incredibly disciplined organization and method of operation.
And let's not forget their marketing: as much as we may have laughed with their 'Intel Inside' campaign, it worked. Does anybody really know the AMD version of 'Centrino'?
They main have dropped the ball with their ViiV/Vpro/... weirdness, but that's now nicely compensated by simply having superior products.
One should also not forget that some anti-trust practices are entirely legal... as long as you're not considered a monopoly. The line between aggressive and illegal is not always as clear cut as some people think.
If the existential goal of the corporation is the profit maximization of its shareholders, that whether you look at AMD from inflation-adjusted market value or lifetime net earnings its continual existence is almost puzzling.
For some reason, this is really not that uncommon. There is a large amount of formerly mid-sized companies (say, revenues > $100M/Q) that seems to be going on and on and on without ever having shown a profit except maybe a quarter or two at the top of the tech bubble. I don't really understand how they keep on operating. Maybe it's some high-stakes game of musical chairs, where investors keep on replacing one bond offering by the next, hoping to not be last one standing?
One would think that, at some point, the employees get it and move on to greener pastures, but somehow that's often not the case. Strange.
(This is just a general observation, not suggesting that AMD completely fits this description.)
As long as they are getting their paychecks, why would they? For example, Hector earned $16 million dollars losing twice as much money in a single year as the company previously earned during its whole existence. Seems like a pretty sweet job if you can get it.
I wasn't really thinking about the chief execs.
As for rank and file.. they are getting paid, right? I think the fact that the options have greatly declined as the viable form of compensation has actually helped companies with stagnant or declining stock price (like AMD) to retain their employees.
It can be really depressing to work for a formerly-great company, especially when you see a constant stream of others around leaving.
Not sure if that's the case for ex-ATI. If RV670 is what we think it is, they can look forward to a chip that's going to make good money. Always helpful to increase morale.
As for options: they still play a role, not as much as they used to, but it's not something you just dismiss.
They do have a very good reason to exist: to be the perfect representatives of profitless prosperity.
As mentioned earlier, they are hardly the only tech company in the world with that kind of 'business model', although it is true that in most cases profitless prosperity only happens because of low barriers of entry and new competitors. In the case of AMD however, it is because they are the smaller player in a duopoly, which is a less common situation.
ATI wasn't that different either; their R&D has always been very expensive considering their gross profits. It wasn't that long ago (~1.5-2 years?) that Jen-Hsun remarked he didn't believe ATI's chipset division made much sense or could keep its current strategy forever, as their gross margins were so low and their operating expenses so high.
Similarly, it is interesting to point out that NVIDIA (or, more specifically, Jen-Hsun) is one of the companies most fanatically opposed to even just the possibility of entering a 'profitless prosperity' market:
Jen-Hsun on November 9th said:
While that may be a very respectable strategy, financially speaking, the question really is execution and whether your strategy turns out to be the right one to maximize profits. Despite all the hype, NVIDIA's track record there is not that great:
- Entered the handheld market in 2003 with the MediaQ purchase; systematic operating losses since then, despite continuous investment and acquisitions. Design wins for GoForce 5500 were weak at best AFAIK, which is possibly what caused the PortalPlayer acquisition.
- Entered the chipset market in 2001 after in-house development of the Xbox southbridge and northbridges. Profits versus investment from this division over this period of time hardly beat the market; they might as well have invested in US Treasure Bonds. Okay, maybe not, but you get the point.
- Refused to enter the DTV market, probably fearing profitless prosperity. Meanwhile, ATI's diversification into DTVs yielded excellent returns, and it is very possibly the only part of AMD that was profitable in Q307.
I don't want to turn this post into a NVIDIA bashfest (although you could argue we need some of it to restore the balance of the universe!) but I'll leave you with this little tidbit...
In April 2002, MediaQ licensed an ARM9 core with the stated ambition of entering the Application Processors market. In August 2003, NVIDIA bought MediaQ and scrapped all AP plans, focusing exclusively on 'handheld GPUs'. In November 2006, NVIDIA buys PortalPlayer, with the stated intention of entering the AP market, admitting discrete GPUs were a flawed architecture.
Perhaps it's not fair to criticize the original decision of scrapping MediaQ's AP project, since ATI made very decent profits with the exact same strategy in the same timeframe (although they focused more on the low-end, rightfully understanding that the high-end would never be enough to be profitable).
However, NVIDIA is arguably doing the exact same thing they did back in 2003: PortalPlayer was seemingly working on integrating a 3G baseband into some of their products, and NVIDIA scrapped that strategy. They are systematically one step behind, integration-wise, and that's not even a technical limitation but a strategic decision. There are some good reasons why they don't want to integrate a baseband, but there were good reasons not to integrate an ARM core back then too.
AMD, at the very least, doesn't tend to make that kind of mistake. Just like NVIDIA often seems to expect current trends to last longer than they really will, AMD tends to be very optimistic about the future viability of businesses which today obviously aren't profitable. OLPC and DTV (from the AMD and ATI sides respectively) are good examples of that.
Of course, being optimistic about the future profitability of a business can just as well be wrong as it can be right. But it's not obvious to me one kind of bet wins or loses much more often than the other kind. One example (AMD's) doesn't make a rule, and there are many other factors at play here... It is also noteworthy that AMD is primarily failing in its core business, while NVIDIA and Intel are basically only being financially successful in their own core businesses. This might change in the future, but that's another debate completely.
Sorry for such a long post, but hopefully it's interesting enough to compensate... (feel free to disagree, though!
)It is also noteworthy that AMD is primarily failing in its core business, while NVIDIA and Intel are basically only being financially successful in their own core businesses. This might change in the future, but that's another debate completely.
Sorry for such a long post, but hopefully it's interesting enough to compensate... (feel free to disagree, though!
If you fail in your core business then you have big problems.
NVidia vs. 3DFX back then would be a good example.
Not only did they make profits, but they eventually destroyed the 800lb gorilla and bought the remnants for peanuts
Technically, and market share-wise, yes. But it's financially, it's not really as profitable as you might think AFAIK. I could fetch the numbers if you wanted.
NVidia vs. 3DFX back then would be a good example.
Not only did they make profits, but they eventually destroyed the 800lb gorilla and bought the remnants for peanuts
Since when did Nvidia have to license technology from 3dfx to compete with them?
The right to use the x86 ISA, extensions, and IP related to x86 is part of a cross-patent agreement between Intel and AMD.
Both companies are allowed to use each other's instructions, but Intel is still the owner of x86. AMD making payment to Intel has been part of previous agreements.
There are a number of restrictions AMD is subject to for it to have an x86 license.
For example:
There are limits to what percentage of its production can be made by an outside foundry.
There are limits to how large a company AMD can buy.
It is forbidden for AMD to undergo a change in control (buyout, etc).
It is forbidden for AMD to go bankrupt.
Any violation of these rules terminates AMD's right to use x86.
This is why hopes AMD can restructure if it goes bankrupt, or it gets bought out by some company or consortium, are mostly pointless.
Unless the buyer has full rights to Intel's current and future ISA and its extensions, AMD's x86 design and infrastructure is worthless.
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