The AMD Execution Thread [2007 - 2017]

[Arun]

To add yet another post to what is becoming a mildly disturbing monologue...

hehe. Well, someone needs to fill in that role, and you're doing quite a good job at it - so why not?

I'd tend to completely agree regarding your poin for the price war. The only reason why it would "stop" is if it became obvious to both parties that they won't gain share that way and that the competition will survive just fine. At this point, Intel must fully realize that both of these points are completely untrue.

I think I mentioned this recently, but I'll say it again: even if Barcelona is slightly better than most skeptics are expecting it to be at this point, Intel's pricing strategy is aggressive enough that the Barcelona and Griffin families will have LESS pricing power than K8, not more. As such, gross margins will go down further, to 25% by 4Q06 and to 20% by 1Q08. If you also consider that it is unlikely they will gain share, it's not hard to imagine what that means for gross profit and cashflow. Ouch. I kinda pity ATI for getting into this mess, at least unlike AMD's CPU division they don't have an operating loss of hundreds of millions of dollars!

 

[Geeforcer]

Basically a price war benefits no participating company unless the "winner" is willing to pay to put their opponents out of business - something Intel doesn't actually want due to anti-trust concerns (and AMD does have an upcoming anti-trust case against Intel).

If both sides stop price cutting, Intel can continue to sell products at higher margin than if they were price cutting, and still make more money than AMD thanks to the price benefits of Intel's smaller chip processes, financial advantages of packaging two dual cores to make a quad core, etc.

Intel can still hurt AMD and make more money for themselves while they do so, without actually killing AMD off.

I'd argue that price war can benefit one of the participants, depending on the price elasticity of demand and volume shipped. Regardless, with dropping ASP and rising market share, if it costs Intel $50 million to prevent $200 million worth of AMD sales, it would be a worthwhile investment. They clearly want to squeeze every once of market share they can, and unlike AMD's short-term dash for the share, Intel actually has the resources to do so. They don't necessary need to destroy AMD, just hound them to the point where capital deficiency would relegate them to semi-permanent second-tier niche. All they need to do to achieve that is make FABs an unaffordable luxury for AMD. I seriously think that this is Intel's current objective: Force AMD to divest fabrication, something the can not do without being dictated to by German government and Intel themselves due to prior agreements.

 

[Geeforcer]

I kinda pity ATI for getting into this mess, at least unlike AMD's CPU division they don't have an operating loss of hundreds of millions of dollars!

Pity ATI? They were about to enter a very rough stretch and still got bought at near-all-time high level with their shareholders getting $4.2B in cash! Cash, Arun! 6 month later, the company would have been worth half of that. Dave Orton must have kept a loaded .45 of the desk during the negotiating session; either that or instead of reading the terms Hector was too busy experimenting with how many bottles of Johnnie Walker Honour can a person down a day and if the answer is 10 or more, how many days of stupor can $16 million fetch.

Do you know a company that could really use that much cash right now? I do.

 

[Arun]

Pity ATI? They were about to enter a very rough stretch and still got bought at near-all-time high level with their shareholders getting $4.2B in cash! Cash, Arun!

Oh, I agree completely. Maybe I should have been a bit clearer: I feel for the employees, not the shareholders. The latter obviously got one hell of a deal, but unless a miracle occurs, you'd expect there to be further bleeding of the former, sadly.

 

[Razor1]

Oh, I agree completely. Maybe I should have been a bit clearer: I feel for the employees, not the shareholders. The latter obviously got one hell of a deal, but unless a miracle occurs, you'd expect there to be further bleeding of the former, sadly.

Yeah it definitly was a great deal for the owners of the ATi, but how long is the bleeding going to go, Barcalona per clock seems to be a very good chip, but if the clock speed isn't at 2.0 ghz or slightly higher its going to have a tough time against a 3.0ghz Penryn.

 

[Geo]

I'm surprised that Intel seems to be totally unconcerned by regulatory retaliation for being a monopoly engaged in a prolonged price war to drive their only major competitor out of business.

 

[pelly]

Going through all the pages of this thread, it would be extremely interesting to see how many employees of AMD, NVIDIA, and Intel were posting here...

Clearly, that can't happen...but you certainly do get reason to be suspicious... lol

 

[Geo]

Going through all the pages of this thread, it would be extremely interesting to see how many employees of AMD, NVIDIA, and Intel were posting here...

Clearly, that can't happen...but you certainly do get reason to be suspicious... lol

Err, what? Given where we are, several (current or ex). Which is true of quite a few threads.

 

[3dilettante]

I'm surprised that Intel seems to be totally unconcerned by regulatory retaliation for being a monopoly engaged in a prolonged price war to drive their only major competitor out of business.

Intel has never been declared to be a monopoly.

The one major party that has declared Intel to be a monopoly holds approximately 1/5 of the market Intel supposedly controlls nearly all of.
That market itself is only a subset of all microprocessor sales.

From an outsider's perspective, if Intel were a gas company, it would be accused of having a monopoly only on premium unleaded gas.

Even if Intel were declared to be a monopoly--as opposed to a very successful competitor, history shows that it is not a company-ending outcome.

It's also not necessary to drive AMD into bankruptcy, just back into the margins.
If AMD goes bankrupt, it's because its executives failed to take steps to structure the company for a marginal role.


Earlier I mentioned that Intel's agreement with AMD capped its x86 foundry production at 20%, but it seems like some recent rumors have it that this may not be the case any more.

AMD may be preparing for such a transition to marginal status, or is getting into a position where it has a fallback that won't include bankruptcy.

edit:
Perhaps it is possible that the restriction is only based on one interpretation of the technology sharing agreement. It's also the case that the agreement is meant to expire by decade's end.

 

[Geo]

Intel has never been declared to be a monopoly.

Regulators and courts don't typically wake up one day and out of a clear blue sky make such findings. The process that leads to such formal findings being made is usually triggered by the kind of events we're seeing right now. In other words, it's not a finding that makes a company a monopolist or not --the finding is a backwards looking recognition of previous events.

 

[pelly]

Err, what? Given where we are, several (current or ex). Which is true of quite a few threads.

Whoa...I'm not pointing fingers or trying to insinuate anything.....I just think it would be interesting to see how many people we see on the forums are actually employees of the hardware vendors we discuss...I don't think there's anything wrong with them participating...and in fact, applaud them for being active and sharing their thoughts...

Going through this particular thread, you can see some extremely passionate posts and some steadfast perspectives...It would be interesting to see if there was a correlation to employees or not....

 

[3dilettante]

Regulators and courts don't typically wake up one day and out of a clear blue sky make such findings. The process that leads to such formal findings being made is usually triggered by the kind of events we're seeing right now. In other words, it's not a finding that makes a company a monopolist or not --the finding is a backwards looking recognition of previous events.

It would be an uphill fight for such a ruling.
Perhaps AMD could help its case by ceding even more market share.
Holding nearly a quarter (edit: for a time) of the market makes the monopoly argument difficult, and the argument that AMD could have been bigger is a tough sell.

Intel played hardball, yes. However, it's unclear how much of that was illegal, and whether its illegal actions are big enough to make a US court do much, if anything.

At this point, I wonder if such a ruling would be too late.
The big killer for AMD isn't anticompetitive practices, it's noncompetitive products on a noncompetitive process, and physical and market realities aren't getting any rosier.

No ruling is going to change that, and I find it unlikely that a court is going to tell Intel to give AMD three or four fabs and bankroll AMD's design team.

 

[Geo]

I think you'll find the Justice Department went after IBM for having 70% of the mainframe market, before the dawn of the PC era. Intel seems to have decided to crush AMD for *almost* reducing Intel's own market share to 70%.

As to your remedies, that's a rather contentious lot of twaddle. Intel pricing at historic margins would be more like what would be reasonable.

 

[3dilettante]

I think you'll find the Justice Department went after IBM for having 70% of the mainframe market, before the dawn of the PC era. Intel seems to have decided to crush AMD for *almost* reducing Intel's own market share to 70%.

I take your point on the percentage argument.

I think a lot of things have changed since the dawn of the PC era.

Intel's business model is not based on selling/leasing mainframes and services.
A lot of the restrictions put on IBM at the time simply do not apply to Intel of today.

I don't know enough about the IBM decision to see everything that does and does not apply.
Of what I skimmed online, the rulings on leases, testing, and resale are either not applicable or are standard operating procedure these days.
A lot of the pricing restrictions make note of applying to "the same model", which is problematic for AMD, since the big problem is that Intel has an annoying habit of releasing new models twice as fast.

There was a restriction on production capacity for tabulator cards or somesuch, but that would be difficult to impose on Intel, since its competitor has at various times been capacity-constrained, even with these anti-competitive practices going on.

No ruling is going to cap Intel's production if AMD can't compensate the shortfall.
That might put a cap at 25-30%.
The market as it stands right now wants 20%.

I look at Microsoft as a more modern example of what we should expect.

As to your remedies, that's a rather contentious lot of twaddle. Intel pricing at historic margins would be more like what would be reasonable.

So in other words, Intel just has to wait for the transition to 45 nm.

For any real progress on the margin front, the prices would have to be indexed to AMD's margins, since a process transition would allow Intel to undercut AMD anyway.
Perhaps the court should strike down Moore's Law as unconstitutional.

 

[Geo]

So in other words, Intel just has to wait for the transition to 45 nm.

AMD has survived previous process transitions.

Perhaps the court should strike down Moore's Law as unconstitutional.

Come now, the concept of predatory pricing combined with monopolistic market dominance isn't really so hard and/or novel to grasp, is it? It's not like such a finding on those grounds would in some way be a startling and ground-breaking development in the history of anti-trust.

Whether it would be enough to "save AMD" is an entirely different matter. Intel, even if found to be a monopolist, does not have a responsbility to save AMD in all and every circumstance. They do have a responsiblity to not engage in certain practices that leverages their monopolist position in order to crush AMD.

If Intel really thought they could crush AMD without a price war, as you seem to suggest is inevitable, then why are they engaged in one to the detriment of their stockholders (if it's unnecessary, then it's absolutely to the detriment of their stockholders)? That's what it comes down to. Are Intel's current margins right now significantly lower than they have been on a historic basis? Yes or no? All the rest of that is blue smoke and mirrors.

 

[pelly]

If Intel really thought they could crush AMD without a price war, as you seem to suggest is inevitable, then why are they engaged in one to the detriment of their stockholders (if it's unnecessary, then it's absolutely to the detriment of their stockholders)?

IMHO, Intel realizes that you cannot put all of your eggs in one basket so to speak. Although they certainly seem confident that they will have a superior architecture and advantages with fab process (yields), they will use pricing pressure to ensure AMD does not gain any momentum...

Remember back when P4 was winning benchmark wars against Athlon XP...They certainly don't want another "Opteron/A64" surprise to catch them off-guard.

From what is publicly available, it does look and sound as though Intel has the upper hand next round. However, with NV30...R600....and other products which were expected to be dominant "winners" by all rights prior to their launches...they realize they can never be too sure...hence, the "backup" pricing strategy to keep AMD in-check...

 

[3dilettante]

AMD has survived previous process transitions.




Come now, the concept of predatory pricing combined with monopolistic market dominance isn't really so hard and/or novel to grasp, is it? It's not like such a finding on those grounds would in some way be a startling and ground-breaking development in the history of anti-trust.

Whether it would be enough to "save AMD" is an entirely different matter. Intel, even if found to be a monopolist, does not have a responsbility to save AMD in all and every circumstance. They do have a responsiblity to not engage in certain practices that leverages their monopolist position in order to crush AMD.

If Intel really thought they could crush AMD without a price war, as you seem to suggest is inevitable, then why are they engaged in one to the detriment of their stockholders (if it's unnecessary, then it's absolutely to the detriment of their stockholders)? That's what it comes down to. Are Intel's current margins right now significantly lower than they have been on a historic basis? Yes or no? All the rest of that is blue smoke and mirrors.

Without knowing Intel's margins I can't say how predatory its pricing is.
Its Conroe chips are not priced below cost, and the definition of a reasonable profit margin is murky.

They likely have less than stellar margins on the parts that match AMD's lineup, but they may very well meet some definition of reasonable.

Intel's margins on parts on the high end are more than satisfactory.
Whose fault is it that AMD can't compete in the high margin space?

Intel has a signficant advantage in production costs thanks to its smaller process geometry, and its survival is not contingent on having margins significantly higher than it has ever managed save for a few brief quarters in the company's history.

AMD is the company that needs better margins than it has ever gotten.
Is predatory pricing defined as whether or not the competition's cost structure is sustainable?

Intel's pricing strategy is not enough to drive AMD out of business, but it is enough to marginalize it.
There is no law against having less compelling competition, and no remedy that I know of.

The big claims are that Intel pressured OEMs and retailers to shut out AMD, not predatory pricing.
The problem is that Intel is now 1 step removed from direct action on AMD, and Intel right now no longer needs short-term pressures to augment AMD's long-term deficits.

 

[Geeforcer]

Geo, correct me if I am wrong, but even if you have been declared a monopoly you still get to set prices. I mean, MS certainly has been, yet you don't see DOJ telling them what Vista Home should cost. AFAIK, it is illegal to to maintain monopoly using exclusionary deals or trying to leverage the existing monopoly into an unfair competitive advantage in a different area. Furthermore, it may sound like a kindergarten argument, but "AMD started it". If you go on a sustained price-slashing rampage, it's hard to complain when the competition adopts similar policy. You can't have a situation where one company can trade margins for market share and the other one is not allowed to do the same in response.

 

[Geo]

The big claims are that Intel pressured OEMs and retailers to shut out AMD, not predatory pricing.

Ah, you're talking about the ongoing anti-trust action based on claims about Intel's activities from some years ago. This would be separate from that, tho would provide more grist for the mill.

Like I said originally, I'm surprised that Intel seems unconcerned about such issues given the entire environment, including the on-going anti-trust action. That they *are* unconcerned seems fairly clear tho.

 

[Geo]

You can't have a situation where one company can trade margins for market share and the other one is not allowed to do the same in response.

Sure you can. That's what restrictions on monopolists is all about. There are all kinds of things that are entirely appropriate for you to do if you *aren't* a monopolist that become illegal when you are.

I'm not sure which Microsoft vs Netscape trial you followed. The free bundling of IE wasn't found (correction: a key allegation that lead to DOJ prosecuting in the first place) to be a particularly nasty form of predatory pricing?