I apologize if this is too rational for the likes of this thread but it is a "MUST READ" elsewhere:
"Scorecard: Part I, The Environment"
"Ed Stroligo - 9/11/00
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There's a lot of information floating around about what Intel and AMD are going to do over the next year or so. This will hopefully tell you what you need to know. Part One talks about the general environment over the next nine months. Part Two talks about the CPUs and platforms we'll see. Part Three talks about overclocking aspects.
First, though, the general environment:
Willamette--The Operation Succeeded, But The Patient Died
Willamette is likely to become Intel's next disaster. It's the wrong product at the wrong time aimed at the wrong people. It's important to understand why.
Willamette's design represents two bad underlying attitudes Intel has: "We're cheap" and "We'll always be the center of the universe."
Back in the mid-nineties, Intel figured that a processor design had an effective life of two years. They planned on two design teams alternating generations of processors.
So the Pentium Pro came out in 1995, and Willamette was supposed to debut in 1997.
Didn't quite work out that way.
Design time went into the Merced/Itanium boondoggle, and the Pentium Pro core was extended and extended and extended. This gave AMD a chance to catch up. Willamette was put on the back burner until AMD was well into Athlon development, and Intel belatedly realized they now had some competition.
The core Willamette design is meant to last for a while, and that's the problem.
Intel made a number of design decisions that no doubt will make a lot of sense a year or two from now.
But Intel doesn't need a really good product a year or two for now, they need one now, and the Willamette coming out in a month or so isn't. Even Intel's conceded that by making the .18 micron Willamette platform a nine-month wonder until the "real" .13 micron Willamette and platform shows up.
Willamette really isn't meant to be a .18 micron product. The die size is too big to make economically. There's not a ton of room for rampup at .18 micron when you're starting at 1.4 Ghz.
More importantly, Intel decided to change its design to have its CPU do less per clock cycle more quickly. That will make sense down the road when the chip is running at 2 or 3 Ghz. For now, though, that just means it won't compare too well clock-for-clock with its own current product, and especially against the AMD competition.
Provided AMD's core revisions in a couple months don't yield the same results, the initial Willamette should trail AMD's products clock for clock by a considerable margin in most standard benchmarks.
For a little while, the overall numbers will look better when a 1.5 Ghz Willamette is being compared to a 1.1 or 1.2 Ghz Athlon, but that's not going to last long.
PR and Vaporware
Intel's strategy seems to be the following: Keep getting Mhz media hits with Willamette while not making much product until .13 micron migration. Make up new benchmarks which make your product look better. Since most people don't buy the very high processors, anyway, with some tweaks to improve yield at higher speeds, current Coppermine speeds can hold the fort until the .13 micron cavalry arrives next June or so. After all, that's pretty much what they've been doing the last year, and it's worked so far.
Can it continue? Intel will essentially be uncompetitive at the high end for over six months. While it's true that they'll keep about 70% of the CPU marketplace simply because AMD can't supply more than 30%; that's not going to look so good come the day AMD can supply more than that.
Will the Sheep Start Looking Around for A New Shepherd?
So long as the vast majority of people keep seeing Intel as THE CPU company, this strategy will work. However, the longer Intel comes up with songs-and-dances and slogans rather than products, more and more people are going to realize that the Emperor is really doing a striptease.
Will the media consider Willamette a wonderful product and obligingly not notice that it isn't quite as good or quite as available as the AMD products? Maybe they will. What if they don't?
How much damage do you think a few months of "Intel has fallen behind" would do to the image of invulnerability? How much do you think that would change the average person's impression, and eventually buying decisions?
Remember back in the late eighties, when IBM lost the personal computer market? I remember the computer magazines bending over backwards to say nice things about the IBM machines, until they just couldn't do it and retain a shred of credibility anymore.
Not saying the mainstream computer media will turn on Intel in the next year, but expect to see some start hedging their bets.
A company like Intel doesn't fall in a day or a year. They can bank on their reputation for quite a while, just as IBM was able to in the mid-to-later eighties. IBM kept marketshare pretty well with overpriced but good machines. The crunch came when people realized other machines were not only cheaper, but better.
AMD's Sneaky Two-Step Revolution.
AMD is a sneaky company. They announced sweeping price cuts, and the conventional wisdom said it was the usual AMD move of desperation.
Wrong.
Before, AMD could only do a one-step, cheaper. You can only go so far with that before you hurt yourself and make your audience think it isn't worth much, either.
That's not the situation here. Thanks to Intel's decision to essentially do nothing besides put up Willamette Jr. as a strawman for the next nine months, AMD is ready to do a two-step, first cheaper, then better.
Early next year, people are going to see AMD products that not only are cheaper than Intel's (let's leave overclocking out of this for the moment) and more available than Intel's, but clearly better. They've never been able to do that before.
A high price only helps you when you sell it. Intel has always had a skewed pricing structure; milking a few while they could. Note that the AMD price cuts essentially abandons this; the price cuts were mostly on the high end, where they probably sold very few processors, anyway. The pricing structure is now less skewed than Intel's. People are far more likely to spend $500 for top-of-the-line than $1,000. I'm seeing a lot more people saying, "I'm going to buy a 1Ghz Thunderbird" than I'm seeing, "I'm going to buy a 1 Ghz PIII." When I go to computer fairs, I'm seeing 1 Ghz TBirds for sale; I'm not seeing 1 Ghz PIIIs.
Remember something about AMD and Intel. Intel has historically had an ASP (average selling price) of roughly $200. AMD's has historically been under $100, sometimes a lot less than $100. When you've survived getting about $50 for most of what you make, having Durons going for $70 looks pretty good. Selling your best product for $450 looks pretty good when you've usually gotten only about $200 for it.
So AMD can cut Athlon prices quite a bit, and still do a lot better than they've done in the past. For Intel, it's all downhill. AMD's high-end price cuts are forcing Intel to cut out a big chunk of pure profit from what had been their most profitable processors.
Now add to that relative improvement of the product:
In 1998, if you had to choose between a K6-2 400 costing a couple hundred dollars less, or a PII 400, what would you have preferred?
In 2000, if you had to choose between a Thunderbird 1Ghz costing a couple hundred dollars less, or a PIII 1 Ghz, which would you have preferred?
In 2001, if the choice is between a Palomino 1.5 Ghz costing a couple hundred dollars less, or a Willamette 1.5 Ghz that trails by about 15% in performance. which would you prefer?
Your opinion shifts, doesn't it? Even if you stick with Intel, the choice gets harder and harder, doesn't it? Cheaper and better.
From the surveys we've had, there's already been a tremendous shift in attitude about AMD. Two years ago, the vast majority of you would not have considered an AMD product. Now, the vast majority of you will.
You still may not buy one, but I no longer hear "the chips are inferior" but rather about mobo problems. What happens if and when the mobos get better?
Even for overclockers and even if AMD has essentially prevented more than nominal overclocking for future generations, you may still be a little better off with AMD.
But even if you're not, the percentage of people who will at least consider AMD will continue to grow, and more of them will buy.
An Early Sledgehammer for The Server Segment
Intel has had a real racket going on with its Xeon processors. Add some more cache, and charge an arm-and-a-leg for it. I'm sure it costs Intel more to make them, but nothing like the price they charge for them.
Well, AMD is really going to have those folks stuck between a rock and a hard place with its Mustang processor. At least on paper, it will look a lot better as a processor than any Xeon. I'm sure AMD will charge a whole lot less than Intel.
I know, reliability counts for more than speed, and the chip and especially the infrastructure surrounding it is completely unproven. I know the average person buying a server is far more conservative and less price-conscious than the average desktop buyer. This certainly won't be an instant hit for the Fortune 500.
But not only the Fortune 500 buys servers. Some of you have servers just to have Quake matches. There are plenty of people with websites who'd like a better server, but can't pay Intel prices.
If you thought AMD was in clover making $500 from a processor, what do you think $1,000 each for a line of processors must look like?
So AMD can grossly undercut Intel in this arena, and still make a ton of money.
What's Intel going to do? If they cut their own prices, that will hurt their bottom line by far, far more than it will hurt AMD. If they don't, AMD can grab itself market share from the low-end, and if the systems prove reliable, move on to Corporate America.
The Intel Era Is Ending
That doesn't mean Intel is going away (though it eventually could, see below). What that means is that the environment under which Intel has operated is going away. Intel has spent its existence fat and happy with fat profit margins because they never had any real competition. Those days are ending.
They won't be able to charge $1,000 for a desktop processor anymore. They won't be able to charge $2,000 or $3,000 or $5,000 for a server processor fairly shortly.
Most of the computer industry has become a commodity industry with low-profit margins. The CPU segment will be next.
Many of Intel's recent errors and blunders can be traced to this. To preserve their 60% profit margins while prices are declining, they've cut costs to the bone and beyond. They've tried to stretch out physical and human resources, and it's starting to show. They are trying to hold back the tide.
Right now, Intel hasn't really met profit expectations for over a year. What they've been doing to meet and exceed those expectations lately is sell off their stock portfolio, with a nudge-and-wink from the stock analysts. They can't do that forever.
Should Intel stay in the CPU market, they will inevitably become a less profitable company. Still pretty good; not going to become Craig's Cheap CPUs, just nowhere near as good as in the glorious past.
In contrast, from a profit perspective, AMD until recently has been in the profit sewer. Anything is an improvement.
Again, Intel has generally had an ASP (average selling price) of roughly $200 per CPU. Until recently, AMD's was about $70. An ASP of $150 for Intel would be disastrous; it would be paradise for AMD.
The erosion continues. In all likelihood, the result of all the items I've mentioned is that AMD's market share will go from around 20% to around 30%. No catastrophe yet, just a few more beachheads AMD grabs.
Unless AMD really blunders, though, the problem with Intel is that there is no light at the end of this tunnel. Even after Intel moves to .13 micron, that's hardly going to blow AMD away, they'll move to .13 micron shortly thereafter. Towards the end of the year, AMD introduces Sledgehammer, which may be a better 64-bit solution for the average computer user. Right now, Intel wants to make $4,000 or $5,000 out of its 64-bit processors, and never mind the rest of you. Sledgehammer could steal the desktop market away while Intel dawdles. If that happens (and these are big ifs), it might be the processor that convinces Intel to sell its CPU business, downsize, and look for greener pastures.
This is NOT "Good triumphs over evil." I don't think for a second AMD would be one bit better than Intel in the driver's seat. What I do think is possible is that AMD will reduce profits in the industry and become competitive enough to the point where Intel won't be able to play the old games anymore, and can't play under the new rules well enough, so they'll sell out to somebody who wouldn't mind making 30 or 40% profit margins.
A year ago, a scenario like this was completely inconceivable. It still looks unlikely now. Two or three years from now, it could be reality.
Email Ed"
Patient Regards,
DARBES |
