Harry,
Thank you for your kind words.
In addition, I believe, your post touched on a very important issue. An issue which I wanted to address. Your "While most think it was AMD and Cyrix per se, I think it was the risk of losing out on the low end that was developing in the market. Their goal has always been to take actions that will sell more computers, and the price action did that."
I have never thought that AMD or CYRX offered serious competition for Intel. Nor do I believe that the sub $1,000 market offers much profit potential for Intel, and even less for its competitors. However, strategically it is a VERY important segment for Intel to control. It is from this new PC segment that future Intel and Pentium II users will come. Just as Intel was able to undercut the mini computer, and now the server markets, by cutting off DEC's and IBM's lifeline to new first time users, so is CYRX and AMD attempting to lure first time buyers to their new low cost products. It is an expensive gamble for AMD and CYRX, but in my opinion, the only chance they have. If they are able to capture these first time buyers before they purchase, or install Wintel software, or shift to Slot 1, they will have a chance to retain these customers for later upgrades.
However, it is apparent that Intel is now forced to address the "zero segment" market. Capturing of the segment zero market and at what cost now seems to be the most recent concern of investors. For me, it seems to be what is driving down Intel's stock price. Ultimately though, there is no doubt in my mind that Intel will once again prevail in the "segment zero" market, but the cost to Intel remains in doubt. As Intel stated during their conference call, they plan to aggressively address this new market segment with new product and fresh approaches. However, it will mean the lowering of the entry level price and this will cannibalize their own business model by selling first time buyers a lower cost machine than would have been previously sold. To be sure Intel will get greater unit volumes than before. This will somewhat offset the impact of the lower ASP. However, in the short term it will mean lower margins for Intel by offering a lower ASP, until it all plays out.
As we have seen from the Q3 earnings from AMD and CYRX, they can not be profitable carrying out this strategy. However, I think that much to Fuchi's glee, he may eventually get his wish by Intel showing lower GPMs, while his beloved CYRX and AMD go down the tubes.
Regards,
Jules |
