Fred Fahmy, re: AMD price strategy.
I find this topic quite interesting.
Any company that introduces a new product into a competitive market will find the initial production of that product unprofitable. Doesn't make any difference wether it's computer chips or potato chips.
The business plan must be based on achieving profitability at some future level of volume, price and manufacturing costs. A good plan will take into account the price elasticity of the market over time, and the effect on future market share.
Additionally, if this new product offers value to the OEM's, the brand recognition and good will provided by design win's at the major makers has a lot of value. Value for the makers can take many forms, from higher performance to creating a more commoditized market. It appears AMD has created the latter. It seem's to me AMD has accomplished their initial goals, (particularly in the consumer market), and that the majors have participated as partners.
There has been a lot of discussion that AMD's commitment to remaining 25% below Intel's pricing will insure continued unprofitability and their eventual demise. I think this assumes they will always be 25% below Intel's cheapest chip and also that they won't realize enough market share. But AMD has said they are positioning their new chips against PII. And even competing with Celeron-A, there is the opportunity to increase ASP.
They claim they need an ASP of $100 to achieve profitability, based on a certain level of future volume. Considering current Celeron-A pricing this seems achievable.
Volume is the key to profitability. There's a big difference to the bottom line between 16 million chips at $100 and say, 5 million chips at $150. I can easily see how $1.6 billion at an ASP of $100 would be better than $750 million at an ASP of $150.
A lot of company's have successfully implemented this strategy. One that comes to mind is Cirrus Logic and their efforts against Adaptec in the embedded disk drive controller market. I don't think they were profitable until they gained sufficient market share through low ball prices. (If you remember, Adaptec originally had this market to themselves). And as an analogy, I think it was Seagate in partnership with Cirrus that commoditized this market. I think Seagate wanted better prices and Cirrus worked with them to make it happen.
I don't know AMD's business plan and I don't know if their plan will be successful.
But I also don't think they're as stupid as most on this thread believe.
Q4 will probably be the indicator of future AMD success. I think if they blow that quarter prospects won't be too bright. |
