Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: tejek who wrote (288876)	5/22/2006 9:34:45 AM
From: Taro	Read Replies (1) \| Respond to of 1572129

Ted, Here is an interesting article on Dell/AMD/INTC. Sorry for publishing it in full text - but the link was 5 times longer incl. other stuff. Taro (Source: OpticalKeyhole website.) Pressures on Intel A few days ago, in a slightly prescient foreword, we commented that the historic interlocking of the fortunes of Dell and Intel was coming under increasing pressure and beginning to "wobble". Dell has now broken with a longstanding policy of using only Intel processors and announced plans to use AMD Opteron processors in some of its high-end servers. The immediate commercial significance of the decision is not particularly great since relative to the enormous amount of business the two companies do together, the effect on Intel sales is likely to be relatively small over the next few quarters, though the effect on profits could be greater as Intel may feel it needs to tighten some pricing a little. However the longer-term implications could be rather more severe. In the first place the fact that Dell has been prepared to make a move such as this testifies to the general resurgence of AMD† to the point where Dell seems to have found the sacrifice involved in its Intel-only policy too expensive to maintain in the context of the competitive recovery of HP, the latter having claimed a 1% market share gain in the last quarter. This implies that AMD has the wind in its sales and is likely to gain more share generally. On the rough assumption that AMD has around 15% of the total global microprocessor market and 20% of Intel's business comes from Dell, plus Dell's supplier relationships over the next five years will asymptote towards the market average, this could cost Intel, by the end of the period, around 3% share of the considerably expanded market - on top of whatever general gains AMD makes. Given Intel's very high fixed costs and minimum investment horizon of around five years, this would certainly bring further pressure on the company's profits or alternatively force it into some major strategic adjustments. The impact of all this on Intel's communications strategy could be complex. On the one hand Intel might wish to make one last attempt to break out of its very high dependence on microprocessors and take on further high-risk acquisitions in the communication sector. On the other hand, and this seems more probable, given the historic failure of Intel to make any significant headway in communications, Intel seems more likely to retrench generally and perhaps put more intensive effort behind the few successes it does have - in the same way that Texas Instruments over a decade ago regrouped around its DSP and analogue semiconductor businesses, a strategy that Intel planners will have noted has been pretty successful. The decision was, to some extent, foreshadowed in the last week of January 2006 when, asked if the company might offer AMD Opteron and/or Athlon-based machines, Dell chairman Michael Dell told a Reuters reporter, "We do not have an exclusive relationship with Intel". This may have been regarded as a rather odd statement considering the reality of the relationship over many years, but was presumably legally accurate and certainly created much speculation at the time, which has now been justified. ** As is well-known, for decades Intel's strategy has been to avoid the possibility of being classed as a monopoly, with the risk that it could be broken up, by keeping at least one viable commercially significant competitor, AMD, in business, while at the same time using its huge resources to make sure AMD does not become a serious threat to Intel's hegemony of the global microprocessor business. Intel has managed this by upping the competitive ante, in terms of pricing or product variants, whenever AMD seemed likely to present a threat. The evidence that this strategy has worked has always been Intel's very high GPMs, which would probably have been quite a bit lower in a truly competitive situation. The interesting question now is whether the Dell decision will enable AMD to break out of the competitive arena within which Intel has historically corralled it. In this particular industry, where both competitors assess each other's strategic position continuously and in realtime at all levels, this seems rather unlikely, though Intel's margins are quite likely to be impacted. † A forecast by Merrill Lynch analyst Joe Osha suggests AMD's share of the market for server microprocessors could rise to 26% by the end of 2006, up from 16% a year earlier. On a straightline rise hypothesis, this could translate to an average 5% gain by AMD over 12 months in the server market. Clearly this depends on when Dell actually provisions for the machines, which according to one source will not be shipped until the end of 2006. Given Dell's classically short pipeline, the Merrill Lynch estimate looks high