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

To: Lymond who wrote (54965)	4/10/1999 10:51:00 AM
From: nihil	Read Replies (2) \| Respond to of 1580615

AMD's only real hope for survival is to establish an implicit duopolistic cooeration with Intel in maintaining prices for various pairs of similarly positioned chips. Its like the cereal or cigarette business. If the inferior firm (AMD = HCLP)) has high costs and must sell at a discount to the leader (INTC) it can never pose a real threat of taking over leadership from the low cost high price dominsnt firm. (LCHP = INTC). If thhe HCLP player prices too low and challenges the leader (as AMD did in 1997 with the K-6/vis a vis PII) the LCHP leader may cut prices close enough to its HCLP rival to take market share. This may (unless the HCLP firms shows submissive signals) creates an unstable race to the lowest price the HCLP firm can tolerate (nearly always a negative profit price) which may leave the LCHP market superior with ample prodits and any market share it is willing to buy. By surrendering market share and accepting losses., the HCLP places itself at the mercy of the LCHP rival. By lowering its prices (which the HCLP firm can't beat) the LCHP firm can force the HCLP firm into ruin. It is far better (in this antitrust regulated real world) for the LCHP firm to keep a cripled competitor, warning all outsiders not to enter and face an even worse disaster. When the HCLP firm is technologically competent, the demonstration effect is very powerful so potential entrants (IBM, CPQ) accept the situation rather than gamble on an uncertain outcome. Thus it appears to me, that Intel needs to set its prices close enough to AMD's to permit AMD to barely limp along, but to survive. Of course, in its internal pricing behavior, it must explicitly price not to destroy AMD (which would be illegal) and would clear the field for someone else to take up the torch and launch a new attack on Intel (perhaps a consortium of PC makers). Dell (an Intel ally with no interest in low priced PC's) makes most of the total PC profits earned by the industry, so has no interest in challenging Intel. As long as mpu prices continue to fall steadily, the other PC makers (unhappy as they are) have no inducements to go into the mpu business. AMD stock owners essentially subsidize more rapid decline of prices in the mpu business buy along an unsound and self-destructive pricing policy at AMD. I believe AMD should raise its prices "because of the its difficulty in meeting market demand it needs to ration supplies." It should explore a 10% or 15% discount to comparable Intel chips. It should only lower prices in Intel does. (Intel can hardly reduce prices under those charged by AMD without faces predatory pricing charges. This realignment would reduce the rate of decline of prices. Any new AMD chip should be introduced at a remunerative price if AMD had 20% market share. Intel could then price to allow AMD the share it would allow. This kind of price noodling would allow price setting that would maximize joint profits shared between two rivals who implicitly agree on the market share of the two firms. Sanders' dream of dominance is a nightmare for AMD. He can never win it without a miracle, and he must be replaced by a pragmatic follower and responder to Intel's lead. AMD ought to accept its preordained role as omega dog to Intel's alpha dominance. If AMD with its limited capital and technical ability continues to challenge, Intel may misjudge and kill it when it only meant to maim and disable.