As Intel Slips, Smaller AMD Makes Strides By DON CLARK Wall Street Journal
April 21, 2006; Page B1 http://online.wsj.com/article/SB114557807240331918.html?mod=hps_us_editors_picks Since the early 1990s, computer makers' profits have paled compared with those of two suppliers -- Microsoft Corp., for software, and Intel Corp., for chips that provide the calculating power in personal computers. But the hardware half of that picture is suddenly looking fuzzy. That is partly because Hector Ruiz, chief executive of Intel rival Advanced Micro Devices Inc., has pushed his company to treat customers like partners. AMD, once an unreliable also-ran in the microprocessor market, has exploited computer makers' suggestions to gain advantages that Intel is struggling to match. AMD's technology is even starting to find converts among corporate computer buyers who long favored the "Intel Inside" brand. "The biggest thing that has happened," says John Dayan, an AMD customer as vice president in Hewlett-Packard Co.'s PC business, "is the market acceptance of AMD as a viable solution, and now very much so in the commercial space." The chip makers' contrasting fortunes became glaringly obvious this week. Intel, though it has more than six times AMD's revenue, posted lower sales and said conditions would get worse in the second period. Its closely watched gross profit margin was 55.1% -- below its prediction in January of 59% -- and the company said it could sink to 49% in the current period. At AMD, meanwhile, microprocessor sales surged and its profit margin topped Intel's, at 58.5% -- a rarity in the companies' 25-year rivalry. Most surprising, perhaps, is a growing belief among once-skeptical analysts that AMD could win a quarter or a third of the chip market even if Intel counterattacks, as expected, with price cuts and improved products. "The genie is out of the bottle, and the genie is not going back in," says Mark Edelstone, who tracks the company for Morgan Stanley. AMD's Aladdin is Mr. Ruiz, a Mexican-born engineer who worked for 22 years at Motorola Inc. before joining AMD in 2000. He succeeded Jerry Sanders, one of Silicon Valley's most flamboyant executives, and brought a more understated, methodical style to the company. Mr. Ruiz, 60 years old, replaced most senior managers, improved manufacturing efficiency and, most recently, spun off a memory-chip unit that was holding down profit. The company, based in Sunnyvale, Calif., was once licensed by Intel to make chips using the design known as x86. But that relationship collapsed in the late 1980s, and AMD gradually evolved from cloning Intel's chips to creating original designs. AMD had neither the money nor the influence to promote big technology changes. While Intel in the 1990s developed an entirely new 64-bit chip line called Itanium -- seeking performance benefits over earlier 32-bit chips -- AMD executives decided to add 64-bit enhancements to x86 chips, an easier path for computer makers. That distinction became a big selling point of Opteron, a chip AMD introduced in 2003 that has become very popular for midsize machines called servers. Mr. Ruiz has stepped up what he calls "customer-centric" innovation -- taking customers' suggestions that have led AMD to scoop Intel with some attractive features. In other cases, AMD has heeded requests to wait for lower prices before adopting new technology. "The reason AMD is being so practical is they can't afford to do it any other way," says John Fowler, an executive vice president at AMD customer Sun Microsystems Inc. AMD's strategy is tailored to computer makers' desire for a choice of suppliers, to help them differentiate products and pit one supplier against another to lower prices. H-P is an example. Nearly a decade ago, H-P first selected AMD for some consumer PCs after the smaller vendor agreed to tweak its technology to help H-P develop a system that could sell for less than $1,000. Intel declined, H-P executives say. In 2002, two people familiar with the matter say, some top H-P executives were so bent on reducing their reliance on Intel that they briefly considered buying AMD. Around the same time, at a Houston development lab that was originally part of Compaq Computer Corp., a secret engineering team developed H-P's first servers based on AMD's Opteron. H-P, though still a huge Intel customer and collaborator on Itanium, became one of the most vocal supporters of the chip. H-P is now using AMD chips in several computer lines. Mr. Dayan says it plans to push AMD-powered PCs beyond the consumer market into corporate desktops, a stronghold of Dell Inc., which only uses Intel chips. Customer suggestions have been particularly important in servers, which Mr. Ruiz targeted first to impress the most demanding technology buyers at corporations. AMD, for example, built one model of its Opteron chips specifically in response to a Sun suggestion, Mr. Fowler says. The company has also picked the brains of boutique PC makers. Rahul Sood, president and chief technology officer of VoodooPC, recalls meetings where AMD officials agreed to change chips' features and names at the request of his company or other makers of machines for gamers. "One of the products that we suggested to them is going to become a reality, which is unbelievable," Mr. Sood says. But most companies claim to respond to customers. "Customer focused? I think we invented the concept," said Paul Otellini, Intel's CEO, at a recent press briefing. Where AMD listens hardest to hardware companies, however, Intel tends to focus on end users, hoping to add features that will expand the overall market. In 2003, for example, it began selling a bundle of chips for laptop computers called Centrino that offered consumers longer battery life and wireless Internet access. Intel now plans to launch new chips for servers, desktop and laptop computers in the third quarter that it believes will take back performance leadership in all three markets. "While AMD is performing well in some segments, we are confident that our investments in new products and manufacturing technology will continue Intel's role as a technology leader into the future," says Chuck Mulloy, an Intel spokesman. Intel also has ample capability to reduce prices, which could hurt AMD's profit margins. But with the relationships AMD has built, price and performance are no longer everything. Market-research firm Current Analysis estimates that AMD chips were used in 55.4% of PCs sold at the U.S. retailers it tracked in March -- including a majority of H-P laptops, despite the fact that AMD's chips lag behind the performance of Intel's in that market. "The competitive landscape has a new paradigm," concludes Apjit Walia, analyst at RBC Capital Markets. ================================================= George Antunes Voice (713) 743-3923 Associate Professor Fax (713) 743-3927 Political Science Internet: antunes at uh dot edu University of Houston Houston, TX 77204-3011 Reply with a "Thank you" if you liked this post. _____________________________ MEDIANEWS mailing list [email protected] To unsubscribe send an email to: [EMAIL PROTECTED]
