April 11 - Avoiding Anti-Trust

I need to begin this post by saying that I technically love AMD microprocessors. I also like AMD as a company and all of the individuals who I have met who work there. At my last CPU upgrade, I built an AMD Athlon64 system and have never been happier with my PC. With all that said, I still need to be clear that I intend absolutely none of the following to be hurtful.

AMD recently announced some fiscal bad news. According to the press release, AMD is facing greater than anticipated competitive pressure and that has led them to lower performance expectations. I doubt this will last too long. In fact, the faster they lose market share, the more quickly they will be back in the black. Huh?

AMD sets the market's pace. No, really. Intel does not. It makes no sense for Intel to determine what the market will be. And, Intel depends on the existence of AMD more than any other company in the world. By set the market's pace, what I mean is determine what the specifications (performance and features) of the current crop of microprocessors will be.

This does not mean that AMD has, is or will always be measurably better than Intel, it just means that Intel is willing to let them be if it servers their interest.

So how can a short, sharp period of financial pain help AMD return to profitability? Why does Intel care if AMD exists? Why would Intel, a company 15 times larger than AMD permit AMD to set the pace for development? The answers to these questions are rooted in Intel's greatest fear, Anti-trust Laws. Intel very carefully maintains it's near-monopoly position and it's ability to use anti-competitive monopolistic tactics so long as AMD exists.

So, here is what (I'm guessing) Intel does. They decide what constitutes an acceptable portion of the market for AMD to have. As long as AMD has less than that share, Intel appears to rest on it's laurels (in reality they are developing many technologies for later use). They milk their existing line for as long as they can, extracting the most profit they can because they don't need to to maintain their market share. When AMD achieves a share of the market greater than Intel can stomach, Intel brings it's huge capitalization to bear on the problem of setting it to right by rapidly developing and releasing just enough new technology to acieve technical superiority over AMD. This, in turn, drives the market to buy more Intel chips and before too long everything is right again in Intel's eyes.

If Intel got too good, AMD would die. If Intel rested too long, AMD would have a chance at achieving sufficient market share to not survive at Intel's pleasure. I think this almost happened recently as Hell froze over not too long ago when Dell started buying AMD processors.

So, how can AMD minimize their pain when Intel fights back? It seems to me that if they start fighting right away, they will have large expenditures with a slowly decreasing market share because Intel will not let up until things are in what they perceive to be balance. On the other hand, if they can manage a very quick downturn, then they conserve their capital and perhaps come to market with dramatic new technology that finally pushes their financial fortunes fast enough to become an equal competitor to Intel.

Because that is what will have to happen for this situation to change. AMD will have to develop microprocessor technology so good and with a sufficient roadmap that they can carry their fortune all the way to 40-50% market share and a much larger market cap. They very nearly achieved this with the introduction of their 64 bit processors. It cost Intel greatly to reverse their 64 bit plans and follow AMD's lead and they were slow to do it because they had to work through many issues associated with, effectively, abandoning it's huge investment in Itanium.

AMD will know it has been successful when Intel tries to destroy them. Until then, Intel will be the company that cares the most about AMD's survival, aside from AMD itself.