A Watershed Moment For AMD?

To the average consumer it was just another computer ad. But there was
something extraordinary about the full-page ad for HP computers that ran in
USA Today earlier this fall.

For the first time, a national, mainstream publication had run an ad
featuring a family of computer systems — desktop, notebook and server —
featuring AMD processors.

Depending on whether you’re a glass half empty or half full kind of person,
this was either great news for AMD or shows just how far it has to go to match Intel’s ubiquitous “Intel Inside” logo.

One thing AMD is doing to gain more presence is making a big investment in its channel marketing to better support the dealers and
integrators it wants to promote and sell AMD-based systems to.

Also promising to help the Sunnyvale, Calif.-based chipmaker gain recognition and buyers is the strong acceptance AMD servers based on its dual-core 64-bit Opteron processor has had.

“AMD has a chicken-and-egg problem,” said Roger Kay, an analyst with Endpoint Technologies Associates in Wayland, Mass. “AMD has to convince the PC makers and dealers to build and carry more AMD systems, but to do that there has to be demand.

“Opteron-based servers with superior price-per-watt performance are doing great, and you’re starting to see that create air cover, or demand, for the rest of AMD’s products,” he continued. “This is a watershed moment for the company to see if they can keep the momentum going.”

One good indication of that momentum is retail sales.

In September
AMD-based desktop systems outsold Intel at U.S. retail outlets for the first
time, according to figures compiled by Current Analysis. Recently released
figures for October by the research firm show another first with AMD-based desktop
and notebook unit sales combined just nipping Intel-based ones 49.8 percent to 48.5 percent.

Intel-based notebooks actually outsold AMD at retail, but AMD’s
desktop sales were big enough to eclipse Intel overall.

“This is not a blip,” Matt Sargent, analyst with Current Analysis, told
internetnews.com. “It may well be that Intel regains the lead in
November, but these figures, coming four weeks before the most crucial
holiday selling season of the year, are a strong indication that AMD can
compete on the strength of its products.

“There’s an awareness of what AMD’s done in bringing out a strong
64-bit processor in Athlon. And with Microsoft’s Vista due out next year,
some buyers see buying AMD as a kind of future-proofing.”

Sargent says AMD is building brand preference in key markets, such as gaming, and they often recommend systems to friends and business associates.

“We know it’s only the techies and high-end gamers who are going to really do anything to take advantage of 64-bit for quite a while, but if you can pay
the same price or less for the assurance you can use those new features, why
not do it?”

At the corporate level, RackSpace, a managed hosting service company,
recently surveyed its customers on their preferences between AMD and Intel
processors.

RackSpace offers both AMD-based servers it builds itself and
Intel-based Dell servers. Sixty-five percent of the 300
survey respondents said they were not prepared to pay a premium for
Intel-based servers and an additional 25 percent said they would only pay up
to a 10 percent premium for Intel.

“There was a recurring theme to the written comments we got of people
saying Intel does better because of marketing while AMD’s edge is its
technology,” Paul Froutan, vice president of product engineering at
Rackspace, told internetnews.com.

“Without AMD I’m sure Intel would be
farther behind. You expect the underdog to do something better, and that’s
what we’ve seen consistently with AMD.”

With its multi-billion R&D budget, Intel is surely capable of matching, if
not exceeding, any advances AMD has planned. But competition is not always
just about who has the best technology.

“Intel is losing the almost total control of the market that it used to
have,” Amy Wohl, president of the consulting firm, Wohl Associates, told
internetnews.com.

Wohl said without competition from AMD, Intel would be free to time its
product releases to maximize profit. Now it has to decide whether to destroy
revenue streams or wait and not be competitive with what AMD is offering.

“It’s a lose-lose for Intel; AMD is driving it crazy,” she said.

Mike Feibus, analyst with TechKnowledge Strategies, agrees Intel has had
to react more to AMD’s moves than ever before.

“Intel’s initial dual-core
Pentium is a great example; it’s a me-too product, not a ground-up design,”
said Feibus. “Now Intel is following with true dual-core products. But AMD
forced Intel to react rather than risk being perceived as falling behind.”

But to whatever extent AMD is a thorn in Intel’s side, analysts say
there’s nothing to indicate that its overall dominance of the market for PC chips will change. Signing on Apple for a new line of Intel-based Macs due next year was a coup. And Intel has a major multi-core initiative that
is sure to keep the interest and loyalty of enterprise customers for quite
some time.

On the consumer side, Intel is set to release its third major brand, Viiv,
for PCs and other computer devices.
Viiv technology is expected to appear in a raft of Viiv consumer PCs
and so-called digital living-room systems starting in the first quarter of
next year.

But while AMD may never have Intel’s breadth of customers, the ones it
does have aren’t complaining. “HP and Sun love the fact that Dell doesn’t
sell AMD, because it allows them to differentiate,” said Feibus.

Dell recently started to offer AMD processors, not
systems, on its Web site, but the company has no immediate plans to take that
any further.

“We constantly evaluate new technologies but at this time
don’t have AMD-based systems in our portfolio,” Dell spokesperson David Lord
told internetnews.com.

Analyst Feibus said Dell has a sweetheart deal that pays to
remain all-Intel.

“If the threshold of the pain of doing without AMD ever
exceeds the benefits of their deal with Intel, then and only then will Dell
bite the bullet on AMD.”

Companies such as HP that offer both AMD and Intel-based systems tout the
advantage of offering their customers a choice.

But Sun, which doesn’t use
any Intel processors, has been far more aggressive in promoting its
Opteron-based servers and tweaking Intel-based competitors like Dell in its
ads.

Another company that’s had dealings with both Intel and AMD is VoodooPC,
a maker of high-end gaming PCs.

VoodooPC no longer uses Intel processors
after a rift over allocation levels. Intel denies it held back from VoodooPC,
which was fast becoming a strong supporter of AMD processors.

“Intel did a great job for us in many ways, but we offer our customers
the best components, and you can’t have two bests,” Rahul Sood, president and
CTO of VoodooPC, told internetnews.com.

“I think Intel is mad and will come out with some compelling products.
The Pentium M is fantastic and Yonah (the next generation of Intel’s mobile
processor) will be really good, but it would be a mistake for them to think
AMD is going to sit back and wait, because what they’re working on for next
year is phenomenal.”

Sood thinks AMD’s goal of gaining 30 percent of the commercial
market by 2009 is realistic.

“I don’t see AMD wanting as much volume as
Intel. I think they’re positioning as a premium alternative to Intel, and, in
many ways, they already are.”

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