The Great Intel vs AMD debate

With e-procurement fast becoming the tool of choice for buyers looking for best practice, it is the application of these tools and information they provide in relation to market categories and their issues that will deliver long term best value.

However, for many buyers who are not engrossed in the detail of IT, it is sometimes hard to piece together and understand the jigsaw of issues that will impact on buying in the future.

The impact of new technology in the form of processors can have resounding effects across the IT marketplace from the ground up.

To that end, it is important for IT buyers to take stock of the fight for processor market share in order to see how it will effect future market trends, stock and pricing.

Looking into the crystal ball of this pivotal section of the market could be the key to unlocking best value product purchases across a number of categories.

AMD has shown its disappointment at the market’s reaction to the new Barcelona chip. Barcelona came to market later and slower than expected, resulting in wide ranging price reductions from AMD to try to achieve competitive advantage. Meanwhile, Intel’s reaction has been to adjust selected chip prices by smaller amounts, no indication of a competitive threat.

In October, AMD posted a $226m loss in the third quarter, replacing a $121m profit in the same period a year ago.

This month AMD confirmed that it had received a significant cash injection from an investment operation based in Abu Dhabi. A wholly-owned subsidiary of Mubadala Development Company has been given 49 million newly-issued shares of AMD worth $12.7 per share.

The chip maker, which has been battered by downward-spiralling financial results for the past few quarters, said it planned to use the net proceeds from share sales for what it described as ‘general corporate purposes’.

Signs of an organisation struggling? Large price reductions not matched by the competitor, a significantly poorer profit picture than the city anticipated plus the need for a cash injection to provide operational funding.

Intel by comparison looks more revitalised. In its third quarter the chip maker increased revenue 15 per cent to $10.1bn. It also produced net income figures up 43 per cent to $1.9bn.

Over the past year, Intel has revamped its product line to show better performing chips that consume less power (Core 2 Duo, Quad cores etc).

In addition, the company re-organised its management, slimmed down the work force and trimmed costs; the results are now starting to show through in its latest profit picture.

How can we interpret these results? The first and most obvious is that AMD needed cash, not to invest in future technology, or future manufacturing, but to support its day- to-day business.

Intel, on the other hand, is making good profits while investing in 3 new manufacturing plants, which will drive profits in the future.

These plants are allowing Intel to produce new chips using next generation manufacturing technology. This line of chips, code-named Penryn, uses a new manufacturing method that allows Intel to make the chips both smaller and more energy-efficient.

Intel is already ramping production of the worlds first 45nm CPUs in these new plants and it also has the next level of manufacturing plant - the 32nm technology planned for 2009 further improving power consumption characteristics.

In such a competitive market the key question is when will AMD be producing an in-house 45nm chip? The business acknowledges it needs external help and it may have yield problems on their 65nm manufacturing technology today based on the current profit picture.

The future is in faster and more computing power matched with lower power usage. Penryn provides Intel with the technology to achieve this objective.

AMD, however, has a great deal of catching up to do. Manufacturing technology is the key to long term profits. The cost of investing in these facilities is measured in the billions of dollars.

Intel has the lead in terms of chip design based on AMD comments on its latest offering, Barcelona.

More importantly Intel has the manufacturing technology to match market shifts in a greener world where there is demand for less power use across the piste and Penryn provides Intel with that capability. Intel’s investment in its 3 new 45nm plants means it has a significant lead.

Whilst AMD is leading the way in gaming and high performance graphics markets, there is no simple fast fix for AMD in the standard computing tasks environment, it needs faster chips, more money and better manufacturing technology (and quickly). But AMD seems to lack the cash or the cash generating capability to build future technology.

In conclusion, this all equates to some serious food for thought when it comes to future buying across items like laptops, desktops and servers.

Particularly at a time when the needs of more environmentally friendly IT products are required to satisfy the change towards smaller carbon footprint (lower power usage) in the server, desktop and laptop environments.

Penryn and Intel’s Dual and Quad core products are providing Intel with a significant advantage across all computing markets at the moment. The market is dynamic.

AMD will respond, the question is how fast in their current status and how will this impact on the market?

IT buyers need to consider changes in technology per se by looking at the complete picture of Intel and AMD and their capability to provide the next generation of processor chips to a fast moving market.

Every development and new introduction impacts on product price and stock.

Intel is back on form with a clear product strategy, new manufacturing technology and a focus on the issues that matter in current Green market conditions. Intel is ahead in chip and manufacturing technology.

AMD’s next move will be very interesting. Will they focus on new chip technology or manufacturing? The next announcement will show which area they consider to be the greatest threat.

This assumes that Intel will not announce further developments to apply greater pressure on AMD in the meantime.