Advanced Micro Devices (AMD) made a number of strategic moves against archrival Intel Corp. this week, aiming to capture more market-share and defend against the onslaught of Intel's upcoming products.
Intel is expected to release a new desktop processor, the Conroe on Thursday - a chip offering better technology and features over AMD's current line of products.
AMD made its own headlines, starting the week with a surprise $5.4 billion purchase of Canada based computer graphics chip maker ATI technologies on Monday.
Then on Tuesday, AMD seemingly fired another shot at its cross-town foe, slashing prices across its whole line of processors, including a 50 percent cut for desktop version of its popular Athlon-64.
AMD is coming off a second quarter that disappointed Wall Street, as profits were down. Industry watchers will be looking to see if the companyâ€™s moves to battle Intel can boost share prices back up after they dropped nearly 16 percent last Friday to just above $18 where they continue to hover.
AMD on the Offensive
The purchase of ATI quelled rumors floating in media for weeks. AMD head Hector Ruiz describes the purchase as a move to reinvent the industry as the technology leader and partner of choice.
The deal gives AMD access to platform chips and ATI's wide array of integrated (on-board) and discrete (graphics card) chips - an area where AMD had previously found itself out-gunned.
In the past they could only compete on the processor front while Intel could offer a more robust solution with chipsets and integrated graphics, Jon Peddie, president of industry watchdog, Jon Peddie Research explains. Now they can offer all that.
The deal could give computer resellers and manufacturers new options. Experts believe AMDâ€™s motherboards will begin to include ATIâ€™s graphics controllers. This puts Intel under pressure because â€œ[AMD] can offer even more of a solution to the [manufacturers], Peddie explains.
Intel has been offering its own complete solution for sometime, an attractive package for computer manufacturers. However Will Straus of research firm Forward Concepts says everyone agrees ATI's chipsets are superior.
Obviously what AMD wants to do is to put ATI's not top of the line, but middle of the line chips on boards that work with their CPU's, he explains, an offering with better performance, meaning trouble for Intel.
From a strategic standpoint we like the strategy and the vision,â€ he said. However he warns the large purchase does increase execution risk as it will consume management resources to fully integrate and realize synergies.â€
Since the beginning of the year Intel and AMD have been aggressively reducing prices. Some believe this to be one cause of the computer industryâ€™s slowdown, as people wait for their cheaper parts.
In the years that we've been covering Intel we can't recall another time that the company has been so willing to talk about price cuts, simply because that tends to damage demand for the near term, Merrill Lynch analyst Joe Osha wrote in a report.
Price competition is a cause for concern according to AMDâ€™s sales chief.
The issue we're seeing in the marketplace is not so much the level of aggression [from Intel] but how it's being communicated and level of disruption it's creating among partners, Henri Richard, AMD's head of sales told analysts on a conference call.
Price competition doesn't bother us because it's nothing new for us, Chief Operating Officer Derrick Meyer added. The companyâ€™s actions followed suit. On Tuesday, it made another announcement: steep price cuts.
Straus believes that the drastic price cut could be in anticipation of Intel's upcoming Conroe, but Dean McCarron, principal at Mercury Research said the phenomenon is just an expected part of doing business.
This is a natural competitive situation, McCarron says. A lot of people are portraying it as a price war but they donâ€™t realize is that the cuts that have gone on since the beginning of year. He adds the cuts are natural, and there's nothing really radical.
New Heavy Bombers
AMD is not just accessorizing its own aging CPU with attractive pricing and graphics to go along with it. The company has plans to unveil a new CPU. Within the next months their current Athlons will be replaced with chips using the faster memory standard DDR2, McCarron says.
The company will also be transitioning over to the new 65-nanometer manufacturing processes, a technique that may increase margins and make its chips even more competitive.