Undoubtedly AMD has been executing well in the last couple of years. This is leaving everyone with a sense of confidence that they will absorb ATI smoothly. However, what happens if they fail on the following fronts:
1. The botch up the absorption of ATI and it's employees. The entire merger becomes messy and dysfunctional.
2. They fail to make the integration of GPU & CPU onto the same die a commercial reality (different from a technical possibility). Or at least they fail to do that in the next 2-3 years.
3. They deliver platforms but cannot gain incremental margin because they are unable to create brands out of platforms. Brands are critical. They allowed Intel to charge a premium for their Centrino platform. Without a brand, the platform can just end up as the sum of the parts are no greater than whole. Whereas Intel clearly has been commanding a premium for it's platforms.
Nobody is asking the question...what if they fail? The interest on a 3 billion $ loan will not be chump change. Everyone is assuming Hector and team know something. But what if they don't. What if they realised that they needed the platform capability to compete with Intel. That CPU prices are falling like a rock. Growth is coming from emerging markets and at some point a mainstream PC may cost as much...or even less than a mainstream cell phone.
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The problem is that everybody is focusing on the negatives for AMD and the positives for Intel. You can do that for anybody and anything and come up with bad news for them, problem is this "forum" is likely created by an Intel fanboy, so I doubt we'll see objective reasoning here.
This is the other side, not the middle. (hint: (D) vs. (R))
Well Mike - I don't claim to be an expert. My goal is to create a place where people can use their analysis and insight to predict where this war goes.
Only time will tell if this blog turns into an intelligent forum for discussion and whether you have a point of view that can add to the debate. I will not be blindly defending one side or the other. But I will be trying to spark different perspective on the AMD/Intel war rather than blindly defend one side. I have an interest in both companies so my interest is to see where the puck is going. Not focus on just today.
"Only time will tell if this blog turns into an intelligent forum for discussion and whether you have a point of view that can add to the debate. I will not be blindly defending one side or the other. But I will be trying to spark different perspective on the AMD/Intel war rather than blindly defend one side. I have an interest in both companies so my interest is to see where the puck is going. Not focus on just today."
That's the problem. Everybody is trying to be neutral and that isn't possible. You can't be neutral in a war, you can't be neutral on a flip of a coin. You are either Black or White, there is no Grey (not talking about Skin Color). What makes it worth being for Side A or Side B is how good you are at defending it/them and how educated your responses are.
Sharikou may be AMD Fanboy (so am I) but we have very good reason to be. People who are Intel fanboys are only because of Core 2 Duo, and that is hugely bad, 1 good CPU out of 4 years? that's something to be proud of? Not to me.
No problem Mike - you're entitled to your POV as is Sharikou. I've started this blog with a different perspective. To engender discussion so that I can learn from it. Sure I have a POV...but it isn't necessarily black or white...Intel or AMD. I believe AMD has turned what used to be short sprints into a race where they have endurance. And I do not believe Intel is going to pack up in the next few quarters either. My intent is to see if the folks who come to this blog can plot how these two players will attack and counter-attack. Things are going to get interesting. As you can see from my first couple of entries, I think AMD has also acquired some good short term bullets in their arsenal w/ ATI but at the same time I'm wondering what would they do if the merger doesn't go well.
That CPU prices are falling like a rock. Growth is coming from emerging markets and at some point a mainstream PC may cost as much...or even less than a mainstream cell phone.
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The above is true....but also true
will be fact that consumers will be refreshing their notebook purchases as frequently as cells and PDAs.....a small transportation company I do biz with is reequpping its road warriors with updated NBs every 6 months....until 2004 it was every 2 years...
Paarl
Paarl - cannot agree with you more. The problem is Wall Street looks at gross margin as a key indicator of business strength. And in the scenario above, gross margin is severely down. This is why I think Intel is cutting back cost now. Because they are shifting out of a blind desire to just GROW revenue at all costs and into a mode where they intend to maximise profit.
sharikou180 is worse than sharikou.
Don't you ever read any 10-K? Do you know what is risk factor? Does Intel's 10-K have no risk factor section?
As a matter of fact, you ccan die any minute. What is your heart attack burst all sudden? What if an airplane crash into your house when you are sleeping? What is you have a car accident when you are driving? Did you ever calculate this kind of price of failure?
One word for you: stupid!
Thanks anonymous - you definitely threw more light on what AMD's strategy should be and showed me how "stupid" I am. I feel so bad about myself I'm going to delete this blog and crawl into a corner sobbing while I contemplate my stupidity and whether I should end it all. I think that will save you the trouble of coming back here again so don't bother.
Now scat...don't waste my time.
I am telling you, sharikou180,every successful company, such as GOOG, MSFT, CSCO, etc, has lots of risk factors descibed in 10-K. M & A always most important part of risk factors, and I believe AMD will put this ATI M&A risk into its 2006 annual report.
Invest in stock always face the risk/reward delimma. If you can not afford any risk, then you should put your money in bank.
Both INTC and AMD are high risk stock. But reward from INTC is low, reward from AMD is high. Therefore, I pick AMD.
Anonymous - sure they'll place the risk on the table and I agree that there is risk everywhere. My question is what is AMD's back up plan should the ATI acquisition not pan out all the benefits they expect.
After some thought, I figured they would begin to attack Intel's integrated graphics as per my other post. They can do this with ATI just as it is. However, that's just a short term tactic. Longer term, is there a way to hedge their bet? If any of 1/2/3 above happen, what would their back up plan be?
"what would their back up plan be? "
AMD execs won't tell you.
"what would their back up plan be? "
How much do you know about INTEL's backup plan? For example, what if the mass layoff fail at INTEL, i.e., those good engineers got laid off but bad ones stayed inside INTEL? Does Paul O have a backup plan for that failure? What if Core 2 Duo has to be recalled? Any backup from INTEL? .....
1. The botch up the absorption of ATI and it's employees. The entire merger becomes messy and dysfunctional.
It might be beneficial if you knew more about AMD. AMD has done this before. They took over the design team at Nexgen when they bought the company. They did the same thing with Geode. They also took the entire HyperTransport design team from Compaq without missing a beat. They've also worked well with both IBM and Chartered in issues that were much more complex. There is no real reason why AMD would have any difficulty with the purchase. Essentially, you do three things: 1. Join the order, inventory, and billing systems. 2. Combine sales staff. 3. Integrate engineers for joint projects and designs. None of these three should be a problem.
2. They fail to make the integration of GPU & CPU onto the same die a commercial reality (different from a technical possibility). Or at least they fail to do that in the next 2-3 years.
GPU on die is a low end market. Of much more importance is the fact that AMD can deliver a bundled cpu/chipset solution. Failing to do GPU on die would not have a lot of effect.
3. They deliver platforms but cannot gain incremental margin because they are unable to create brands out of platforms.
You are thinking like Intel here which tends to consider itself more important than its customers. It is not essential for AMD to create brands like the Centrino campaign. Secondly, it is unlikely that Intel can duplicate that success.
Brands are critical. They allowed Intel to charge a premium for their Centrino platform.
No. What allowed Intel to charge a premium was the fact that they would not sell the Pentium M processor without the rest of the chipset. With Centrino, it was all or nothing. OEM's didn't exactly appreciate this because it prevented them from creating their own brand identity.
Without a brand, the platform can just end up as the sum of the parts are no greater than whole. Whereas Intel clearly has been commanding a premium for it's platforms.
Actually, this is changing. Intel's brand value is declining. Their Centrino brand is still doing well but it will come under increasing pressure from AMD mobile. The situation with Intel has been unnatural as normally the supplier's brand does not overshadow the OEM's brand.
Nobody is asking the question...what if they fail? The interest on a 3 billion $ loan will not be chump change. Everyone is assuming Hector and team know something. But what if they don't.
I don't understand why you seem to look for exotic scenarios. This is simple, boring stuff. Customers wanted bundled solutions so that they could have factory warantys for both processors and chipsets and guaranteed simultaneous delivery. So, AMD bought ATI so that they could deliver what the customers wanted. This isn't complicated. Secondly, ATI is profitable now and the merger will reduce costs a bit. This savings of costs offsets the interest of the loan.
What if they realised that they needed the platform capability to compete with Intel.
They did; that is why they bought it. It allows them to deliver a bundled cpu/chipset solution to OEMs.
That CPU prices are falling like a rock.
Perhaps you need to be more acquainted with the costs of building a state of the art $3 Billion FAB and maintaining technical and engineering staff. If prices fell that sharply chip production would stop because the manufacturers couldn't pay for the cost of the FABs. I understand that you don't have a great deal of technical knowledge but there is a big difference between a computer processor and the chip that powers a calculator or digital watch.
Growth is coming from emerging markets and at some point a mainstream PC may cost as much...or even less than a mainstream cell phone.
I'm wondering a bit about your knowledge of both history and the present. The Timex Sinclair computer sold for $50, the Vic 20 sold for $100. AMD has already developed a 3rd world computer. They are waiting for 1 Million orders to begin production.
Scientia - I understand you're an AMD fan. However, I'd really ask you not to assume everything here is an AMD slam and react accordingly. I'm asking hypothetical questions because I'm interested in what could be. Think of it as chess - I'm trying to tap the intelligence of smart guys like you to see what the options for AMD are. Of course if AMD succeeds my hypothesis is irrelevant. I do think their management team has displayed tremendous competence in the last few years. But I'm interested in "what if". Pls see my comments below:
Scientia from AMDZone said...
1. The botch up the absorption of ATI and it's employees. The entire merger becomes messy and dysfunctional.
It might be beneficial if you knew more about AMD. AMD has done this before. They took over the design team at Nexgen when they bought the company. They did the same thing with Geode. They also took the entire HyperTransport design team from Compaq without missing a beat. They've also worked well with both IBM and Chartered in issues that were much more complex. There is no real reason why AMD would have any difficulty with the purchase. Essentially, you do three things: 1. Join the order, inventory, and billing systems. 2. Combine sales staff. 3. Integrate engineers for joint projects and designs. None of these three should be a problem.
180 Sharikou - ATI is almost half the size of AMD and a bigger challenge than Nextgen or Geode to integrate. You're missing a key part of acquiring a company like that - and that's absorbing the people and getting them to fit into your culture, systems, processes, etc.
2. They fail to make the integration of GPU & CPU onto the same die a commercial reality (different from a technical possibility). Or at least they fail to do that in the next 2-3 years.
GPU on die is a low end market. Of much more importance is the fact that AMD can deliver a bundled cpu/chipset solution. Failing to do GPU on die would not have a lot of effect.
180 Sharikou - I also talked about platforms. And the low end of the market is not to be ignored as the PC business continues to see the price curve move down and more and more growth come from emerging markets at lower price points. Finding the right solution here is the challenge. Good technology, priced to be affordable and yet profitable for manufacturer.
3. They deliver platforms but cannot gain incremental margin because they are unable to create brands out of platforms.
You are thinking like Intel here which tends to consider itself more important than its customers. It is not essential for AMD to create brands like the Centrino campaign. Secondly, it is unlikely that Intel can duplicate that success.
180 Sharikou - disagree. There is no incremental value in having a platform unless you can add end user value through integration and/or software/sevices and then charge a premium for it. Otherwise you're not a platform company...you're just a supplier who sells both CPU and chipset. Whether Intel can duplicate their Centrino success - see my response to your comments on my other post. I agree, they have shown little competence on making their other newer platform efforts successful. But your comment above is only an opinion as is mine.
Brands are critical. They allowed Intel to charge a premium for their Centrino platform.
No. What allowed Intel to charge a premium was the fact that they would not sell the Pentium M processor without the rest of the chipset. With Centrino, it was all or nothing. OEM's didn't exactly appreciate this because it prevented them from creating their own brand identity.
180 Sharikou - you have made an omelette but failed to crack the egg. Intel has made Centrino ubiquitous with mobile computing and wi-fi through their massive marketing push. Hence, OEMs are reluctant to push Pentium M since that means they don't get to ride Intel's marketing investment. Pentium M's are available but Intel's attach rate of wi-fi/chipset is around 80-90%. And please don't tell me Dell and HP are scared of Intel. I'm not buying the arugment at all. All of them were busy riding Intel's investments to make money selling more notebooks. Remember, Apple is using Intel's Core/Duo CPU brand but not their platform.
Without a brand, the platform can just end up as the sum of the parts are no greater than whole. Whereas Intel clearly has been commanding a premium for it's platforms.
Actually, this is changing. Intel's brand value is declining. Their Centrino brand is still doing well but it will come under increasing pressure from AMD mobile. The situation with Intel has been unnatural as normally the supplier's brand does not overshadow the OEM's brand.
180 Sharikou - I think a better expression is unique. Though remember that Microsoft's brand is even stronger at #2 on Interbrand valued at 56 billion. I do agree the OEMs are eager to put Intel back in it's place as a supplier. But Intel's brand has over-shadowed the OEM's brand ever since Pentium as the greedy OEMs too have sucked at the teat of Intel's marketing funds. And you're right, Intel's brand value dropped by 9% this year due to their abysmal performance. But this discussion is on platforms and Centrino continues to buffer their losses in desktops and servers.
Nobody is asking the question...what if they fail? The interest on a 3 billion $ loan will not be chump change. Everyone is assuming Hector and team know something. But what if they don't.
I don't understand why you seem to look for exotic scenarios. This is simple, boring stuff. Customers wanted bundled solutions so that they could have factory warantys for both processors and chipsets and guaranteed simultaneous delivery. So, AMD bought ATI so that they could deliver what the customers wanted. This isn't complicated. Secondly, ATI is profitable now and the merger will reduce costs a bit. This savings of costs offsets the interest of the loan.
180 Sharikou - your comment may apply to enterprise but I don't think there are many consumers or SME's that even know what a chipset is. If the scenario is boring, please don't waste your time on it. Again...this is my hypothesis, you're welcome to present a different POV with facts but please do not be derisive cos I'm not interested in being insulted.
What if they realised that they needed the platform capability to compete with Intel.
They did; that is why they bought it. It allows them to deliver a bundled cpu/chipset solution to OEMs.
That CPU prices are falling like a rock.
Perhaps you need to be more acquainted with the costs of building a state of the art $3 Billion FAB and maintaining technical and engineering staff. If prices fell that sharply chip production would stop because the manufacturers couldn't pay for the cost of the FABs. I understand that you don't have a great deal of technical knowledge but there is a big difference between a computer processor and the chip that powers a calculator or digital watch.
180 Sharikou - hmmmm...that was a typo. It should read PC prices are falling like a rock.
Growth is coming from emerging markets and at some point a mainstream PC may cost as much...or even less than a mainstream cell phone.
I'm wondering a bit about your knowledge of both history and the present. The Timex Sinclair computer sold for $50, the Vic 20 sold for $100. AMD has already developed a 3rd world computer. They are waiting for 1 Million orders to begin production.
180 Sharikou - well old boy, I'm wondering about your acquaintance with reality. I can buy either of these products you mention where? And AMD is still waiting for their PIC to take off. Here's a little nugget. The first ISP they signed up with in India (Tata) has dumped the product. Guess what, when they tried to give it away consumers rejected it. They didn't want something de-featured and crappy even if it was free. Even cost conscious consumers in "emerging markets" (I thought 3rd world went out with suffragette) have pride and don't want to be given the technology equivalent of a "hand me down". But I'm guessing AMD didn't exactly put out a big press release announcing that. Call me when that order for a million 3rd world computers comes through. I'll be right here.
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