First - I have been pretty busy last couple of weeks to post regularly to the blog. Instead, I've been trying to ensure comments get through and I can respond. Hopefully things will ease out this week and I'll be able to finish my Q3 take which has been in draft for some time. This post isn't a deep analysis. It's more to confirm the DIY channel frustration with AMD for shorting them on supply is starting to become visible with more re-sellers becoming vocal:
http://www.crn.com.au/story.aspx?CIID=67571&src=site-marq
http://www.theinquirer.net/default.aspx?article=35457
The impact of this to AMD is if this festers for another 2 quarters then it will take them a long time to win back channel trust/confidence even if supply does normalize. Those who work in the industry will understand this. Those who don't will issue blistering comments that they day AMD's supply problem is resolved, the channel will come running back to them. But that's not the way it happens. For the small guy round the corner, he feels screwed when either AMD or Intel give deeper discounts or supply preference to the big OEMs. It makes it incredibly hard for them to compete and watching a sale walk away because you didn't have the product is like seeing food on the table disappear. Intel has taken 2 years to recover from the chipset shortage. If this precipitates for AMD, they will lose a significant amount of channel momentum which will hurt them late next year once 65nm is ramped.
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18 comments:
It's all about business risk. When you have AMD mobo's sitting around waiting for a CPU that is months delayed, its not good.
It's just a matter of time when they will no longer risk building AMD systems for fear of delays. But then turn to Intel who can provide a much consistent delivery.
AMD get Dell at discounted prices, Intel gets channel builders with normal pricing.
Nice win AMD!
I vouch that it will take AMD just as long to ramp supply to a level that will allow it gain the channel as it will for the channel to warm up to them again when they get supplies. Of course, this is assuming the channel will act single-mindedly (it is a bunch of companies right?) and that they wont have a short memory span and buy up anything that has potential for demand and is in stock (sounds like a normal open market scenario).
The reason Intel was hurt is still under debate, since Intel could only tell investors that was the reason for their losses (telling your stock is doing poorly because your competitor has a far superior product than yours isn't an option whether it's the truth or not). Even then, the situation is much different now, as the chipset shortage primarily served to make the channel even more willing to push AMD's products, and also created a situation where Intel was selling more chipsets than could be supported by platforms that were in demand. This is what made the channel less receptive to their processors and lowered those sales. AMD has a shortage of processors not chipsets, so there is no deficit of demand when compared to their supply. If anything, this will hurt their support from motherboard manufacturers, who jumped on the AM2 bandwagon very quickly, and may not jump on it so quickly if they know that their products will not be supported by a strong supply of processors. Even then, this is unlikely. Another factor that cuts into this was that Intel was pushing support for ddr2, which was very expensive at the time, and didn't perform that well. Lowering demand by lowering the supply of chipsets that used ddr2 made supply weaker and made manufacturers focus less on ddr2, which brought up prices, thus killing overall demand for those platforms.
Tell me if I've made some incorrect assumptions, but I'm pretty sure this is a bit of a hitch to your argument.
Greg:
1. On what happened to Intel - I think you're right, it's up for debate whether it was chicken or egg first. But I think the key thing was that it opened the door for AMD to gain rapid entry into channel. I am not going to deny AMD had a better product. But Intel has the Pentium brand which was probably much stronger in 2004 that today. They also might have taken their eye off the desktop ball with the Centrino launch.
2. All your assumptions are correct as far as I know. But...the key factor here as Roborat puts it is the trust that comes from consistent supply and the business lost from not having product when the customer is in your store. Channel is not just a bunch of companies - it's thousands of small DIY guys scattered around the globe. Once supply normalizes for AMD, the restoration of channel business will be slow because of the number of customers you need to get back. One the flip side, losing their trust also take a few quarters. Rumours of AMD's shortage started in Q2 '06. But I'm still being coservative and saying if the shortage persists into Q2 '07 that they might start to see significant damage to their channel loyalty. The other issue on trust here is AMD won the channel by portraying themselves as the defender of the channel while Intel chased the big customers. Now, those guys feel betrayed by AMD...while Intel is trying to seduce them all over again.
I think maybe your missing something, Sharikou180, or at least haven't mentioned it that I remember. AMD's 50% growth in mobile shipments, while desktop and server stayed relatively flat.
Admittedly, some of this growth was probably in part due to preparing for Dell's added parts.
AMD is using any added capacity in an effort to make more mobile chips, a way of increasing their margins since its presumed notebooks are going to be a killer on Q4 shipments. Obviously this increased ratio of mobiles does the channel no good because its not a DIY part, but I'd fully expect to see their priorities change come Q107. Also they can't expect that kind of growth in mobile going ahead, so added capacity in the future will have to go where its needed, desktop parts to the channel.
You have to keep this in proper perspective though. Demand for AMD chips must be high because capacity hasn't decreased. You mention not being able to make every sale offered as stealing food off one's table. To your analogy, would you rather have someone steal your McDonald's or your steak dinner. AMD surely can't shift production from server chips or mobile to lower ASP parts. I just mean if you have to stiff somebody; server, OEM, or DIY, DIY looks less painful than the alternatives. You might say OEMs, but AMD knows what its like to be on the otherside looking in at big OEMs, they don't want that again. If AMD starts 07 with a new commitment to the channel, they might be able to aviod the wound Intel inflicted upon itself.
Randy/Ashenman - I'm not saying AMD hasn't made the best decision they could in the current situation. However, I am saying that if the situation persists another couple of quarters they could have a medium term issue with channel loyalty. Which would counter-balance their big Dell win to some extent.
I do want to repeat a point I made earlier on Dell. Dell is a tough customer. AMD will have to hold inventory for Dell and Dell will have the right to cancel their order right up to a few days before ship date. This is a whole different ball game for AMD to manage unlike channel who pay cash and have to stock product themselves if they want to hold it. Hence, while there is definitely more stability in theory in having a Dell it's not a 100% guarantee the product will ship and get billed. I disagree Dell needs AMD more. They both need each other but make no mistake, Dell has the upper hand in the relationship...Dell is driving the terms.
hey 180 i know this is not ur full time job but to get traffic here you have to pick sides. Perhaps either finding something against amd or very positive things about intel. I am not telling you to go crazy like the others but you need to have a strong position on something.
Scientia mite go around proclaiming his unbias but he is at heart an amd fan boy but def better than sharikou cuz unlike the doctor atleast his theories are not all that far fetched.
Anonymous - at this point I'm predicting Intel will regain market share (as they already did some in Q3) and stem AMD's momentum till Q3 07. This has already started with the Q3 results as we saw a big and more importantly unanticipated drop in margins for AMD in one quarter. As I had predicted, they are dropping prices to keep their factories filled. They might have some respite in Q4 on margins as they move desktop capacity to mobile which I think they undercalled in Q3. However, I have said earlier that with Dell going AMD and Intel finally having a good product line up in desktop and 2P servers, HP will swing a chunk of business back their way as soon as Intel cuts them a sweet deal.
I'll make a more detailed Q4 forecast end of this month.
The previous poster is wrong about your not taking a strong stand, Sharikou180, its just that sometimes they seem inconsistent.
I hate doing point-for-point itemized posts, but I think this warrants it.
1."at this point I'm predicting Intel will regain market share (as they already did some in Q3) and stem AMD's momentum till Q3 07."
While you've been consistent in this prediction, like others have before I have to direct you to Scientia's blog that puts market share gains by both AMD and Intel in perspective and tends to show AMD's gain starting to level off but not Intel gaining as you've stated.
2."This has already started with the Q3 results as we saw a big and more importantly unanticipated drop in margins for AMD in one quarter."
This is again a strong stand, it just seems inconsistent with the facts yet unfortunately consistent with others even seemingly the stock market's expectations. Exactly how was AMD expected to drop prices 40-50% on most SKUs in Q2 and not suffer a drop in margins. Just because you and others didn't anticipate it doesn't mean it was unpredictable.
Such is the result of a price war.
3."As I had predicted, they are dropping prices to keep their factories filled."
While I don't recall this prediction, I also can't see how it applies. AMD was doing a pretty good job selling every chip when FAB30 was running at 150%(30k wspm)its designed production back in Q2.
The priced drops were in response to Intel's fire sale of warehouses full of P4s and P4Ds initiating the price war. Everyone anicipated this for about a year, yet when it happens...ohh my margins are dropping, fabs can't keep up. Who woulda thought people would actually buy cheap procs.
I am a system builder down in Australia suffering from the AMD supply constraint issues.
After quoting a customer for a Sempron 3000+ AM2 CPU, there seems to be no supply from any of my suppliers. The worst thing is that they don't even have an ETA!
The customer is now forced to wait since they have already committed to an AMD system.
Bobby - I'm feeling your pain. I hope things get better soon but I doubt it. It's going to get worse at least till Q2 unless Dell cancels some big orders at the last minute in Q4/Q1. But the downside is hope AMD doesn't dump their inventory below street price into the channel which makes the inventory worthless.
This article is just another cherry picked fan attack. The latest information is that the channel is not leaving AMD and AMD has more orders, not less.
Feel free to substantiate that with a link or anything at any time.
-:)
Let's see. Your layoffs at AMD article turned out to be bogus. I posted links showing your $500 AMD notebook story was baloney. And, now we have yet another false intel fan piece of gloom and doom for AMD.
AMD responds to processor shortage controversy
Despite the shortages, DiFranco expects channel partners to stand by AMD as it attempts to increase manufacturing. "Actually, I've been getting many more calls thanking me for trying to work out a solution than people calling to complain about the problem," he says. Additionally, holiday season orders for large PC makers have already been filled, so AMD can now "start to focus a little bit more" on the channel. DiFranco also says supply and demand "should probably match up pretty nicely" in the first and second quarters of next year
Scientia from AMDZone said...
This article is just another cherry picked fan attack. The latest information is that the channel is not leaving AMD and AMD has more orders, not less.
November 10, 2006 12:10 AM
The irony of that statement;) Channel > AMD's BS marketers.
His links on the layoffs were bogus(and still partly true). His link for the sub $500 notebook was from a reputable enough source.
How is this any more gloom and doom then your blog? I do not get the grating pessimistic tone from this as I do from your blog. Even Sharikou's silly BS is less grating. This blog does not pretend to show both AMD and Intel in the same light and at least he admits it.
Of course you would expect an AMD rep to say that. We've heard nothing but negativity from the channel, I don't know who exactly is praising AMD for 'trying to work out a solution'. And I don't get what you're trying to defend. We all agree that AMD would be better off if it could supply all demand right?
Let's see. Your layoffs at AMD article turned out to be bogus. I posted links showing your $500 AMD notebook story was baloney. And, now we have yet another false intel fan piece of gloom and doom for AMD.
Your link's not credible, and ultimately not relevant. AMD Channel VP != Channel
English again... Why do people feel the need to insult the person rather than the argument?
I don't see anything that you've contradicted from me ash, I was trying to understand how Scientia can take the word of an AMD rep [don't they all claim happy customers?] over that of distributors all over the world. This blog said that the channel is unhappy with AMD. Scientia's link does not deny being unable to supply demand and expects the situation to amend in December+.
Regardless if its Dell's fault or not[AMD rep vs others], they still have a problem.
I'm not saying it isn't a coincidence. I'm saying that AMD probably had to change how some processors were going to be sold (package wise) after they were packaged, and now they have to sit on them. This was most likely excessive demand from Dell's server division for 1p products, which makes sense, as Dell was pushing those a bit harder than they needed to.
The packaging and shift to mobile could also go hand in hand. I really don't see how we can assume it's either anyway. We don't know enough about this situation. We also don't really have an accurate way to judge the channel's supply until we get distribution numbers, which will also show what effect Via had on the entire market as well.
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