Rob Enderle discusses the bottom line AMD’s recent technology analyst conference and AMD’s plan to move forward with its own products and in the competition with Intel. Get some food for thought on AMD’s latest battle plan against its rival.
Whether you are a vendor trying to pass Microsoft in Software, Apple with MP3 players, Cisco with networking gear, HP with Printers, EMC with data management or Intel with processors getting ahead of an already dominant vendor is very difficult. You generally can’t catch the leading vendor from behind because they are not only in the lead, this leadership also gives them economic advantages (particularly with hardware), because they can get lower costs due to higher volumes for their components. Plus, their overhead costs, which are spread across a larger revenue base, should be comparatively lower.
In addition, a dominant vendor typically has better brand recognition as well as better third party support – because the more volume you have, the more potential customers are talking to you and more people simply believe you are the safer choice as a result.
Granted, dominant vendors can stumble, Sony should own the MP3 player space given they owned the portable CD player space with the Walkman, IBM used to dominate Software, 3Com used to dominate networking, and Xerox was the dominant company doing copying and should have dominated printers.
In each case, the market moved and, when it did, the redefinition left the dominant vendor behind. AMD is trying to create a market move and is trying to assure us that Intel won’t make the cut. AMD’s strategy is based on three primary concepts: Devalue the Intel brand, eliminate Intel’s technical advantage, and be the OEM vendor of choice.
We’ll cover each in turn.
Devalue the Intel brand
The Intel Inside program is unique in the market, and I don’t just mean the technology market. It is virtually impossible to find another ingredient brand as powerful as Intel’s. Their brand shows up on ads that feature their customer’s products and as a sticker on the systems their customers sell.
However, you’ll note that Apple, who is now the poster child for success given their financial performance and iPod/iPhone success, is now the leading example of marketing excellence in the segment and they typically don’t use the Intel brand in their ads nor do they put it on their PCs. And if they do, as it is the case with Core 2 Duo processors, they use their own CPU logos and not Intel’s.
This would suggest the Intel brand value is weakening regardless of AMD’s efforts and already an increasing number of OEMs are leaving the Intel off their advertisements though virtually none are eliminating the sticker yet. But then, Apple always appears to be playing by its own rules.
AMD’s attack on Intel’s brand has two parts: The first is an aggressive move against the company for past alleged anti-trust activity worldwide. This was initially successful in Japan and most recently spread to the European Union which has released to Intel only a set of charges. These charges are kept secret in an effort to protect Intel; however it is interesting that the “secret” nature actually works against Intel in this regard because, largely thanks to Microsoft’s own EU problems, people assume the worst.
This puts the Intel brand in the news as yet another in a long list of allegedly misbehaving companies and puts Intel customers on notice that their interactions with the company may be become part of some future court record. It makes them much more willing to at least consider AMD and much less likely to want the Intel brand associated with their own.
So far, this is being fairly well played, but the danger here is that managing governments is often more tricky than it looks (once they start investigating you have no real control over what they find and their fix could be one that you neither anticipated nor wanted).
Eliminate Intel’s technology advantage
Intel currently has a technology advantage associated with its processor design. Intel also has more R & D funding and, once in the lead, is generally expected to hold it. AMD is competitive in volume lines but these don’t currently include the lucrative mobile segment where Intel’s battery life and system performance have a significant advantage.
Intel, even though they dominate the volume graphics space, lags Nvidia and ATI significantly in terms of graphics performance. They have recently closed the gap somewhat but the combination of a dominant position and poor performance is thought to be significantly slowing down the existing market for laptops and low end desktop computers.
AMD’s acquisition of ATI is an attempt to hit Intel technically where they are weakest and with Nvidia being too expensive to acquire, Intel’s response of trying to catch AMD/ATI is going to be very difficult to execute. If they could complete the merger and have converged products this year, AMD would have a significant advantage over Intel. Unfortunately it takes time to complete a merger and it takes even longer to integrate the products that are providing the greatest benefits – which are not expected until second half of 2008.
In addition, this has created a problem with Nvidia, which may become collateral damage as this new fight erupts between AMD and Intel. Nvidia will increasingly be pushed out of the mainstream and into other markets or high-end niches.
Of the strategy components, this acquisition is the most risky, however, it is this part that builds towards market dominance and, without it, there is little chance AMD could move beyond Intel.
Become the OEM’s vendor of choice
OEM’s, the companies that brand server and PC hardware, prefer vendor relationships where the vendor knows they are a vendor and is clearly subservient to the OEM. They are frustrated with both Intel and Microsoft, because these two companies often don’t seem to understand they are vendors and that the OEMs don’t work for them.
AMD, on the other hand, makes a habit of asking what the OEMs want and is actually try to deliver on it. This takes the form of more flexible platforms and a wider variety of platforms and, in some cases (HP Blade PCs) custom work.
This focus on customer satisfaction, listening rather than telling, makes it more difficult to drive commonality in the market, but it also develops loyalty with the vendors who, over time, are becoming more comfortable with the firm.
Currently, Intel does provide Apple treatment similar to this, but the practice doesn’t seem to have spread yet to the other OEMs.
Finally, the OEMs have learned that Intel will be more responsive, if they have AMD in the mix.
Passing an entrenched vendor isn’t easy particularly one that is executing as well as Intel. However, every vendor has vulnerabilities and Intel is no exception. AMD is targeting them well, and in the first example, actually hitting one of their strengths.
However, they are also taking a significant risk, the ATI merger isn’t easy and much of the benefit is still months off. Investors and customers aren’t known for their patience. A great deal hinges on AMD/ATI’s ability to create something new and new is never predictable with regard to timing or execution.
On the other hand, being second in a chosen market shouldn’t be acceptable to anyone if there is a path to being first. AMD has found a potential path and Intel will have a race to hold them off.
Still, I wonder that with all of this attention on each other if both firms are missing the kind of opportunities Google and Apple seem to be achieving by not focusing on competitors and instead putting all their resources into redefining the markets both occupy. Both are trying to do this but, I think, this battle has the risk of becoming so distracting that the focus on more powerful goals is being sacrificed.
Rob Enderle is one of the last Inquiry Analysts. Inquiry Analysts are paid to stay up to date on current events and identify trends and either explain the trends or make suggestions, tactical and strategic, on how to best take advantage of them. Currently he provides his services to most of the major technology and media companies.