San Diego (CA) – AMD has followed through with its strategy to maintain as much market share in the CPU market as possible and battle Intel’s Core 2 Duo with price reductions. At least in the retail market, AMD appears to have achieved that goal, but at a cost higher than the firm’s current cash reserves, which include recently secured $2.2 billion financing.
According to numbers provided by Current Analysis analyst Toni Duboise, AMD was able to gain market share sequentially both in the U.S. retail notebook and the U.S. desktop market in Q2. In desktops, Intel maintained its lead it gained in Q2 and had its CPUs in 57% of all desktop units sold (down from 58% in Q1), while AMD was estimated at 43%, up from 42% in Q1. AMD’s market share in this segment began dropping in Q3 of 2006 (during the time of the introduction of Intel’s Core 2 Duo) and is down from a commanding 77% in Q1 2006.
However, concerns whether AMD will be able to turn around and increase its share are mounting. The Phenom quad-core won’t launch until deep into Q4 and Intel has just dropped prices for its Q6600 entry level quad-core processor into mainstream territory ($266). Duboise informed us that quad-core desktop systems are currently available for prices as low as $849 (Hewlett-Packard a6152n), with other vendors (Acer, Gateway) offering the chip in PCs at $900, $1050, $1100, $2100 and $2200 retail price points. It does not take much to see that Intel’s latest price cut have the potential to increase the pressure on AMD in the retail segment dramatically.
Duboise rated both the vendor importance and market impact of Intel’s quad-core strategy as “high”. “While fast-paced technological advancements have always been a precursor for the PC industry’s accelerated technology churn rates, Intel’s aggressive quad-core price strategy breaks with traditional newer technology premiums enjoyed by the industry for years. A few PC vendors and retailers will benefit in the near term, but if price erosion is indeed accelerated in all market segments, it will negatively impact the industry as a whole,” Duboise wrote in her report.
On the retail notebook side, it appears that AMD has found a sweet spot for its Turion X2 processor, which is typically selling in notebooks well below the $1000 mark. Higher priced notebook segments are currently being dominated by Intel. Duboise estimates Intel’s Q2 market share at about 68% and AMD at about 32%. Sequentially, Intel is down from 72% and AMD is up from 28%. Compared to Q1 2006, Intel is up significantly from 61% and AMD is down from 38%.
Especially in the retail segment, notebooks are becoming more and more important. Duboise said that between Q2 2006 and Q2 2007, retail notebook unit shipments surged by 43%, with sales climbing 22% and average selling prices declining by 15% to about $800. The desktop market in comparison was down 10% in unit shipments, 8% down in revenues and up 2% to $590 in average selling prices. While it isn’t bad for AMD that it is regaining share in this growing market, average CPU selling prices may become a concern for the company: It appears that AMD is somewhat comfortably locked into the entry-level segment and a market in which it can increase its margins today. However, as soon as Intel moves and drops its prices of the current Core 2 Duo generation as a necessary step to prepare for the introduction of the next-generation Penryn processor (due in Q4 2007), AMD will get squeezed. We already know that Griffin, the successor of the Turion X2, will not be able to compete with Penryn on a performance level throughout 2008, which suggests that pricing these processors into the right market segments will not be a very entertaining task for AMD.
However, the good news for AMD is that its retail market is stable, at least for now. In recent conference calls, many analysts questioned the sense behind AMD’s strategy to maintain as much market share as possible, whatever it takes. Financially, the combination of the impact of Intel’s Core 2 Duo as well as the purchase of ATI has turned out not be just difficult, but it looks disastrous on the balance sheet today. In the past three quarters, AMD has lost a combined $1.785 billion, with quarterly losses around $600 million in each quarter. In Q3 2006, the time frame of the introduction of Intel’s Core 2 Duo and the company’s last quarter without ATI on board, AMD reported a net profit of $119 million.
AMD has currently $1.6 billion available in cash and lists about $648 million under “account receivables”. Given the fact that these numbers already include a $2.2 billion financing secured in April, it is obvious that the company needs to reduce its losses quickly.
More information on how this can be done is expected to surface tomorrow morning during the firm’s “Analyst Day” briefing.
According to numbers provided by Current Analysis analyst Toni Duboise, AMD was able to gain market share sequentially both in the U.S. retail notebook and the U.S. desktop market in Q2. In desktops, Intel maintained its lead it gained in Q2 and had its CPUs in 57% of all desktop units sold (down from 58% in Q1), while AMD was estimated at 43%, up from 42% in Q1. AMD’s market share in this segment began dropping in Q3 of 2006 (during the time of the introduction of Intel’s Core 2 Duo) and is down from a commanding 77% in Q1 2006.
However, concerns whether AMD will be able to turn around and increase its share are mounting. The Phenom quad-core won’t launch until deep into Q4 and Intel has just dropped prices for its Q6600 entry level quad-core processor into mainstream territory ($266). Duboise informed us that quad-core desktop systems are currently available for prices as low as $849 (Hewlett-Packard a6152n), with other vendors (Acer, Gateway) offering the chip in PCs at $900, $1050, $1100, $2100 and $2200 retail price points. It does not take much to see that Intel’s latest price cut have the potential to increase the pressure on AMD in the retail segment dramatically.
Duboise rated both the vendor importance and market impact of Intel’s quad-core strategy as “high”. “While fast-paced technological advancements have always been a precursor for the PC industry’s accelerated technology churn rates, Intel’s aggressive quad-core price strategy breaks with traditional newer technology premiums enjoyed by the industry for years. A few PC vendors and retailers will benefit in the near term, but if price erosion is indeed accelerated in all market segments, it will negatively impact the industry as a whole,” Duboise wrote in her report.
On the retail notebook side, it appears that AMD has found a sweet spot for its Turion X2 processor, which is typically selling in notebooks well below the $1000 mark. Higher priced notebook segments are currently being dominated by Intel. Duboise estimates Intel’s Q2 market share at about 68% and AMD at about 32%. Sequentially, Intel is down from 72% and AMD is up from 28%. Compared to Q1 2006, Intel is up significantly from 61% and AMD is down from 38%.
Especially in the retail segment, notebooks are becoming more and more important. Duboise said that between Q2 2006 and Q2 2007, retail notebook unit shipments surged by 43%, with sales climbing 22% and average selling prices declining by 15% to about $800. The desktop market in comparison was down 10% in unit shipments, 8% down in revenues and up 2% to $590 in average selling prices. While it isn’t bad for AMD that it is regaining share in this growing market, average CPU selling prices may become a concern for the company: It appears that AMD is somewhat comfortably locked into the entry-level segment and a market in which it can increase its margins today. However, as soon as Intel moves and drops its prices of the current Core 2 Duo generation as a necessary step to prepare for the introduction of the next-generation Penryn processor (due in Q4 2007), AMD will get squeezed. We already know that Griffin, the successor of the Turion X2, will not be able to compete with Penryn on a performance level throughout 2008, which suggests that pricing these processors into the right market segments will not be a very entertaining task for AMD.
However, the good news for AMD is that its retail market is stable, at least for now. In recent conference calls, many analysts questioned the sense behind AMD’s strategy to maintain as much market share as possible, whatever it takes. Financially, the combination of the impact of Intel’s Core 2 Duo as well as the purchase of ATI has turned out not be just difficult, but it looks disastrous on the balance sheet today. In the past three quarters, AMD has lost a combined $1.785 billion, with quarterly losses around $600 million in each quarter. In Q3 2006, the time frame of the introduction of Intel’s Core 2 Duo and the company’s last quarter without ATI on board, AMD reported a net profit of $119 million.
AMD has currently $1.6 billion available in cash and lists about $648 million under “account receivables”. Given the fact that these numbers already include a $2.2 billion financing secured in April, it is obvious that the company needs to reduce its losses quickly.
More information on how this can be done is expected to surface tomorrow morning during the firm’s “Analyst Day” briefing.