A bunch of us spent last weekend at NASCAR and watched a car, number 48, which was effectively out of the race early on with a flat tire and a three lap disadvantage, do the impossible and win that race. If someone had asked me to bet on number 48 at the time of the flat I would have told them they were crazy, the guy had absolutely no chance of winning. But, in hind sight, any other bet would have been a losing one.
What made the difference is the driver and team of car 48 didn't give up, focused on the win, and did whatever it took to make that happen. They had some luck, some damn good execution, and ended up doing what now doesn't seem so impossible. It is amazing how often the game goes to the bold competitor who just continues to step up and outperform those who were thought to be unbeatable.
AMD started out with a severe disadvantage, but has been, over the last two years, surprising Intel with a series of critical wins and amazing execution. They are now betting, and running hard, for market leadership. It's worth looking at their goal and strategy to understand why.
AMD simply isn't content to be a #2 player. They want to be the market leader and that means they have to run harder and faster than Intel. Even so, Intel can outspend them any day of the week and dominates virtually every market AMD is currently in. Granted AMD is giving Intel fits and growing share but, much like car 48 above, right now, long term, without AMD doing something to change the market model it is unlikely they would ever be able to catch, let alone pass, Intel.
They needed to analyze Intel's weaknesses and then craft a plan that would take advantage of each in turn. The ATI acquisition is only the latest part of a plan they have been executing for some time and some could easily argue it is the most risky so far.
However, if you want to take over market leadership and you are a smaller company you have to take risks, often big ones, because you are overmatched in terms of resources. You have to be willing to do things the other guy isn't willing to do because if all you do is the same thing he does, you'll be lucky to keep up let alone overtake him.
Intel has been clearly exposed in three key areas. As the dominant vendor in the space they haven't been the most responsive to their OEM clients. Companies like Dell, HP, Lenovo, and Gateway often seem disconnected from Intel's strategies and, at any given time, may be more upset with Intel then they are with any competitor.
The second key area is Itanium. This product was originally slated to be the next big thing from Intel but after consuming billions of dollars in resources it arrived late and it didn't meet the performance requirements the market had for it. Since Dell has abandoned the platform and even HP has pulled back its support. This continues to eat up Intel resources and forces them to have two somewhat competing high end products one with a future, Xeon, and one without.
Finally, and most important, Graphics from Intel have never been truly competitive. Regardless due to a very successful bundling strategy Intel dominates the low end of the graphics market. The end result is a rather nasty drag on PC gaming sales (because most of the really hot games play poorly or not at all with Intel Graphics) and a general slow down in PC replacement cycles. People just don't feel the need to buy PCs as often as they once did.
AMD has 4 prongs to their strategic attack on Intel. Their first and oldest ploy is to love the OEMs. If the OEMs say jump, AMD is jumping like a crazed fiend. They listen to the OEMs, respond promptly to requests, and try very hard not to do things the OEMs don't like (the OEM's, for instance, hated Intel's latest product renaming). This positions them as a nice counterpoint and often AMD is used simply to get Intel's attention. This has allowed AMD into accounts that otherwise would have ignored them. In addition AMD hired a Gartner Analyst, one of the top analysts in the enterprise space, to help drive the Intel attack named Kevin Knox and Kevin brought with him a customer perspective that Intel largely lacked.
AMD created a 64bit transition product. While Intel was struggling with Itanium AMD brought out their Athlon and Opteron 64 bit products which better addressed the then current needs of the general market. This allowed them to grow dramatically in servers and workstations, the first to go 64 bit, and they have captured IBM, HP, and even Sun design wins as a result. More important this allowed them to create a compelling argument that they were an enterprise class technology provider, something they needed to effectively go after that segment of the market. Still, they needed something more, something that hit Intel hard on the desktop and 64 bit simply wasn't it.
This brought us to the most risky aspect of the attack. The ATI purchase addresses one competitive shortcoming AMD has in the business space and directly targets a competitive weakness Intel has. The competitive shortcoming is the lack of a stable image platform and the competitive weakness is Intel's poor graphics solution we talked about above.
A stable image platform is what Intel sells to corporations. Stable image promises not to change a hardware specification on an entire platform (processor, chipset, networking and graphics) for 12 to 18 months. Since AMD didn't have a number of these parts they couldn't effectively provide a comparable offering until they bought ATI which has a stable image line. The two together now seem to match the critical parts of what Intel has on paper.
The final vector is litigation and here too was a gutsy move because Intel was considered the most dangerous company in the segment with litigation. AMD successfully started a number of investigations with regard to Intel past practices alleging anti-competitive behavior. Much like NASCAR this is forcing Intel to play by rules that provide a more level playing field and allow a company with fewer resources to compete head to head with a technology segment giant.
Calling the Outcome
There is little doubt, regardless of the anti-trust complaints, that while the merger is happening AMD and ATI are going to take some heavy shots. NVIDIA has to know that they may actually now be at greater long term risk than Intel is as the only major graphics vendor standing alone. Even S3 is now part of VIA which means every PC processor vendor now has complete chipset and graphics solutions. This may force a broad technology partnership between Intel and NVIDIA, one that could do AMD a lot of damage in the short run, and may even assure NVIDIA's demise in the long run, but can allow Intel to step up more competitively more quickly now.
However, once the merger is complete, if you take into account the power of ATI graphics, AMD will arguably have a higher performing platform solution than Intel does. While they may still be behind in Mobile (suggesting the need for another bold AMD move in the future) on the desktop they could be dominant. This is likely one of the reasons Lenovo just took in AMD with their ThinkCenter enterprise desktop line, the first major enterprise desktop win ever for AMD.
Because AMD is taking the larger risk, is coming from behind, and has fewer resources a practical analyst might conclude that Intel will still hold on to their market lead. But that same practical analyst would have bet against car 48 at NASCAR in the Brickyard this weekend and we all know now how that turned out. It is surprise how often the game goes to the bold, and AMD clearly is playing an aggressive, bold, game.
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Rob Enderle is principal analyst at the Enderle Group. He can be reached at firstname.lastname@example.org