In Battle With AMD, Intel Gets Its Groove Back - InformationWeek

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In Battle With AMD, Intel Gets Its Groove Back

Customers benefit from faster and cheaper processors as the two chip companies engage in a costly battle for sales and bragging rights.

This is how competition is supposed to work. Two strong tech companies battle for sales, market share, and technical bragging rights using all of the tools at their disposal: innovation, production efficiency, price cuts, and marketing campaigns. The winners are the business technology managers and consumers who buy and use their products, as well as other tech companies who can take advantage of the improvements to enhance their own products. The losers? Perhaps only the shareholders, who watch as profit margins get hit as the battle rages on.

The battle between processor powerhouses Intel and Advanced Micro Devices has been one of the fiercest the tech industry has seen in years. After leading for many years with its x86 line of chips that powered most of the PCs and servers bought by businesses and consumers, Intel got clobbered by AMD for the past couple of years as its smaller rival introduced more innovative chip designs and undercut the industry leader on price.

Now the Intel empire is striking back. Intel in recent months has regained its groove and is gaining ground with a string of quad-core processor releases, a new relationship with Apple, and, most recently, new inroads with Sun Microsystems.

Wall Street isn't pleased that the competition is hurting margins and stock values. Just how big an impact the competition is having was evident this week when AMD announced a fourth-quarter loss of $574 million. The company laid the blame on its $4.5 billion acquisition of ATI Technologies and the price war with Intel.

While AMD takes some hits and Intel builds its momentum, Kevin Knox, VP of AMD's commercial business, says the company is betting that everything will change with the release of AMD's native quad-core processor in midyear.

"I'm not going to sit here and tell you it hasn't become more competitive," Knox tells InformationWeek. "We're still kicking the bear. They're more competitive today, but we're still winning our share. It will be competitive, yes, for the next several months. Quad-core will be our breakaway." Intel declined to be interviewed for this story.

Customers are sitting on the sidelines cheering -- and hoping the battle will continue.

"This is driving innovation faster and driving prices down," says Dan Olds, a principal analyst with the Gabriel Consulting Group. "Without this competition, we wouldn't have seen the move to 64-bit as quickly. We'd be a lot farther behind if AMD hadn't come out with its successful Opteron, forcing Intel to respond. Then AMD did it again with dual-core, forcing Intel to respond. Now, Intel is first out of the gate with quad-core and AMD has to respond. For us, this means we're all getting faster chips, cheaper."

Jonathan Eunice, a principal IT adviser at Illuminata, agrees that the competition has been driving innovation in the chip market. "This is good. This is all very good," says Eunice. "It's good to have these organizations battling for your dollars. It's good for the ecosystem to have more than one choice and more than one supplier. If one of them should slip for a quarter or a year, there are other options available. That's a great place to be for a user."

But what's great for users isn't all that great for the vendors.

Intel had dominated the x86 chip market until upstart AMD picked up the pace of the competition in the last two years. AMD jumped headlong into the server arena and caught the market -- and even Intel -- by surprise by overhauling its memory design, pushing out combo 32-bit/64-bit x86 processors when Intel was advocating a 64-bit approach with Itanium processors that required rewriting applications, and then hit its stride with a powerful and well-received dual-core processor.

AMD's aggressive moves helped the company grab a good chunk of the server market. According to AMD, in the server and workstation area, the company held 2.8% of the market in 2003, but that number jumped to 27% in 2006.

"It was the perfect storm for AMD," says Eunice. "AMD got a lot of things right at the same time. Intel did not, at the time, seem to be very enthusiastic about advancing on those fronts. As a result, people started looking to AMD."

Charles King, a principal analyst with Pund-IT Research, says AMD had dealt Intel a solid and lasting blow.

"Intel tried to laugh off Opteron when AMD first brought it to market," says King. "When customers bought Opteron in droves, Intel had to rethink that. I'm not sure Intel will ever recover the kind of market dominance they had before Opteron."

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