July 16, 2007 4:00 AM PDT

AMD's, Intel's fortunes diverge over past year

This week is likely to play out very differently for Intel's Paul Otellini and Advanced Micro Devices' Hector Ruiz.

For Otellini, reporting quarterly earnings on Tuesday should be a welcome change from the situation a year ago, when Intel reported a sharp drop in profits and a management overhaul as the company waited to see if its Core generation of processors could halt its market share losing streak.

They did. Wall Street analysts expect Intel to report a 28 percent rise in profit compared with last year, and the company appears to have put its major problems in the rearview mirror.

Ruiz, however, won't have as much fun. Little has gone as hoped for AMD in the past year, as it has struggled to compete during a fierce price war without new quad-core server chips. The CEO will have to explain to financial analysts on Thursday why AMD will report an expected loss of 85 cents a share, which would be down an astonishing 570 percent from last year's second quarter.

Both companies can feel thankful that the PC market has held steady this year, although they might have been hopeful that Microsoft's introduction of Windows Vista would cause a spike in PC sales (for the most part, it hasn't).

That's where the similarities end.

Intel's turnaround has been a year in the making. The company successfully introduced new PC processors based on its Core architecture last July, and selected a quicker method of building quad-core server chips than AMD. Those moves, combined with a willingness to sacrifice some gross margin by slashing prices, drove AMD into a downward spiral in which it had to severely discount dual-core server chips to compete against quad-core models.

It's almost the exact opposite of what occurred two years ago. Back then, AMD chose to introduce dual-core server chips ahead of Intel, which was forced to wait six months with only single-core offerings before it had a competitive answer. This time around, AMD chose a more time-consuming plan in building a quad-core chip with four cores integrated onto a single chip, while Intel chose a quicker method of packaging two dual-core chips.

In the PC market, AMD's chips are also a little long in the tooth. Intel currently has a much broader set of chips than AMD, said Samir Bhavnani, an analyst with CurrentAnalysisWest, which tracks the U.S. retail PC market. The Core 2 Duo and Core Duo re-established Intel as the performance leader among high-end PC users, and the decision to bring one of the most well-known brand names in technology--Pentium--back as its low-end brand gives Intel a little more cachet with bargain shoppers, he said. "There's a ton of brand equity in Pentium."

As a result, Intel has retaken market share, Bhavnani said. Interestingly, AMD's Athlon 64 X2 desktop chip and Turion notebook chip were the best-selling chips in their respective segments during June, at least among retail PC buyers. But Intel's got depth, with its various Core, Pentium and Celeron brands accounting for just about everything else.

According to CurrentAnalysisWest, Intel's overall share of the U.S. retail PC market was 64.7 percent during the second quarter, compared with 45.2 percent in last year's second quarter. In notebooks, the growth segment of the PC market, Intel's advantage is more like 70 percent compared with AMD's 30 percent.

So now, the attention turns to AMD and its path out of the wilderness. The company seems to find itself in this position every five years or so, although it can console itself with the fact that it's actually in a much stronger position in 2007--relative to its past hiccups, at least.

The success of Opteron signaled AMD's arrival as a player in the server market. It also has perhaps its broadest customer portfolio ever, with Dell selling AMD desktops in Wal-Mart Stores and Toshiba finally agreeing to use AMD chips in its notebooks.

The long-awaited arrival of Barcelona in the third quarter should help AMD stem its market share losses among server customers, although it's unclear what type of performance it will deliver--and Intel has a second-generation quad-core chip waiting in the wings. But it appears that AMD's costs assume the company was going to hold on to its market share gains of the past few years, and it will take a miracle for AMD to get out of 2007 without losing some share.

CONTINUED: Long road ahead…
Page 1 | 2

See more CNET content tagged:
AMD, quad-core, Paul Otellini, Intel, Intel Pentium


Join the conversation!
Add your comment
AMD's best asset...
AMD's best asset is Intel and the ability they have to shoot themselves in the foot. I don't think the problem is with AMD, it is that Intel has failed to fail over the last couple of years.

Long term AMD has been making lots of smart purchases. If they can stay somewhat competitive over the next two years, things should get interesting again.
Posted by ralfthedog (1589 comments )
Reply Link Flag
AMD being noticed
I think the biggest most analysts are missing is that this time around AMD has generated enough buzz to have people notice it. Last time when it introduced Opteron, few (if any) were interested in AMD given its miniscule share and its past performance. Moreover, it has managed to assure its clients that it is a serious contender in the market and they can move to dual sourcing options for the processors.

I feel that if Intel shoots itself in its foot again or AMD outclasses Intel, the movement of market share would be much faster. The way AMD lost 5pp mkt share in one quarter, Intel could be seen losing the same the next time.
Posted by nitin213 (3 comments )
Reply Link Flag

Join the conversation

Add your comment

The posting of advertisements, profanity, or personal attacks is prohibited. Click here to review our Terms of Use.

What's Hot



RSS Feeds

Add headlines from CNET News to your homepage or feedreader.