Tuesday, July 25, 2006


Yesterday, AMD announced that they were buying ATI for over 5.4 billion dollars.

Here's some context for that announcement. AMD's revenue for the trailing twelve months was 5.95 billion dollars. Intel's projected research and development budget for 2006 is $6 billion dollars.

Okay, that's a bit of a fudge, because $500 million of that $6 billion is "share based compensation," but even without that, Intel is spending in research and development just slightly less than AMD's total revenue. So that helps give you an idea of the kind of resources Intel has compared to AMD, which happens when you're 6X the size of your primary competitor.

AMD has been dominating the U.S. retail market. They have over 81% of that market, believe it or not (CNET story here). And in other markets, they're gaining--up to 37% of notebooks and 14% of servers.

Here's the problem: the U.S. retail market only constitutes 9% of the global computer market.

Here's the other problem: integrated chipsets (with on-board graphics) are a gigantic market. Do you know who's the market leader in "PC graphic devices"?

It's Intel, believe it or not, and that's entirely due to integrated chipsets.

So AMD is dominating a fraction of the market, but they're not even playing in the gigantic market of integrated graphics.

For the last two years, AMD has been making a case for itself behind superior engineering and lower prices. It's hard to beat that. With Conroe, though, AMD no longer has engineering superiority on the desktop, and they no longer have lower power consumption. It's possible that they may lose engineering superiority in servers as well.

Oh, and Intel is basically giving CPU's away right now, forcing AMD to match.

So Intel is putting the wood to AMD in the two areas where AMD had been breaking clear. I don't think it's an unreasonable strategic move for AMD to make an acquisition that enables them to enter the integrated chipset market.

Did they overpay? Probably. Will this strategy actually work? Don't know. But I do think they had to do something.

Site Meter