Ask any of the top execs at Advanced Micro Devices (AMD) about "the competition," and you'd hear nary a mention of archrival Intel (INTC). Indeed, in public statements at the chipmaker's financial analyst meeting on Nov. 15, Intel came up only once -- and, even then, from a Wall Street type questioning AMD's apparent nonchalance about the potential threat from its giant competitor.
AMD Chief Executive Hector Ruiz has cause for confidence. AMD now controls about 13% of the mainstream server-chip market, about double its percentage of a year ago. It also has made significant inroads with consumers at retail and is beginning to see more interest from corporate and government buyers. "We think we're going to take more business from Intel going forward," Ruiz says in an interview with BusinessWeek Online.
RAPID GROWTH. Sunnyvale (Calif.)-based AMD is shipping processors at about twice the industry growth rate. It expects to continue the trend through 2006, as it makes more gains in the business sector and focuses on high-end sales in emerging markets such as China and India. Says Roger Kay, president of computer market-intelligence firm Endpoint Technologies: "[AMD is] executing on all fronts, winning on both value and performance."
Combined, those successes are bolstering the chipmaker's bottom line more than ever. In the third quarter, AMD sales topped $1 billion for the first time, while gross margin widened to a fat 55%. With forecasts calling for PC and server sales to continue double-digit growth next year, the good times should keep rolling.
But the battle with Intel is just beginning. Intel has been able to withstand AMD's advances in the past 18 months, in part because the overall market has been growing for both companies. Both are nabbing share from smaller vendors such as Sun Microsystems (SUNW).
BATTLE RAGES ON. Analysts and chip veterans say AMD's elegant Opteron server-chip and platform designs, as well as those for its notebook and desktop chips, are likely to outpace Intel in terms of performance for at least a year. Yet No. 1 chipmaker's market influence has prevented the smaller company from taking even more share. During Intel's Oct. 18 earnings conference call, CEO Paul Otellini even noted his surprise that Intel's share has held up.
The two companies have been locked in a tit-for-tat battle to declare "firsts." AMD was the first mainstream chipmaker to add 64-bit extensions to its product, and, again, it was the first to deliver dual-core chips, in which two processor cores are merged onto one die. That means more multitasking and lower power consumption. But, earlier this month, Intel beat AMD to the punch in a race to make chips with a new, potentially lower-cost 65-nanometer process, with its opening of a retooled plant in Arizona.
And AMD's gains in retail -- it grabbed the crown for most retail PC sales for the first time in October, according to researcher Current Analysis -- have come in the area of less-profitable desktop machines. Intel's dominance of the notebook PC category, with its Centrino-branded offerings, have meant the bigger chipmaker is winning more margin dollars than its rival. More sobering: AMD's third-quarter profit of $130 million represents about a day's sales for Intel.
LAWSUIT BEARS FRUIT. The imbalance is not likely to change much as long as Dell (DELL), the world's biggest PC maker, remains an Intel-only shop. In recent weeks, however, speculation has intensified that Dell is considering adding AMD to its lineup, after industry watchers spotted some AMD chips -- but not PCs or servers -- for sale on Dell's Web site (see BW Online, 11/11/05, "Dell's Slight Change of Emphasis").
Though PC rivals, such as Hewlett-Packard (HPQ), Gateway (GTW), and Lenovo (LNVGY), are starting to crimp Dell's growth by offering both AMD- and Intel-based systems at retail, AMD execs are not holding out hope that Dell will shift their way anytime soon. "If they're truly interested in being the industry and technology leader, they'd look at us," Ruiz says.
Even without Dell, AMD is setting its sights on 20% of the microprocessor market in coming years. Ruiz says the company's pending lawsuit charging Intel with anticompetitive behavior is already bearing fruit that will help it reach that goal. Government vendors, he says, are rapidly adopting AMD technology, and businesses are becoming interested in desktops and notebooks with AMD chips.
IT AIN'T OVER. The company now expects its share of the commercial PC market to top 15% in 2006, up from about 5% this year. AMD also plans to compete with Intel's upcoming Viiv entertainment-PC platform with its own branded offering, around the time Microsoft (MSFT) launches its long-awaited Vista operating system next year.
Clearly, AMD is less of an underdog in what looks like the most competitive race among chipmakers since the microprocessor was invented decades ago. Yet it's likely to be some time before Ruiz can declare AMD the industry's top dog.