Keeping AMD in the chip race

AMD has gone back to the financial markets for another round of fund raising, the company announced at the end of last week.

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By  Mark Sutton Published  August 14, 2007

AMD has gone back to the financial markets for another round of fund raising, the company announced at the end of last week. The processor company raised $1.5 billion in senior note debt finance, which will help to pay for last year's acquisition of ATI, and also provide the company with some much-needed liquidity.

This latest round of finance is the third this year, and even this is not expected to last the company for very long into 2008, according to financial analysts. Shares in the company have tended to reflect these liquidity problems, and have fallen throughout the year. All of which may seem to put a fair bit of pressure on AMD to deliver with the upcoming launch of its new quad core processors for servers and desktop PCs, due later this year.

But technology in itself has never really been the whole of AMD's problem, particularly in its long running competition with Intel. AMD historically had a much smaller portfolio than Intel, and a fraction of the R&D budget. The pair competed on the desktop level, neither one besting the other for very long when it came to chip performance, and the only people who really seemed to care were the hardcore home PC enthusiasts. Even the most generous estimates of AMD's Middle East market share gave it no more than 10% of the total CPU market.

Of course, given the various accusations and investigations against Intel for monopolistic behavior in markets around the world, it seems like AMD wasn't exactly in a fair fight. The European Union's latest Statement of Objections, which is something like a charge sheet for long and overly complicated legal proceedings, doesn't pull its punches - Intel is accused of a "single overall anti-competitive strategy" aimed squarely at AMD.

But regardless of whether and how much Intel was really holding back AMD through unfair practices, Intel's marketing had as good as won the race before it had started. Intel took the buying decision away from hopeless consumers and IT managers alike, and replaced it with just one simple requirement from a computer that they didn't understand - it had to have ‘Intel Inside'.

And it seemed to take so long for AMD to understand how to compete. AMD continued to talk techie, and Intel continued to dominate - its market share, its research capabilities, its worldwide network of manufacturing facilities and its consumer loyalty virtually guaranteed dominance.

But AMD did get the point eventually. First to market with 64-bit processors, and with a strong offering for 64-bit servers in comparison to Intel's initial products, AMD finally began to gain recognition and a foot in the door of the major hardware vendors. Today AMD processors can be found in desktops, servers and notebooks from almost all the big names who had previously resisted AMD including Lenovo, IBM, Toshiba and Dell.

The acquisition of graphics processor company ATI was also a very good move for AMD, giving the company the complete range of the PC core - CPU, graphics processor and chipset - which promises interesting things to come in a highly integrated approach to computing.

The increased profile, however, has kicked off fierce competition with Intel, and a cycle of attack and counter attack, with a heavy emphasis on pricing that is helping neither company. AMD's quad core on a single die could again be a stronger technology offering than Intel's efforts, and AMD's improved market presence at least means it won't be ignored, so right now the battle comes down to cold hard cash.

AMD needs to continue to access new funding, given its cash burn rate of around $500 million per quarter. But with the US ‘share holder value' driven market, and with talk of recession, it may be difficult for the company to proceed without bowing to pressure to sell off key business lines. AMD might be able to afford sell some lines, like its stake in memory chip unit Spansion, but preserving the ability to compete on technology is vital. AMD may have taken its time to get to grips with marketing; it faced more than a few hurdles building relationships with hardware vendors and now the realities of a pricing battle against a rich rival have to be faced, but if AMD is going to be a serious contender in the long run, it has to have one thing - the technology.

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