Posts tagged with x86 computing

First, let me begin with a disclaimer and a plea. This post is far longer than the norm, but today’s landmark news from Brussels qualifies as anything but the norm and is worthy of deep examination. So please bear with me because – if what I think has just happened has actually happened – the way the IT marketplace works is about to change.

Forever.

We are all reading and analyzing the European Commission’s statements around consumer protection in the IT industry. At first blush, I believe the EC decision will signal a sweeping change in the IT industry. The ruling has the very real potential to transform the industry from being artificially organized around one player who owns less than a third of the bill-of-materials for an end product but makes nearly all the profit, into one that thinks consumers first. And we also see the very real potential for a step change in the long-term pace of innovation as a by-product.

While Intel may want you to believe this is about “discounting”, it really isn’t at all. The ruling – more than eight years in the making – is about how Intel deliberately used its monopoly profits to control a critically important industry. How it has decided what consumers are allowed to buy, and where they are allowed to buy it. How Intel severely punishes PC manufacturers, suppliers and retailers who do not play by its rules. That is what Europe is putting a stop to. We applaud them for doing so, and if you buy computers and value innovation, so should you.

Three issues emerge: price, innovation and choice.

Price

We knew from whispers in the industry that even before the EC’s final ruling, Intel was saying behind closed doors that a ruling against it would force prices to go up. False. Why?

As Intel’s competitor in the microprocessor industry, this is a subject we know a little bit about, and can speak to with a level of credibility since Intel’s business – selling chips – is essentially our business. We just go about dealing with our customers very, very differently.

Increase or Decrease?

The “end price” to PC makers of Intel’s CPUs (and subsequently to consumers who buy PCs) is a mixture of list price, volume discounts and rebates. While Intel deliberately obfuscates the issue to imply that the EC is forcing it to stop its rebate programs with PC makers, in fact that’s not at all what EC competition watchdogs are making Intel do. What the Commission is forcing Intel to do is to stop making what Intel innocently calls “rebates” but what are actually conditioned loyalty payments – or as Don Corleone in The Godfather put it, “I’m gonna make them an offer they can’t refuse.”

These payments are conditioned solely on the PC makers doing what Intel tells them to do. Or else. Where is the choice in that?  What the EC is saying is, loyalty payments: “no”; volume discounts: “yes.” Intel is still free to provide volume discounts without any change to the “end price”. But they can no longer condition payments with loyalty in order to control the supply chain and block AMD’s ― or anyone else’s ― access to the open market.

Intel’s control of access to the IT market has effectively kept prices artificially higher than they would otherwise be. And remember, AMD has always – always – offered equal or better performance for less money. If you look at the data, you will see that our prices are generally 30-to-50 percent less than the competition’s. So, the “end price” to consumers most definitely will not go up at the end of this – if anything, prices will go down because Intel will be forced to compete more directly on price.  

More for Less

Opening the European market will allow AMD and others like VIA to gain access to customers and consumers we have been deliberately blocked from by Intel. That means more choice than ever before, more competition than ever before, and more competition on the merits – which is a great thing for consumers. We believe that more competition on a level playing field will affect prices, but again the effect in a normally functioning market should be that prices drop and consumers receive more for less.

The effect of the EC ruling may also negatively affect Intel’s profits in the same way – which is the real issue at the heart of its problem and why we expect that Intel will use every means available and go to any lengths to keep things as they are. They are worried, and rightly so. They see what we see – the end of the Intel monopoly, and that is a frightening prospect if you are the monopolist that depends upon monopoly profits for your business to succeed.

For years, Intel has thumbed its nose at the law, using the company’s huge monopoly profits to help decide who makes a profit in this industry and who does not. And frankly, that’s too much control for one company to have. As we so eloquently said back in 2005 when we filed our civil U.S. antitrust suit against Intel, “Earned success is one thing. Illegal maintenance of a monopoly is quite another.”

Strike Three

This third straight antitrust conviction against Intel tells me that competition regulators agree, and that the facts and evidence exist to support that. It’s clear that when investigators look at the facts, Intel loses. Think about that for a minute. Einstein said quite rightly that the definition of insanity is doing the same thing again and again and expecting different results. This is Intel’s third straight loss against three independent antitrust agencies. The EC case team methodically spent more than eight years analyzing Intel’s market behavior before ruling against Intel.

So Intel either just doesn’t get it, or simply has no remorse at all for what it has done.  I don’t know about you, but when someone tells me something for the first time, I consider its merit. When a different person tells me that same thing, it becomes very interesting. When it happens a third straight time you take notice, don’t you? 

Innovation

Intel may also talk about how this ruling against it will stifle innovation. I did a blog a few weeks ago that made the point that Intel’s current roadmap is the direct result of and response to competition, pure and simple. Competition must exist in order to compel the innovator to innovate. So I think we can all agree more competition will also be good for Intel, too.

Competition is Innovation

Let’s be honest – without AMD innovating the x86-64 bit instruction set along with the launch of AMD Opteron and AMD Athlon 64 in 2003, Intel likely would have forced global IT to move to Itanium-based computing. Which would have been expensive, proprietary, and not what the world wanted or needed. Competitive pressure and innovation leadership from AMD compels Intel to do better, and we’re proud of that.

And as I have said before, imitation is the sincerest form of flattery. Intel’s recently Introduced “Nehalem” chip (now named the Xeon 5500 Series) is a descendant of the AMD Opteron x86-64 bit design we introduced in 2003, complete with an integrated memory controller that is also arriving from Intel about seven years after we introduced it to the marketplace.

I encourage you to look through our history of innovation over the 40 years we have been in existence, but suffice it to say AMD is widely acknowledged throughout our industry to have set the pace for innovation in microprocessors and graphics processors for the past 10 years.

Choice

A basic business education will tell you that your business is almost always better protected if you have multiple suppliers – especially when a single component part of your product is such a large percentage of the bill-of-materials. To the outside world, it looks as if PC makers do have choice and control over their component sourcing, so the same must hold true for the CPU, right?

So why don’t more of them exercise it?

Freedom to Choose

What this third straight antitrust ruling against Intel makes plain is that computer makers don’t exercise CPU choice because they don’t have the freedom to.  If they do, they are severely punished. Punished in a way where the pain of punishment far outweighs the reward, and that’s the prisoner’s dilemma. Remember, Intel has worked hard for many years to create the illusion of choice, but in reality doesn’t want its customers to have the freedom to choose.

The fundamental question regarding consumer choice is this: “If a consumer doesn’t know they don’t have a choice, does anyone care?”

I think the EC ruling emphatically says “yes.” On behalf of the consumers of Europe, the EC has ruled that EU consumers were denied choice, and that they do care. For consumers, choice comes from being free to buy a broad range of products from a choice of suppliers at a choice of retailers. And both Japan and Korea have already said the same thing.

Now it’s fair to argue that I am writing this blog because it’s AMD and our shareholders who have been illegally blocked out of markets, and therefore we have a vested interest. That’s true – we do. But our arguable lack of objectivity doesn’t negate the evidence of bribery and intimidation that was culled from the evidence. It doesn’t negate the very decisive action the EC has taken in the interest of protecting consumers and the computing ecosystem as a whole. 

Again, this ruling was more than eight years in the making. You certainly can’t say that the EC rushed to judgment.

Choice in the Marketplace

I’ve seen people argue that if AMD had better products we would win, but that entirely misses the point. As competition regulators have demonstrated now for a third time, Intel used bribery and coercive tactics to ensure that AMD’s products, even arguably superior ones, could not gain traction on a scale one would expect in a normally functioning marketplace.

Given the unfair and illegal practices Intel has engaged in worldwide, the fact that AMD and others have still been able to either out-innovate or remain competitive against a company with 10x the resources is actually amazing. Intel likes to position us as whiners whose problems are of our own making. While nobody’s track record is infallible, on the whole I think our tenacity, our competitive drive, and our continuous ability to innovate at the bleeding edge of x86 computing and graphics processing is second to none.

Think about how much further along the technology roadmap we and Intel’s other competitors would be if we had enjoyed unfettered access to the markets all along. Think about what that would mean to consumers. Think about what that would mean to price, and to choice.

That’s pretty exciting stuff.

You, the Consumer

And that potential is in front of us now as an industry thanks to brave, dedicated and independent competition watchdogs. That’s the Commission’s point. It’s not about Intel or even AMD. It’s about the consumer.

So here we are. Now three separate competition authorities representing roughly half a billion of the world’s consumers have told Intel that its anti-competitive efforts to control the IT marketplace harm consumers, is definitely illegal, and must stop now. As I said before, judging by Intel’s immediate reaction to this third straight ruling one can only draw the conclusion that they just don’t get it, or that they simply don’t give a damn about the rule of law – let alone consumers.

Perhaps the US regulators will have to explain it to Intel next?

And for more on AMD’s take on this news, please read Pat Moorhead’s blog here.

Nigel Dessau is senior vice president and chief marketing officer at AMD. His postings are his own opinions and may not represent AMD’s positions, strategies or opinions. Links to third party sites are provided for convenience and unless explicitly stated, AMD is not responsible for the contents of such links sites and no endorsement is implied.