AMD faces tough battle against Intel

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Wednesday, March 26, 2008 at 1219 hrs may hinge on its manufacturing strategy, whether it builds its own $3 billion factory with the latest chipmaking technology or adds capacity by striking a deal with an Asian contract chipmaker to use its factories. A partnership would boost capacity without saddling it with the cost of building its own plant.

Analysts expect an update from AMD on its manufacturing plans in the second half of this year.

New markets where cost is an issue are prime for AMD because its prices are low relative to Intel in most cases.

"Their products are very well suited to emerging markets," said CRT Capital Group analyst Ashok Kumar, noting that AMD's average prices are about half of Intel's roughly $125 each. New markets include Brazil, Russia, India and China.

Also in AMD's favor is PC makers' reluctance to rely on a single supplier for its microprocessors, and that would go a long way toward keeping AMD around, Kumar said.

"AMD is going to survive for the very simple reason that the (PC makers) will not want to go back to an era where Intel has a license to print money," Kumar said.

AMD LOOKS TO SECOND HALF

AMD has said it is on track to move to volume production of 45-nanometer chips in the second half of 2008 and samples are now available.

"It's a large risk because Intel is doing so well," said Cody Acree, an analyst at Stifel Nicolaus, of AMD's move to 45-nanometer technology. "If you don't execute the turn correctly, then you don't have the cost flexibility that Intel does at the same gross margin."

Intel, which had more than six times the revenue of AMD in 2007 and a market capitalization that is more than 30 times AMD's, is already cranking out 45-nanometer chips that are more efficient and powerful than their predecessors.

Intel stumbled badly more than two years ago when its then-dated Pentium processors fell behind AMD's Athlon and Opteron chips. But Intel got back on track when it moved to its Core microarchitecture design in 2006.

"Intel obviously is doing very well," said Insight 64 analyst Nathan Brookwood. "They are executing like a well-oiled machine, and AMD certainly in 2007 executed like a rusty old machine."

AMD will also have to contend with Intel's forthcoming processor code-named Nehalem, due for production in the fourth quarter. They can be made with two to eight cores, or electronic brains, and promise better performance at digital multi-tasking.