AMD Attempts To Repair Its Short Circuit

Chipmaker AMD is hoping for its own come-back story. The company has suffered from a recent bout of misfortune and missteps, leaving many systems builders wondering if AMD can regain the momentum it had impressively built against Intel after the launch of its game-changing Opteron processors in 2003.

Today, in the face of increasing competition from Intel's new chips and price cuts, AMD has seen the market share in the x86 processor market it built in 2006 all but erode by the end of the first quarter of 2007, according to the latest figures from research firm Mercury Research.

"We just lost a game, and we're going to do everything we can to make sure we don't lose another one," says Gary Bixler, AMD's director of marketing for North America. "But the season is far from over."

Since launching its Opteron processor in 2003, AMD had managed to chip away at Intel's market share for x86 processors, as it beat Intel to market with dual-core systems and led the price/performance curve. At the height of its growth last year, AMD was shipping 25 percent of all x86 PC processors for desktops, notebooks and servers worldwide, according to Mercury. But as Intel struck back with its Core 2 Duo processors and quad-core chips, and a raft of price cuts, AMD's share fell below 19 percent again by the end of March this year, while Intel's ballooned past 80 percent, according to Mercury. Analysts note, however, that AMD's current market share is higher than these percentages indicate, as OEMs in the first quarter were still selling excess inventory shed by AMD in the fourth quarter.

Yet there's no denying AMD's troubles of late. The chipmaker reported a $611 million loss for this year's first quarter, on the heels of a $574 million loss in the previous three months. AMD has caused some discontent in the channel too. Last year it disappointed many systems builders when it experienced supply problems after inking a long-coveted OEM deal with Dell.

"Ever since they made the deal with Dell, everything has taken a turn," says John Gouker, CEO of Workhorse PC, a McKinney, Texas-based systems builder. "I think it's been better here lately, but not a whole lot. It's kind of like gas prices. When they go from $3 to $2.50, everyone starts saying that's not so bad, but it's all relative.

"I don't know if they'll come back or not, but I think they can if they focus on what they were doing before, and not on competing on price with Intel," Gouker adds.

Distractions Aplenty
Many wonder if AMD is trying to juggle too many balls at once. In addition to the competitive pressure it faces from Intel and the challenges that resulted from its deal with Dell, the company is embroiled in a high-profile, multiyear federal antitrust lawsuit it waged against Intel in 2005 that charges Intel with monopolistic behavior in the PC market.

Some analysts are also concerned about the debt AMD has accumulated since its $5.4 billion acquisition of graphics processor and chipset maker ATI Technologies last year.

In fact, the chipmaker earlier this year raised $2.2 billion in a debt offering, $500 million of which was used to repay a portion of its term loan with Morgan Stanley for the ATI purchase. AMD is using much of the remaining portion for general corporate purposes, including working capital and capital expenditures.

And just when AMD could use a break from its larger rival, it now faces a much stronger competitor in Intel than it did four years ago.

"Intel is in a much different place than they were the last couple of years, when Pentium 4 was uncompetitive," says Dean McCarron, co-founder of Mercury. "Today they have a much stronger architecture and manufacturing capability. AMD will be coming back to a more competitive environment regardless of what they do."

NEXT: Where AMD is hoping for a boost.