8.02.2007

Intel's Monopoly Profits

What do you do when your marketing department doesn’t have any appealing product to promote? One option is to spend your advertising money attacking the competition. At least for AMD, they believe this is a wise thing to do. It's hard to blame them when the slogan "best value" doesn't really appeal to anyone. The latest “Intel is a monopoly” assault from AMD came in the form of a report from one of its financial consulting firm cleverly disguised as an independent economic report. The bottom line is that AMD paid Dr. Michael Williams to make a supposedly damning case against Intel so it is hard to put weight on this study. But it makes for an interesting read if you're the kind that likes to read stories you already know how it ends.

To sum up the report, it says that Intel has profited ($60B) from its dominant position since 1996. AMD and ERS prefer to describe Intel's profit during the intense growth years as "monopoly profits". Nevermind the fact that Intel was trying to supply a rapidly expanding internet while AMD was busy reverse engineering Pentiums. The free market economy has a built in system that rewards ingenuity and leadership. Is AMD and ERS trying to convince us that making healthy profits from a technological or financial advantage is illegal? The idea that dominant companies should be stifled and disadvantaged sounds exactly the opposite of what free and open competition should be.

The ERS report continues to say that consumers and computer manufacturers will save $81B over the next decade if the gates of free competition are opened. The report appears straightforward enough and makes an awful lot of sense from an economic theory point of view. Free market competition does benefit the consumers. But that theory does not address the simple fact that AMD and Intel is a duopoly in the PC microprocessor market and that there are economic and technological barriers that prohibit anyone from competing. The quick entrance and exit of Transmeta can only demonstrate the likelihood that there won’t be more than 2 (significant) players in this industry.

To some degree it will never be a truly free market as supply creation is limited to a few players. Market forces never really played a primary role in the last several years to determine processor pricing. It was in fact the level of supply Intel was willing to commit capital into and how quickly the PC vendors and suppliers can build systems. The only time the forces of supply and demand kicked in is when AMD built its 2nd Fab where supply outpaced demand. Notice how margins quickly dropped as both companies had no choice but to keep lowering their prices .

But anyone hoping for a free and open competition can only expect disappointment. When Intel stopped offering rebates, AMD started struggling with massive loses and execution problems as it is quite obvious they miscalculated Intel’s response by a long shot. AMD would be an interesting economic case study of how a free and open market destroys a company engaged in business that requires high margins and quick capital turnovers. One can argue that when Intel was making "monopoly" profits, keeping higher margins, it was allowing a poorly managed AMD to survive.

Overall the study is nothing but another attempt by AMD to throw attention at its competitor and away from its failures and missteps. The irony of it all is in fact what AMD was wishing for; a free and open market, is the very thing that is causing them $2Billion in annual loses.


New Economic Study Finds Intel Extracted Monopoly Profits of $60 Billion Since 1996

Also Finds Consumers and Computer Manufacturers Could Gain Over $80Billion from Full Competition in Microprocessor Market

SUNNYVALE, CALIF., August 2 /CNW/ - A new economic study issued today by Dr. Michael A. Williams, Director, ERS Group, found that Intel has extracted monopoly profits from microprocessor sales of more than $60 billion in theperiod 1996-2006. Dr. Williams' analysis explains why pro-competitive justifications for Intel's monopoly profits are implausible. Williams also found that consumers and computer manufacturers could gainover $80 billion over the next decade if the microprocessor market were open to competition. The analysis noted that consumers would save at least $61billion over the period, with computer manufacturers projected to save another $20 billion, enabling them to increase their investment in R&D create improved products and greater product variety; and provide additional innovationb enefits to computer buyers around the world.
The ERS Group is an economic and financial consulting firm retained byAMD's outside counsel, O'Melveny & Myers LLP. - Aha! A Clue.

40 comments:

Anonymous said...

Intel is the same company that invented the microprocessor and came up with the x86 architecture on which the tech. industry is based today. If companies that innovate and invest in innovation were to be penalized for innovation, it would be a sad outcome for a "free and open" economy.

Anonymous said...

Idiots. AMD could never make a billion in a year, let alone sixty in a decade.

SPARKS said...

So then, the question begs. If such allegations are rammed down Intel throat, what then, is the remedy?

Put tariffs and limits on what and who Intel can sell its product to?

Give Intel’s competitors a percentage of their profits?

Forbid Intel to sell products in/at certain venues in Europe?

Restrict Intel’s profits to an acceptable percentage determined by the, perhaps, French!?

Force Intel to license x86 to European manufactures?

Pay BILLIONS in fines, to whom?

ALL this mess from the land(s) that spawned the likes of Mussolini, Stalin, Hitler, Milosevic, ethic cleansing, mass genocide; etc.

I hope to god whining and puking AMD dies a slow horrible death for siding with ALIEN NATIONS against an American company who has beat them fairly in performance and manufacturing, while drawing attention away from substantive corporate failures of monumental and historical proportions.

WRECTOR RUINS (the terrible) is obscenely desperate! He is pathetic and despicable.

SPARKS

Anonymous said...

The EU does not appreciate AMD babbling to everyone about this and attaching their name with it. EU helps sink arrogant incompetent company. Great headlines.

Anonymous said...

There are just so many things wrong with this report.

How did they come up with 60Bil? They basically looked at Intel's reports and saw a 16% return and said that has to be too high (it just has to!) Using this logic the return should be, say, around 5% (plucked out of the air) therefore the remaining 11% is what the cost of the monopoly is (which turns out to be 60Bil over the 10 year period).

So in essence this study said 2 out of every 3 dollars of profit Intel earned was due to monopoly exploitation.

Kind of hard to reconcile this with the claim Intel was selling microprocessors BELOW cost. If they were doing this, how could they at the same time be earning higher than expected net income returns.

I also like the forward looking statement of ~1.5% savings if no monopoly is present. Instead of that $1000 computer it would cost $985! Thank god AMD is paying these folks to come up with such excellent and important analysis.

Unfortunately I think the EU will do something stupid as they apparently have become the business police of the world. It would be hilarious if Intel just said screw it we won't ship microprocessors to Europe anymore - enjoy AMD and hope they don't jack up the prices when we withdraw from the market (of course Intel would never do this as the market is too big but it would be eye opening if companies just start saying it ain't worth dealing with the EU BS anymore).

Andy said...

Haha, like the consumer was saving money when AMD were on top and charging $300 for an average processor.

Anonymous said...

AMD pays company to say Intel is bad

LOL, the press are getting tired of AMD's shenanigans.

gdp77 said...

ALL this mess from the land(s) that spawned the likes of Mussolini, Stalin, Hitler, Milosevic, ethic cleansing, mass genocide; etc.

Thank God, there is USA to save the world each now and then...

U should eat less propaganda in your breakfast... Considering the fact that in absolute numbers USA is responsible for more mass murders compared to the persons u mentioned.

Anonymous said...

Awesome, AMD is at $12.85! Investors are smelling bankruptcy.

AMD BK Q208.

SPARKS said...

“Thank God, there is USA to save the world each now and then...”

I am happy we agree! However, more to the point, in typical European fashion, historically speaking, the constructive use of power has not been their strongest asset. As an anonymous poster said, they have become the self proclaimed ‘world business police’, first Microsoft, now Intel. Europeans are mere shadows of past Monarchies, Empires, and dictatorships; all pomp and terrible circumstance.

Finally, they’ve come together and focused their nationalistic vitriolic hatred towards one common goal, bashing America and American companies. At least they are not killing each other en mass as they did throughout the entire last century, indeed.

You see, they’ve got a little power again and they are abusing it, in typical Euro jump on, hate America, fashion. This is very typical and, as is your comment, pathetic.

Europeans can just keep sending those exiled refugee’s like, say, Hungarian born Andrew Grove (God Bless Him). We’ll take care of them and they will prosper here.

GOT IT?

SPARKS

SPARKS said...

OH, did I mention Einstein, Fermi, and Teller.

SPARKS

Anonymous said...

More press coverage ridiculing AMD, this time from CNET.

It's much easier to analyze data when you've already determined what you want to conclude.

The author of the "economic study" produced by the ERS Group on behalf of AMD's antitrust lawyers, O'Melveny & Myers, said that his analysis of Intel's profits over the last 10 years assumed from the start that Intel was guilty of anticompetitive behavior, rather than reaching that conclusion based on the data. Michael Williams, director of the ERS Group, calculated that Intel has pocketed $60 billion in ill-gained profits after a thorough exercise that seems to have been undertaken merely to lend some validity to a number for AMD's press releases.


"Look, Intel dominates the x86 processor market. And it certainly does have to worry about the EC proceedings and the U.S. antitrust trial. But if anybody at AMD actually reads this thing, here's some free PR advice: the horse is dead.



AMD study concludes what it was paid to conclude

http://news.com.com/8300-10784_3-7.html?authorId=140

Anonymous said...

DAAMIT.

Roborat, Ph. D. said...

SPARKS said...
So then, the question begs. If such allegations are rammed down Intel throat, what then, is the remedy?


The European Commission can only extract limited fines for breaking EU competition laws, and ask Intel to stop any unlawful activity or pay more fines. It does not have the authority similar to the US where companies are broken up and civil lawsuits can be filed to ask for damages.

One thing to note is that even if Intel was found guilty, AMD won't get a cent out of it. The EC can force intel to stop all anti-competetive activities (rebates), which they already did. What we see today is true competition it looks like AMD can't handle it.

Roborat, Ph. D. said...

From Fabtech:
AMD Plays Monopoly With Intel...

The point I want to raise is that if AMD had found itself in a free and open market with Intel expounding the most open good business practices, then how much business would it have gained starting back those ten years?

Please correct me if I am wrong but AMD never had the capital to build more than one 200mm fab at any time and didn't have competitive products then either! Its product portfolio to cater for all the markets Intel was supporting was also negligible and would have required significant scaling of its design teams to even start competing in an open market.


AMD's paid study is starting to really backfire revealing poor planning and execution at the time the PC industry was really picking up.

Anonymous said...

AMD's paid study is starting to really backfire revealing poor planning and execution at the time the PC industry was really picking up.

Yes, and Intel's been very gracious trying to stay on the high road amidst all of the mug slinging hurled at it.

The best way for Intel to get back is to keep up its great execution and technology introduction cadence. It's been a while since we've seen any new news about their new products. IDF is coming up next month and I can't wait to see what they've got in store.

AMD can only bark, bark, bark.
Intel can bite.

Anonymous said...

Bite it like a shark ooh yeah

SPARKS said...

I am sorry folks. I really don’t want to hog the blog, but am compelled, and will anyway. Forgive me, please.

As I was reading this most current entry concerning Intel’s profits. I had, on my desk, in front of me, my sales receipt for my Q6600 dated 7/22/07. Then, I recalled my comment back in July.

https://www.blogger.com/comment.g?blogID=2602471396566186819&postID=6402087139387348524

Well, indeed, I picked one up (as I said just for fun) for $271. And, for good measure, overclocked it to Q6700 speeds, via the P33 FSB. As I pondered the new wonders’ exceptional stability and performance at a mere 46 degrees Celsius, the thought occurred, what the hell can AMD do to catch this thing?

First, Q6600’s are, because of obvious demand, are now selling close to $300. I was correct about them flying off the shelves. Secondly, this particular stepping (G0) is, from all accounts, a somewhat refined version (All you chip gurus will understand this far better than I). Third, Intel has sold well over a MILLION Qcores to date.

Therefore, what does AMD do to make ANY profit on the up and coming as yet UNREALEASED Barcelona? How can they, not counting the substantial delays in conjunction with marginal yields, compete with a well established, low cost product on/at introduction?

The entire scenario for AMD is at best a non event. At worst, the lower clocked Barcelona’s performance numbers are less than or equal to Q6600! Why buy an AMD mobo now, for a chip that has not been released, when I can just pump in a Penryn Yorkie in 2 months? Native Qcore, who gives a flying frig? Big deal.

I may not have the Doc’s head for chip manufacturing (not even close), but I do know money. With this kind of performance, with these kinds of prices, coupled with numerous upgrade possibilities, plus Intel’s manufacturing power (availability), leads me to conclude AMD has absolutely no chance of making ANY money this year. None.

If I missed something here, someone please, enlighten me.

SPARKS

Anonymous said...

Q6600 for the beating, Q6400 for the kill~

Anonymous said...

Intel Accuses AMD of Defamation
Intel's spokesman, the supremely tactful Chuck Mulloy, took off his pearl-gray diplomat's gloves and accused AMD of defamation

Some of the tinder AMD is using to burn Intel, Mulloy said, are "allusions to an SO it hasn't seen because it's confidential" and others are simple misrepresentation.

For instance, do you remember that class action that was filed back in January that claimed that Intel paid Dell over a billion dollars a year in kickbacks not to buy chips from AMD?
Well, you should because AMD has been beating that particular drum this week as evidence that the European Commission is on the right track in charging Intel with antitrust.

The only problem is that suit was withdrawn back in May, a fact AMD neglected to mention.


AMD deserves to be called on the carpet for their misrepresentation of facts. Hope more journalist and bloggers keep pressure on AMD's bogus claims and pathetic attempts at trying to form public opnion with their empty accusations.

http://virtualization.sys-con.com/read/411804.htm

Anonymous said...

[b]Penryn Preview[/b]

http://www.hkepc.com/bbs/hwdb.php?tid=837351&tp=Intel-Penryn-Preview&rid=837360

Bye Bye, AMD :)

Anonymous said...

"Well, indeed, I picked one up (as I said just for fun) for $271. And, for good measure, overclocked it to Q6700 speeds, via the P33 FSB. As I pondered the new wonders’ exceptional stability and performance at a mere 46 degrees Celsius, the thought occurred, what the hell can AMD do to catch this thing?"

Well, had it not been for the Intel monopoly, the study (er...paid for by AMD) concludes that you could have gotten it for 1.5% cheaper, or in other words saved yourself ~$4... man, the "intel monopoly" really screwed you! You could have saved 4 (count'em 4!) whole dollars!

You could also have gotten a quad core from AMD much cheaper, if of course they made them at this point in time...well you could go for a 4x4 for twice the price & power...

Anonymous said...

I like Penryn.

Anonymous said...

$12.55
die die die!

Anonymous said...

I think AMD is trying to claim that Intel abused its monopoly/dominant position in two ways-- cutting deals with OEMs that excluded its competitors, and aggressive price drops intended to cause AMD losses and eventually drive it out of business.

But that seems to be at odds with the claim of $60 billion in "monopoly-assisted" gains. If Intel was cutting prices to OEMs, offering bonuses to OEMs, and cutting prices on retail chips, it's hard to make a case that they were overcharging for their product.

Even if a case can be made that clarifies this apparent contradiction (and I think it can), by presenting it in this manner it provides an easy way to make the whole report seem pretty foolish. And I doubt many people will want to read it through, they'll just trust the blurb that wonders aloud, "how did Intel gain extra profts through a system of price cuts and givebacks?"

AMD continues to be really really bad at marketing and PR.

GutterRat said...

Looks like AMD has once again resorted to using simulated results at their analyst meeting.
Scientia's been called on it in his blog. Posting my reply here to make sure that if it gets censored away it persists.

Link...
https://www.blogger.com/comment.g?blogID=32351755&postID=1123627765500011905


Axel Wrote

Scientia

I'm sorry but you are incorrect. The latest AMD SPEC numbers were taken directly from AMD K10 demo systems just as Intel did with V8.


Absolutely RIGHT!

AMD, once again using simulated results. They got caught once and called for it. This time AMD will once again have to explain themselves.

Scientia, we know you KNOW about this problem because you got called on it on AMDZone.

Please go ahead and delete my post: I will post in on Roborat's blog to make sure it outlives any censorship.

Anonymous said...

"AMD trailed Intel's 65nm process by ten months in 2006"

More Scientia FUD... let's see Intel PRODUCTS AVAILABLE FOR PURCHASE January06 (65nm mobile products, Yonah) and let's compare this to when AMD CLAIMS to HAVE SHIPPED something?

Could you buy a 65nm processor anytime in 2006 from AMD? NO! This puts them at least a year behind on schedule and Scientia keeps forgetting that AMD's initial 65nm process was a glorified 90nm process that could not even compare to Intel's 65nm process when they launched...

Conclusion - if you have even a basic background in Si process technology, AMD is well more than a year behind Intel (~1 year on schedule, and ~2 years on actual process performance)... but hey what should you expect from the senior AMD apologist?

Anonymous said...

"That AMD intends to gain volume share is without question since in spite of the losses in Q4, Q1, and Q2 AMD's production plan is the same as it was in October 2005."

Absolutely correct!

Well they did recently push out $200Mil in Capital spending in H2'07 (20% of their planned H2'07 spending)...

...and well they haven't really pulled the trigger on NY fab...

...and well they have cut back on Chartered production and well they have admitted to slowing down the F30 conversion...

but other than that Scientia is dead on! AMD has not changed their production plan! :)

SPARKS said...

“man, the "intel monopoly" really screwed you! You could have saved 4 (count'em 4!) whole dollars”

CHEEZE !!! Ya might be right there buddy!!! But then, I wonder how this will factor against my nice fat dividend checks I got from INTC during the last six years?? Hmmm, I guess the boys at AMD could sue INTC for those incentives and give backs, too! Imagine, those bastards at INTC paying out dividends to their shareholders! What will those underhanded guys at INTC think of NEXT!!!

Hey, come to think of it, I still haven’t spent the remainder of last year’s dividend check I paid for the Q6600! Holy cow, it’s like I got the chip for FREE, with cash to spare for a Penryn, Bastards! These give backs are killing me! Imagine getting money from INTC in the mail! Those bums, they really screwed me good!

Wait; let me send the rest to Wrectum Ruinz, he needs the money SO badly!

:)

SPARKS

Anonymous said...

It is rather funny how the argument has now moved to AMD will be back on solid ground/competitive in 2008... remember when Core2 was a temporary gain that would be gone by mid-2007 when the then named K8l would trounce it... now you just need to push the schedule part back 6-9months and remove "trounce" with "hopefully come close/match"... oh and hope Penryn sucks, and Nehalem is way behind schedule.

Penryn of course has already been shown to be marginally better IPC with potentially much higher clock/lower power... Nehalem... well, I suspect well be hearing about it shortly... And for those saying well the IMC might cause problems... desktop and mobile won't have it (except maybe 'extreme' desktop part)

Oh and if Larabeee makes it to market in late 2008, what does that do to the already declining ATI discrete graphics share? Or if Silverthorn actually takes root?

2008 should be interesting because if AMD has issues with 45nm or if Intel even executes reasonably on Nehalem, AMD may be in some serious trouble. (serious meaning no more loans, and buyers offering pennies on the dollar for the company)

BTW AMD 45nm will only likely be able to get some power gains early on - without gate oxide scaling, you won't be seeing much clock performance. Expect lots of PR on the schedule (like 65nm) and no MENTION of actual process performance. You'll see a bunch of "value" (AMD speak for low performance, low end) 45nm products at ramp start, much like 65nm. (you know because customers demand these parts, right?)

AMD should try to settle the lawsuit and get some nuissance cash out of Intel. Even if they do win, the trial will likely not conclude until sometime in 2009, assuming appeals... AMD wouldn't see a penny util at least 2012. AMD has gotten as much PR play as they will likely get, and their latest PR attempts (this ridiculous monopoly profit report) is starting to wear thin, even on some of the "we root for the underdog, big companies are evil" press. They'll save on lawyer costs (which if you project over the next 5-8 years will be huge) and they can put the money into the capex they recently had to cut. Intel may be willing to do it as it gets rid of the distraction and a potential wild card verdict, and it sort of undercuts any action the EU would take.

SPARKS said...

And another AMD wonder investment! Ya gotta hand it to those guys; real sharp!


http://www.thestreet.com/s/transmeta-revenue-tanks/newsanalysis/techsemis/_msnh/10372704.html?cm_ven=MSNH&cm_cat=FREE&cm_ite=NA

Sparks

GutterRat said...

Scientia, as expected, censored a post on his blog.

Once again, resorting to silencing those that question his distorted notion of reality.

Not to worry, he knows AMD has got nothing but empty technology promises and angry investors.

AMD resorting to posting videos on youtube in an attempt to get the amdzone fanbois riled up.

Anonymous said...

For a "good" analysis of process technology head on over to Abinstein's blog.... (and by "good" I mean a ridiculously ignorant analysis lacking any technical foundation)

Yet another AMD apologist who cannot understand the difference between architecture and process technology. I think he should just change his blog to "why AMD is so great"

Apparently a 20% improvement from one node to another is "good", while the rest of the industry targets >30% and Intel will achieve >40% when moving from 65nm to 45nm. Oh and apparently process improvement moving from 65nm to 45nm will directly result in higher K10 clockspeeds.

This of course is a given - just look at the 90nm K8's vs the 65nm K8's.... AMD claimed a 40% improvement moving from 90-65nm and just look at the chips they improved by 40% (didn't they?!?!? What you're telling me they didn't?!?!)

SPARKS said...

Check this interview out. It's Wreckor (The Terrible), and he ain't smiling, especially the part about future credit crunches.

http://video.msn.com/v/us/Money.htm?g=377bf0e6-0b43-4cbe-bb91-b42fcc36130a&t=s216&f=15/64ticker&p=hotvideo_money%20top%20ten&fg=

SPARKS

Anonymous said...

Thanks for the link to the "Hector" CNBC interview.

He did not exude the confidence of a leader. Looked pretty beaten down.

Anonymous said...

He looks like poop.

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SPARKS said...

HEY!! WTF WAS THAT???? Is Hector going back to making T-Shirts?

SPARKS

Anonymous said...

Post 40