Intel to Lose Ground to AMD?

Will 2005 be the year when Advanced Micro Devices (NYSE: AMD) gains ground on Intel Corp. (Nasdaq: INTC) in the microprocessor market?

One Wall Street analyst, Illuminata's Gordon Haff, thinks this is the real story behind this week's news that Intel and Hewlett-Packard Co. (NYSE: HPQ) are ending their collaboration on Intels Itanium architecture multiprocessor chips.

“Intel made a miscalculation with Itanium, and this announcement is part of the recovery plan,” says Haff. “It’s quite clear that Intel took its eye off the ball when it assumed the direction processors were going.”

As the story goes, AMD chose a path to embrace 64-bit extension architecture -- a course that Intel decidedly rejected. Now, with AMD’s Athlon 64 emerging as a viable competitor, Intel is racing to reverse its position in the market. “The 64-bit chip with increased performance, while maintaining compatibility with the existing software base turned out to be what data center customers were interested in,” says Haff. “Intel was forced to adopt reactively rather than proactively.”

Morgan Stanley believes that Intel’s strategy for 2005 is solid, but near-term risks to its market share remain. In a recent report, Morgan Stanley’s team of analysts reported that Intel’s mid-quarter business updates suggest that its microprocessor unit shipments will increase about 12 percent sequentially in the fourth quarter. The report also indicates that AMD will be keeping even pace. “Given AMD’s focus, execution, and competitive product line, we have increased our fourth-quarter MPU estimate for the company from 8 percent to 12 percent sequential unit growth.”Haff believes that AMD -- with strong relationships with HP, IBM Corp. (NYSE: IBM), and Sun Microsystems Inc. (Nasdaq: SUNW) -- has the potential to outgrow Intel in 2005. “AMD is gaining market share from Intel next year,” the analyst predicts.

What does the competitive threat of AMD to Intel ultimately mean to data center managers? More function for the price and greater innovation.

“You can bet that if AMD did not exist, there’s a possibility that 64-bit extensions would not have happened,” says Haff, who believes that the biggest chip news in 2005 will be AMD’s dual core X86 processors. “We’re not going to see multicore processors from Intel next year.”

Haff isn’t alone in his view of AMD’s successful run at Intel. Piper Jaffray in a recent report stated that it believes that AMD is likely to continue to maintain its competitive positioning through 2005 and that Intel will finally “awaken from its execution slumber in 2004... [and] will take most of 2005 to position itself properly."

— John Papageorge, Senior Editor, Next-Gen Data Center Forum0