AMD must double processor market share to survive

Advanced Micro Devices needs to more than double its share of the microprocessor market to survive, according to a brief filed by the company’s lawyers in its antitrust lawsuit against Intel.

At the end of 2007, AMD had 13 percent of the processor market, “less than half of what it requires to operate long-term as a sustainable business,” the brief said, explaining that Intel’s alleged efforts to shut the company out of the processor business had largely succeeded.

“Measured on a revenue share basis, AMD made little progress growing its slice of the pie,” it said.

The argument that Intel’s alleged anti-competitive behavior has so hurt AMD that its future is in jeopardy is crucial to the company’s claims for relief, including damages. But the claims could further spook corporate customers already wary of the company’s financial troubles.

Companies generally make computer purchasing decisions with a long-term view and plan to use and purchase similar systems for many years to come. Fresh concerns about AMD’s long-term sustainability coupled with existing worries about the company’s fiscal health — weakened by the delayed release of its Quad-Core Opteron processor and mounting long-term debt– could lead CIOs to consider computers based on Intel’s chips instead.

“It will push them in the other direction,” said Rajnish Arora, director of enterprise server and workstation research at IDC Asia-Pacific.

AMD’s brief was heavily redacted by the court and details of Intel’s alleged anti-competitive behavior and its relationship with major computer makers were largely blacked out. But the general thrust of AMD’s argument was clear: Intel allegedly paid computer makers to rely exclusively, or almost exclusively, on its chips.

The effect of these and other alleged tactics employed by Intel outweighed gains that AMD made with its successful line of Opteron server chips, which came out in 2003.

“That AMD gained some share and revenue is immaterial. It gained sufficiently less share and sufficiently less revenue so as to suffer a critical diminishment of its innovation roadmap,” the brief said.

AMD’s concerns about its future are legitimate, IDC’s Arora said, underscoring the capital intensive nature and short product cycles of the processor business. “They are going to be challenged. They need to grow the business and scale it up,” he said.

The key for AMD is to generate strong end user demand for its processors, which will in turn mean more computer makers will sell systems based on its chips. “It’s all driven by customer demand,” Arora said.

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