Plenty to be paranoid about

These are tough times for Intel Corp. The chipmaker recently announced plans to lay off 10 per cent of its workforce. Its shares are trading at less than $20 and the company told financial analysts in July that this year’s earnings might be lower than anticipated.

And rival Advanced Micro Devices Inc. is gaining ground on the semiconductor market leader. Most notably, AMD has finally persuaded Dell Computer Corp., the leader in PC market share and until this year the only major PC vendor using exclusively Intel chips, to start using AMD processors in some of its PCs and servers.

Even as it makes impressive inroads against Intel, AMD is also going after the company in court with an antitrust case filed last year. AMD’s recent market successes may not help its cause here, but its allegations go back to 2002, when it claims, among other things, that Intel used over-aggressive rebates to computer makers to practically elbow AMD out of the Japanese PC market.

If Andy Grove, the former Intel chairman who titled his book of business advice “Only the Paranoid Survive,” were still running the company, he’d have plenty to be paranoid about.

It’s unfortunate that those 10,500 Intel employees will lose their jobs. The stock price is bad news for investors. But this isn’t entirely a sad story. The emergence of real competition in the microprocessor industry is good.

Some argue that market-dominating Intel, like Microsoft in software, has benefited the industry by establishing a standard platform. Customers win because they aren’t faced with confusing and risky choices among platforms, and because standardization turns PCs into commodities and drives down prices.

Or so the argument goes. Those who bought Betamax video recorders might agree with the first point, but did car buyers have enough choice when Henry Ford said they could get any colour they wanted as long as it was black? And lower prices are all very well, but there would be more innovation with real competition.

Anyway, the competition between Intel and AMD doesn’t present computer buyers with risky choices. A Windows machine is a Windows machine whether it has Intel or AMD inside. What this competition does is give computer manufacturers a choice of suppliers. That’s good for PC makers, and ultimately good for their customers.

And competition will spur both major chipmakers to try harder. For an example of that, look no further than AMD’s acquisition of the Canadian graphics chipmaker ATI Technologies Inc. By adding ATI to its stable, AMD is trying to move toward offering more complete technology platforms as Intel does.

Intel’s layoff announcement is also evidence of the competitive pressure it is facing, of course. Whether cutting staff is the right response is a matter of opinion. In technology – as in most industries, really – people are a valuable asset, and dumping them in hard times is a bit like throwing the engine overboard to lighten the boat. It may get you through the storm, but what are you going to do next?

But at any rate, Dell’s decision to add AMD as a supplier was a smart one, and probably good for the industry as a whole. Quibble if you wish with a particular competitive strategy, but competition is still a good thing.

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Jim Love, Chief Content Officer, IT World Canada

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