Microprocessor Wars
Samuel W. Aldrich
Principles of Marketing
Tracy Foote
July 3rd, 2012

Microprocessor Wars Computer processors are very complicated electronic devices that are used to be the brain of computers. They process all data in the computer and have revolutionized the world in every facet possible, creating new and quicker ways to accomplish tasks. There are a few companies that produce the x86 microarchitecture chips found in almost every desktop and many mobile devices today but only two are true heavy hitters in the market, Intel and Advanced Micro Devices (AMD). The market slug fest that has been happening between these two companies have driven the pace at which computing has advanced by leaps and bounds. They are a perfect example of how competition and not just supply and demand push industries to their pinnacle. To give a little background to the current market situation, Intel was the original inventor of the x86 microarchitecture central processing unit in 1978. Advanced Micro Devices didn’t start making chips until 1982; four years after Intel had already released their first x86 microprocessor chip as a company. Advanced Micro Devices along with Intel has over 99.5% of the market for x86 architecture central processing units. This means the two companies quite literally own the market and control the supply of computer processors. MaximumPC.com’s own history of the situation that expertly describes the beginnings and even reciprocal situation of today market states:
“Much has been made recently over the x86 licensing agreement between Intel and AMD, and we have to travel back to 1982 to see how it all began. That was the year AMD inked a deal allowing them to manufacture and sell both 8086 and 8088 processors. The very next year, AMD released the Am286, an exact clone of Intel's 286 processor, right down to the pin count, but with a higher frequency. And not just faster, but almost twice as fast at 20MHz. In some respects, the Am286 can be viewed as the first punch thrown in a fight that has been going on for almost 30 years” (Lilly, 2009). The two companies have long battled for the market of central processing units but Intel has always had the upper hand with a much larger market wealth and higher research and development budget. This has enabled them to capture a rough estimate of 82 percent of the central processing unit market, leaving Advanced Micro Devices a measly 17 percent. Although Advanced Micro Devices has a considerably smaller market share in sheer volume numbers, it has recently begun changing its market strategy to survive. This strategy is a smart move that is lauded by most industry analyst as a smart move that will give Advanced Micro Devices a shot at surviving Intel’s ability to out-produce and out-perform Advanced Micro Device’s processors. Their strategy is to stop trying to compete with Intel in the top performance central processing unit market, i.e. the Intel Core i7 units and their Intel Core i7 Extreme series and instead focus on producing considerably cheaper processors that come with built in graphics processing units. Looking at the market as a whole, most computers sold in the United States don’t have dedicated graphics put in the computers. Most consumers in the United States have dedicated gaming consoles such as the X-Box 360 and the Play Station 3, making the need to have dedicated graphics cards unnecessary as they don’t play computer games. Advanced Micro Devices aims to create demand for cheap processors that come with graphics cores capable of playing high quality graphics and decoding high definition movies. Advanced Micro Devices up until two years ago, had only produced processors that didn’t include graphics cores. It wasn’t until research from market surveys showed a growing trend towards cheaper desktops and laptops without dedicated graphics. These cheaper computers were selling three to one against more expensive computers (identified as $1,000 or more). This showed that there was a market for Advanced Micro Devices to exploit. “Marketing information by itself has little value. The value is in the customer insights gained from the information and how these insights are used to make better marketing decisions” (Armstrong, 2012). Advanced Micro Devices saw that the cheaper integrated computers were selling better but also realized a move towards high definition streaming and movies would cause demand for graphics processing. As stated before, Advanced Micro Devices had been losing to Intel on the high performance end of the central processing unit market because of a smaller research and development budget that couldn’t compete with Intel’s. Part of a strategy to branch into a different market to bring in more revenue, Advanced Micro Devices purchased Array Technologies Incorporated (ATI). Array Tech Inc. is a producer of dedicated graphics cards and is in a similar battle as Advanced Micro Devices with Intel. NVidia is the Intel of the graphics card market and a similar situation existed between Array Tech Inc. (henceforth referred to as ATI Inc.) and NVidia. Advanced Micro Devices saw an opportunity to take that technology and bring graphics processing to the central processing unit. It all comes down to analyzing competitors and assessing competitor’s objectives, strategies, and weaknesses and then selecting which competitor position to attack. Advanced Micro Devices was able to find a way to attack Intel at its weak spot, integrated graphics (Armstrong, 2012). Something that the purchase of a graphics card manufacturer could prove beneficial for. So in 2006 Advanced Micro Devices purchased ATI Inc. in an attempt to broaden their market segments and increase their revenue while initiating a new processor that could finally compete against Intel’s best. While Intel also rolled out integrated graphics cores in their processors with their Sandy Bridge line of processors and most recently with their Ivy Bridge processors, their ability to compute graphics still lacked greatly to even the most simple and cheap dedicated graphics card. This is where Advanced Micro Devices was able to get the upper hand; they owned the second largest graphics card manufacturer in the world and had the expertise to create graphics cores that were considerably better than Intel’s best on processor graphics cores.
”The new APUs are built around AMD's latest Radeon HD 7000 series GPUs and its new "Bulldozer" CPU core architecture, which sports the company's third-generation Turbo Core technology to dynamically shift power between CPU and GPU depending upon application needs. Combined, the CPU and GPU cores deliver more than 700 gigaflops of computing performance—several times more than the fastest x86 CPUs—to boost performance of hundreds of applications” (Damon, 2012). The strategy took by Advanced Micro Devices not only showed that they were intuitive enough to realize that trying to compete with a foe that dwarfed them in size and revenue was folly but created an entirely new product that they named an Accelerated Processing Unit (APU). This Accelerated Processing Unit didn’t try to compete with the bleeding edge performance processing units of Intel but instead created a new market for computer processors that were able to sufficiently handle high definition video encoding and play quality graphic computer games without any need for a dedicated graphics card. The idea has been tried before but it failed, Intel had released two editions of processors back in the 1990s that were so dismal at processing graphics that many consumers reeled at the mention of “integrated graphics”. These new Accelerated Processing Units could be put into mobile workstations such as laptops and netbooks or in desktop computers. The best part about the Accelerated Processing Unit was the price, 200-300 dollars for the highest performing units. Compare that to Intel’s competing performance point processors that hover around 300 dollars and suffer greatly in graphic performance in comparison and usually require at least a 100 dollar graphics card to get the same graphical performance the of the Accelerated Processing Unit. This meant that Advanced Micro Devices has created a new product that is going to revolutionize the way computer manufacturers and enthusiast computer builder’s purchase. The cheaper Accelerated Processing Units gave Advanced Micro Devices the new market they needed so badly, one that appealed to a majority of computer consumers in the United States where over 66 percent of the world’s computers are purchased. This gives computer manufacturers the ability to produce smaller, cooler, and cheaper computers that appeal to the demanding United States computer market that has been steadily moving towards the smallest and cheapest computers possible. Because of the enhanced abilities of the computer manufacturers to produce unique and smaller computers, there will be an increased demand by consumers for these Accelerated Processing Units and by default, the computer manufacturers will start turning to Advanced Micro Devices for their processors instead of Intel. Now it may seem counterproductive for Advanced Micro Devices to build processors that can outperform low end dedicated graphics cards because it would eat up demand for those low end graphics cards produced by its subsidiary company ATI Inc. In reality all this does is shift the demand for the low end graphics solutions to integrated options championed by their line Accelerated Processing Units. A move that means only a shift in revenue from one part of the company to another for Advanced Micro Devices but if looked at from NVidia’s point of view, it means a loss in market share. NVidia doesn’t have any share in the central processing unit market and as such will lose most of its demand for their low end graphics cards. ATI Inc. will benefit in the long run because their production basis is switched to Accelerated Processing Units while NVidia actually has to cut that part of their company. This shows that the competition within a market leads to innovative ideas when faced with difficult choices. Instead of fighting a losing battle for an increasingly competitive market, Advanced Micro Devices switch to a smaller alternative to current computer products gave them the ability to compete and potentially gain much more market share.

References

Armstrong, Philip Kotler and Gary. Principles of Marketing for Ashford University, 14th Edition.
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AMD Inc. (2012). Amd accelerated processing units. Retrieved from http://www.amd.com/us/products/technologies/fusion/Pages/fusion.aspx Lilly, P. (2009, April 04). A brief history of cpus: 31 awesome years of x86. Retrieved from http://www.maximumpc.com/article/features/cpu_retrospective_the_life_and_times_x86?page=0,0
Intel Inc. (2012). Company overview. Retrieved from http://www.intel.com/content/www/us/en/company-overview/company-overview.html Damon, P. (2012, May 15). Amd rolls out 'trinit'y apus for mainstream, ultrathin laptops.
Retrieved From http://www.pcmag.com/article2/0,2817,2404471,00.asp