Intel and AMD have been battling it out in the chip business for many years. The primary front has generally been technology, exclusivity agreements with customers, and pricing, but perhaps the times are changing. Two adjacent stories in yesterday's paper describe how each company is dealing with this period of severe economic uncertainty from a factory and production standpoint.
First, here's AMD's strategy:
Advanced Micro Devices Inc., Intel's primary rival in microprocessor chips, plans to spin off its manufacturing operations to a joint venture funded by investors from Abu Dhabi. The Sunnyvale, Calif., company has touted a spinoff of its chip production business as a defining move to reinvent the company and focus primarily on chip design. The deal would give AMD a cash infusion.
Along with being the first step in separating the capital intensive manufacturing operations from what has recently been a strong product lineup, the deal should provide a boost to AMD's balance sheet.
So AMD is focusing on improving cash on the balance sheet by eliminating the "burden" of manufacturing. And Intel?
Intel Corp. disclosed plans to spend $7 billion to upgrade manufacturing technology at its U.S. factories over the next two years, calling on other companies to follow its strategy of investing during the downturn. Intel said the moves preserve about 7,000 high-wage jobs at factories in Oregon, New Mexico, and Arizona, and it expects the two-year plan to require about 4,000 workers at construction firms and other contractors.
Paul Otellini, Intel's president and chief executive… urged other companies to make similar investments, arguing from Intel's past experience that the proper response to a slump is to give customers new reasons to buy.
Pretty much the polar opposite of AMD's strategy. To be fair, this difference isn't entirely up to AMD as the companies are in dramatically different cash balance situations. Intel has over $12 billion available, and is generating $11 billion in cash a year.
But perhaps that balance sheet difference is also the result of similar differences in mindsets and philosophy, which thereby produced those very same results? Anyone want to hazard a guess at where each company will be in five or twenty years?
Dan Markovitz says
For what it’s worth, Qualcomm has built a pretty good business over the years licensing chip design without taking on the “burden” of manufacturing.
Would we see AMD’s decision in the same negative light if they were starting from scratch with this “design, don’t build” philosophy?