AMD 1998 Annual Report Download - page 220

See also discussions below regarding Intel Dominance and Process Technology.
Intel Dominance. Intel has dominated the market for microprocessors used in PCs
for a long time. Because of its dominant market position, Intel can set and
control x86 microprocessor and PC system standards and, thus, dictate the type
of product the market requires of Intel's competitors. In addition, Intel may
vary prices on its microprocessors and other products at will and thereby affect
the margins and profitability of its competitors due to its financial strength
and dominant position. Intel may exert substantial influence over PC
manufacturers through the Intel Inside advertising rebate program. Intel may
also invest hundreds of millions of dollars in, and as a result exert influence
over, many other technology companies. We expect Intel to continue to invest
heavily in research and development, new manufacturing facilities and other
technology companies, and to remain dominant:
. through the Intel Inside program;
. through other contractual constraints on customers, industry suppliers
and other third parties; and
. by controlling industry standards.
As an extension of its dominant microprocessor market share, Intel also now
dominates the PC platform. As a result, it is difficult for PC manufacturers to
innovate and differentiate their product offerings. We do not have the financial
resources to compete with Intel on such a large scale. As long as Intel remains
in this dominant position, we may be materially and adversely affected by its:
. product introduction schedule;
. product pricing strategy; and
. customer brand loyalty and control over industry standards, PC
manufacturers and other PC industry participants.
As Intel has expanded its dominance over the PC system platform, many PC
manufacturers have reduced their system development expenditures and have
purchased microprocessors in conjunction with chipsets or in assembled
motherboards. PC OEMs have become increasingly dependent on Intel, less
innovative on their own and more of a distribution channel for Intel technology.
In marketing our microprocessors to these OEMs and dealers, we depend on
companies other than Intel for the design and manufacture of core-logic
chipsets, motherboards, basic input/output system (BIOS) software and other
components. In recent years, these third-party designers and manufacturers have
lost significant market share to Intel. In addition, these companies produce
chipsets, motherboards, BIOS software and other components to support each new
generation of Intel's microprocessors only if Intel makes information about its
products available to them in time to address market opportunities. Delay in the
availability of such information makes, and will continue to make, it
increasingly difficult for these third parties to retain or regain market share.
To compete with Intel in the microprocessor market in the future, we intend to
continue to form closer relationships with third-party designers and
manufacturers of core-logic chipsets, motherboards, BIOS software and other
components. Similarly, we intend to expand our chipset and system design
capabilities, and to offer OEMs licensed system designs incorporating our
microprocessors and companion products. We cannot be certain, however, that our
efforts will be successful. We expect that, as Intel introduces future
generations of microprocessors, chipsets and motherboards, the design of
chipsets, memory and other semiconductor devices, and higher level board
products which support Intel microprocessors, will become increasingly dependent
on the Intel microprocessor design and may become incompatible with non-Intel
processor-based PC systems.
Intel's Pentium(R) II and Celeron (TM) microprocessors are sold only in form
factors that are not physically or interface protocol compatible with "Socket 7"
motherboards currently used with AMD-K6 microprocessors. Thus, Intel no longer
supports the Socket 7 infrastructure as it has transitioned away from its
Pentium processors. Because the AMD-K6 microprocessors are designed to be Socket
7-compatible, and will not work with motherboards designed for Pentium II and
Celeron processors, we intend to continue to work with third-party designers and
manufacturers of motherboards, chipsets and other products to ensure the
continued availability of Socket 7 infrastructure support for the AMD-K6
microprocessors, including support for enhancements and features we add to our
microprocessors. Socket 7 infrastructure support for the AMD-K6 microprocessors
may not endure over time as Intel moves the market to its infrastructure
choices. We do not currently plan to develop microprocessors that are bus
interface protocol compatible with the Pentium II, Pentium III and Celeron
processors because our patent cross-license agreement with Intel does not extend
to our microprocessors that are bus interface protocol compatible with Intel's
sixth and subsequent generation processors. Similarly, our ability to compete
with Intel in the market for seventh-generation and future generation
microprocessors will depend on our:
. success in designing and developing the micro-processors; and
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Source: ADVANCED MICRO DEVIC, 10-K, March 29, 1999