Acquisition to help AMD take on Intel

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The hotly competitive chip rivalry between Intel Corp. and Advanced Micro Devices is about to get hotter, following AMD's announcement last month that it plans to acquire chipset and graphics technology provider ATI Technologies for $5.4 billion in cash.

The acquisition will give AMD an integrated solution for chips, chipsets and graphics capabilities, which competitor Intel already has. It will also strengthen AMD's position in the corporate desktop and notebook markets.

The deal is expected to close in the fourth quarter, with new products rolling out in 2007.

While AMD said it's too soon to comment on the marketing strategy, Pat Moorhead, VP-advanced marketing at AMD, said the chip maker will take a decidedly different path than competitor Intel.

"We have a differentiated strategy in how we approach a solution brand," Moorhead said. "Some customers want an integrated solution they purchase from one company, and others prefer a best-in-breed approach, where they create their own differentiated solution. We might have a large customer who prefers an AMD processor, an NVIDIA chipset and an ATI graphics card-we'll support that, unlike our competitor."

He said the acquisition will give AMD the ability to offer the stability and reliability of an integrated solution while giving customers best-in-breed choices.

"AMD has been doing some pretty good marketing," said Gartner Inc. analyst Martin Reynolds. "They've been able to figure out how they can do some things that Intel has had some difficulties with," such as developing large servers.

But where Intel has had an advantage is in corporate desktop computers, Reynolds said.

"One problem AMD faces is that businesses value stability and standardization over performance. They don't really care how fast their desktops are-they care about the cost of managing them and they want them to be as similar as possible."

So far, Intel has been able to deliver that because it controls both the chipset and the processor, Reynolds added. "Now, AMD can present a bundled package and start attacking the enterprise desktop market with messages around controlling costs and manageability," he said.

While declining to give product specifics, Moorhead said the ATI acquisition will bolster AMD's position in the corporate desktop market.

"Large companies want stable software images that can be the same for everyone in the company. With us combining with ATI, it gives us a better ability to be able to offer a stable image platform for processors, chipsets and graphics."

Another segment that will be affected is the notebook market.

"The only way to penetrate the market fully is to keep lowering the price," Gartner's Reynolds said. "By acquiring graphics technology from ATI, AMD can build a single chip for notebooks. It will be able to hit lower price points and still be profitable."

Advertising play

"I would expect to see, fairly quickly, messaging and products around AMD notebooks that offer a better battery life and improved performance at a price point Intel doesn't offer," Reynolds said.

Moorhead said AMD would probably not go head-to-head with Intel in advertising around new products, focusing instead on product benefits for customers.

However, AMD launched an aggressive ad campaign in May, showing AMD's processor performance versus Intel's for commercial servers.

The campaign ran outdoors in Times Square, with a ticker showing how much money customers would have saved with AMD processors.

For its part, Intel has met AMD's campaign with more direct advertising of its own around the release last month of its Core 2 Duo processor line, which performs up to 40% faster than its previous Pentium processor and is up to 40% more energy efficient.

"The competitive advantage is performance-performance that AMD does not have today," said Sandra Lopez, integrated marketing manager for b-to-b at Intel.

Intel launched an aggressive consumer and b-to-b campaign for the Core 2 Duo. As part of the campaign, the semiconductor leader created a polybag piece in CIO magazine with a comparative product brief that goes directly against AMD.

"This puts AMD and Intel head-to-head in performance capabilities," said Lopez.

"It illustrates how our technology compares to AMD based on research, what to look for from a content perspective and how to evaluate the technology."

It is accompanied by a companion piece on Intel's Web site, showing how Intel processors perform against AMD's.

However, AMD has been gaining ground against Intel. Last month, IBM Corp. said it would use AMD's Opteron processor in its new line of BladeCenter servers, and in June, Dell Computer Corp. announced it would ship an AMD-based server system by the end of the year.

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