AMD CEO: Intel Is a Monopoly, Microsoft Isn't

AMD CEO: Intel Is a Monopoly, Microsoft Isn't
By Scott M. Fulton, III, BetaNews
June 21, 2007, 3:09 PM

In a keynote address this morning to the American Antitrust Institute in Washington, D.C., AMD CEO Hector Ruiz gave attendees what he described as "an idea of what it's like to do business day in and day out when you are competing against an abusive monopolist." Although he also invoked the phrase "illegal monopoly," he left a convenient 846-word buffer zone between that phrase and his first invocation of the term "Intel."

"I do not need my fortune teller hat to tell you one truth about which I am absolutely certain," Ruiz told attendees, "There is no proper or defensible place for illegal monopolies in the 21st century global marketplace...My purpose is not to argue for competitive advantage [1] - we know how to compete. My purpose is to lay out the facts so that law and economics can do their job [2] to protect consumers."

[1] The strategies, skills, knowledge, resources or competencies that differentiate a business from its competitors, hence reducing the number and closeness of substitutes.

[2] Equilibrium price and quantity is determined by the profit maximizing point, instead of out-pricing the competition in secret deals such as huge volume discounts for exclusivity rights / raising the price of the products beyond reasonable prices.

When a certain unnamed monopolist is permitted to do business as it wishes, Ruiz explained, its competitors may be more efficient and more innovative [3], though it cannot form partnerships and engage in cooperation with other players in the market. "All of that yields the one outcome antitrust law is designed to prevent," he continued, "consumers suffering at the hands of a monopoly by being forced to pay higher prices for what are all-too-often inferior products." [4]

[3] Other firms face strong competitive pressures (from the monopoly) on profit margins; hence they would be stringent on cost controls. They will also engage in Research and Development to come up with better quality products and better production methods to lower cost.

[4] The monopoly is a price setter. The monopoly can raise the price and the consumers either pay or go without the (inferior) good as they cannot turn to other alternatives.

Evidence of that inferiority, he stated, comes from the fact that desktop computers have not fundamentally changed [5] in the last decade-and-a-half, except perhaps for the introduction of flatter monitors and wireless connectivity.

[5] I disagree with this point. The computer manufacturing industry is a competitive one, due to its oligopoly nature with some big players such as Hewlett-Packard, Dell, IBM and other smaller players such as Ranger, Tatung etc. Therefore, we can deduce that computer manufacturers engage in heavy Research and Development to come up with better quality products to differentiate their products. Over the years, desktop computers have become smaller, and are now termed “Small Form Factor” computers.

When new laws brought an end to monopolies such as Standard Oil and the original AT&T, Ruiz' speech went on, a multitude of players were enabled to enter those markets, creating not just more competition but more cooperation and innovation [6]. New players could enter markets and compete on a level field [7].

[6] Cooperation: Firms share Research and Development information; hence better production methods are used. Cost of production decreases, and if firms pass the cost savings to consumers, consumers will clearly benefit from the lower prices.

Innovation: More competition would create more incentive for firms to engage in Research and Development to differentiate their product. Hence consumers clearly benefit from better quality products.

[7] Barriers to entry are lowered (Standard Oil and the original AT&T were controlling the key factors of production) and are no longer high enough to prevent entry of new firms.

For instance, he cited, "Google, Microsoft, and computer manufacturers like HP and Dell all owe their existence to the simple fact that competition replaced forced exclusivity and allowed a variety of players to compete and succeed."

Only after Ruiz mentioned those four names did he invoke the dreaded "I" word.
An iSuppli quarterly report issued in April showed Intel was responsible for having earned 80.2% of the world's global sales of microprocessors [8], with AMD earning 11.1% and smaller players the remainder. Though this is down from a high of 86% for Intel in the first quarter of 2004, it's a sizable 4.5% gain over the previous quarter, and a drop of 4.6% for AMD over the same quarter.

[8] Intel has a large market share in the microprocessor industry. It has a certain degree of monopoly power, hence has the ability to influence the market supply and price.

US law does not explicitly specify how much share a manufacturer must have of a given market to qualify as a monopoly. However, it does not stipulate monopolies to be illegal either, as so many discovered over the course of the Microsoft antitrust trial. Being a monopoly means a company has certain extra responsibilities to maintain and ensure competitiveness, and prevent erecting barriers to entry [9] for competitive players.

[9] Barriers to entry that the monopoly erects are said to be Artificial BTO. Examples include: Control over key factors of production and over wholesale or retail outlets.

Ruiz cited examples of both upheld and alleged anti-competitive behavior on Intel's part, including findings that it paid for exclusivity rights among Japanese computer manufacturers, Intel's alleged exclusivity deals with German retailers (which is the subject of AMD's antitrust suit against it in the US), and a shareholder lawsuit against Dell alleging that company received $1 billion per year in rebates from Intel prior to its decision last year to end its exclusivity arrangement and do business with AMD. [10]

[10] Artificial BTO; Control over wholesale or retail outlets.

But analysts credit Intel's recent market share gains over AMD to its introduction last summer of far more competitive processors at price points that were near to, or lower than, AMD processors - in many segments of the market, for the very first time. Recent performance tests from respected independent sources show Intel has not yet ceded that price/performance lead [11], though its margin has slimmed [12] somewhat since last year.

[11] Price Lead: Intel is able to enjoy cost advantage due to the significant Economies of Scale that it experiences.

Performance Lead: Intel is able to enjoy revenue advantage due to its large market share (80.2% of the world’s global sales of microprocessors). Hence it is able to engage in Research and Development to maintain its product superiority.

[12] Intel might be experiencing X-inefficiency which leads to (Price margin) higher costs – without competitive pressures on profit margins, cost controls may become lax. The result may be overstaffing and spending on prestige buildings and equipment, as well as (Performance margin) less effort to keep technology up to date, scrap old machines, research new products.

In a recent conference call with AMD senior vice president Henri Richard, he advised reporters to no longer expect any one company -- Intel or AMD -- to hold the performance lead in CPUs for any more than a six-month stretch [13].

[13] The microprocessor industry is a highly competitive one. Firms are constantly engaged in Research and Development to come out with better quality products which outperform their counterparts.

But in response to a question as to whether AMD now considers itself in a performance disadvantage against Intel, Richard alleged that Intel was being anti-competitive not because it failed to be innovative or was overcharging customers, but that by his description, Intel had decided to release a major new series of CPUs that it was not prepared to sell in volume.

"Our competitor, because they were under such duress given our leadership in the marketplace, elected to announce an architecture in the middle of last year that was not available in volume," stated Richard in April. "So what you had was a lot of hype around Core 2 Duo and a lot of Pentiums [that had reached their] end-of-life in the marketplace. So I'm confronted into a situation where, who am I competing against? A product that's being talked a lot about but that's not available, or a product that's being dumped because it's end-of-life, running too hot anyhow, and why should I chase that product down?"

As Richard put it, AMD was faced with a situation where it had to decide whether its Athlon 64s, Athlon FXs, and Opterons were to be price-competitive with the new Core 2 Duos or the older Pentium Ds, which were then being phased out.

"We found ourselves with a single product line," Richard continued. "We're not in that product transition, and frankly, in some case, at a disadvantage because it made no sense to devaluate our products to compete against old Pentium products. But on the other hand, I needed to be competitive if I was actually sold against the Core 2 Duo, which was a much better product than their preceding generation."

I don't know of the economics involved in the above paragraphs, but it states a crucial factor why AMD, who had a 7 year run of having the best processor on the market at the best price compared to Intel, eventually lost out in the microprocessor industry.

But this is not the same story Hector Ruiz told attorneys at the American Antitrust Institute conference this morning.

"The IT industry is being held hostage by Intel," Ruiz proclaimed, "a fact that has detrimental effects across the board, and it has gone on for too long. Consumers are punished by less choice and innovation, and higher prices [14].

[14] Less choice: High BTO, both natural (significant EOS due to large market share Intel possesses) and artificial (Control over wholesale or retail outlets such as Japanese and Germany retailers and Dell + strong brand name –“Intel Corp, whose marketing made its computer chips a household name..” Bloomberg December 30, 2005), which prevent entry of new firms and hence less availability of substitutes.

Less innovation: Without competitive pressures on profit margins, Intel has less incentives to engage in Research and Development to keep technology up to date/research new products.

Higher prices: Intel might be experiencing X-inefficiency which leads to higher costs – without competitive pressures on profit margins, cost controls may become lax. The result may be overstaffing and spending on prestige buildings and equipment. Also, since Intel has a certain degree of monopoly power, it can raise the price of their chips and consumers either pay or go without the good as they cannot turn to other alternatives.

"Some of you know enough to agree with me," he closed. "Some of you do not know enough yet to decide. But all of you should agree on this: There are serious issues about the microprocessor market that need to be examined without taint of politics or ideology. Your devotion to the enforcement of antitrust law makes you ideal candidates to assume this responsibility. Not for me. Not for my company. But for the values for which you strive - competition, choice, consumers."

----------------------------------------------------------------------------------------------

I think Intel made a wrong move by engaging in exclusivity deals with retailers. This clearly violates antitrust laws, and creates a negative view of Intel as an abusive monopoly. Respected independent sources and benchmark tests have clearly reflected that Intel's chips remain superior in the microprocessor industry. Furthermore, the introduction of the 45nm chips (refer to mingwei's post) provides Intel with greater product superiority as compared to AMD. Core 2 Duo has remained the dominant line of microprocessor production, and the launching of Quad 2 Core and Core 2 Extreme chips further seals Intel as the leader in the microprocessor industry. On the flipside of the coin, AMD should stop crying wolf and re-group, go back to the drawing boards, and figure out how they are going become a competitor again. Looking at their history, AMD shot themselves in the foot and all the while Intel was a mere bystander to the situation. Maybe it is time for AMD to lay everything on the line again like they did with the Athlon 64, for without which, we would still be stuck in the 32 bit world.

Alton Chang (:

Singapore's Telecom Liberalization Draws ATT, MCI WorldCom and Other Global Players Singapore, 3 April 2000 For Immediate Release


1 AT&T, MCI WorldCom, and Deutsche Telecom were among the 37 companies awarded licenses to set up telecommunications operations in Singapore. The licenses grant these companies the opportunity to offer a range of services, from provision of network capacity to international calling card services and Internet exchange services. The licenses were awarded by the Infocomm Development Authority of Singapore (IDA).

2 In January, the IDA announced the opening of full competition in the Singapore telecommunications market to take effect April 1, 2000. Dubbed by industry as Singapore's "big bang" in telecommunications, the liberalization will also see an addition of about 20 Internet access service providers and 20 operators offering international simple resale.

3 "To become the region's leading communications and information technology hub, Singapore needs a globally competitive telecommunications market where many service providers offer a range of innovative, high quality and cost effective services," said Mr Yeo Cheow Tong, Minister for Communications and Information Technology. "The earlier introduction of full market competition will strengthen our competitiveness and help position Singapore as the choice location in the region for key infocomms players."

4 Singapore is a strategic market in Asia's high growth telecommunications market. There are more than 5,000 multinational companies operating in Singapore, and a majority of these use Singapore as a significant base for their regional activities. Given the strong interest expressed by major global carriers, more license applications from are expected over the next three to six months.

5 Singapore's Economic Development Board has been working with companies such as Exodus Communications, Telekonnect, ST Telemedia and Pacific Internet Exchange Corp (PIXC), all of whom have decided to set up data center operations in Singapore. Global One Communications has also chosen Singapore as its network access center for South-East Asia.

6 On the whole, the Singapore economy will stand to benefit from greater investments, infrastructure development and positive spin-offs to other sectors. It is estimated that the total investments arising from the new activities (excluding 3G mobile and fixed wireless investments) following the full market liberalization is close to S$3 billion (US$1.8 billion) over the next three years. Some 2,500 new jobs are expected to be created.


________________________________________
ISSUED BY CORPORATE COMMUNICATION DIVISION INFOCOMM DEVELOPMENT AUTHORITY OF SINGAPORE
________________________________________

About Infocomm Development Authority of Singapore


Above is an evidence that shows a real life example of additional firms into a nearly monopolize market. As seen from the highlighted portions in the text, more competition directly led to better quality in goods and services, also leading to more investments. Lastly, we can see that in this case, monopoly is not having better advantages as a market structure closer to that of an oligopoly as not only better goods and more investments are reaped, many jobs opportunities are created as well!



Ting Ting.

Intel Indicates Speedy 45nm Production Ramp, Shipments Crossover in Q3.

Over 8 Million 45nm Microprocessors Shipped – Intel’s Chief Executive



Despite of delays of quad-core microprocessors produced using 45nm process technology [1], Intel Corp. is on track with the 45nm production ramp up plan[2] and expects shipments volumes of products made using 45nm and 65nm fabrication technologies to crossover in the third quarter of the year.


“I did show that slide at the investor meeting and it shows a crossover [between 45nm and 65nm chips] in the third quarter and we are still on track to that and we are ramping as fast as we can. […] At this point in time, we’ve shipped in excess of 8 million units, so we are moving very quickly up the ramp curve,” said Paul Otellini, president and chief executive officer at Intel.


At present Intel has two 300mm fabs that produce chips using 45nm process technology – D1D in Hillsboro, Oregon, and Fab 32 in Chandler, Arizona. Two additional 45nm, 300mm manufacturing factories are scheduled to open this year in Kiryat Gat, Israel (Fab 28) and Rio Rancho, New Mexico (Fab 11x). [3]

The transition to 45nm process technology is important for Intel as it allows manufacturing higher performance Intel Core 2 Duo and Quad processors at relatively low price. [4] Moreover, successful ramp of 45nm fabrication process also ensures that Intel will be on track to ramp up manufacturing of microprocessors based on the next-generation micro-architecture code-named Nehalem. [5]


With more than 50% of Intel processors being based on the latest Penryn micro-architecture in the third quarter, the largest maker of microprocessors in the world will have even more competitive chips, which is a serious threat for Advanced Micro Devices, who only plans to add one more AMD Phenom processor into lineup (model 9950, 2.60GHz) in Q3 before starting its transition to 45nm later during the year.


Intel on Tuesday announced record first-quarter revenue of $9.7 billion, operating income of $2.1 billion, net income of $1.4 billion and earnings per share (EPS) of 25 cents. [6]


“Our first quarter results demonstrate a strengthening core business and a solid global market environment. We saw healthy demand for our leading-edge processors and chipsets across all segments. Looking forward, we remain optimistic about our growth opportunities as we continue to reap the benefits of our 45nm technology leadership [7] ,” said Mr. Otellini.


[1] It is widely believed that Intel purposely delay the shipment, as its rival AMD is not able to come up with processors that can compete with Intel’s lineup (performance and power consumption).
[2] As demand for the new processor surged, Intel has no choice but to increase its production and in turn increase the supply of processors to the market.
[3] Increase in the factor of production (fab plants), thus there will be technical economies of scale, as there will be a reduction in unit costs when the firm expands its plant size.
[4] As more processors can be manufactured from a single wafer, the cost price of a processor will be reduced. Intel will experience IEOS of Indivisibilities as they are able to utilize large machines efficiently. They are also able to spread the fixed costs over larger output levels, thereby lowering unit costs.
[5] As Intel continue their R&D, they will set up a high barrier of entry, preventing new firms from entering the processor war, and eliminate any chances of AMD catching up.
[6] As Intel has earned large supernormal profits, it can transfer its earning to R&D and advertising, to strengthen its leadership position in the market.
[7] As a large and dominant firm in the market, Intel will experience risk-bearing economies of scale, as it is able to predict future demands in the market. This means that they will bear lower risks and potential losses and thus lead to cost savings.

Mingwei

high oil price

i have just finished reading the article in Newsweek. Previously, we just hear that the oil price keep increasing, but we, at least me have never expected that the price will go up so high. OPEC president Chakib Khelil predtcts that the oil price will be up to $200 by 2010. The first question comes into my mind is that why the oil price keeps increase without stop?

of course, as we all know that oil is one kind of natural resources. It will face the problem of scarcity. Thus, due to limited resources, the demand of oil is very price inelastic. Also, more and more developing countries like India and China are focusing on industrial development now, the demand of oil also increase rapidly. As a result, the oil-rich countries in the Middle East can just raise the price of the oil without losing any customer but making much more profits at the same time.

However, the high oil price also brings many problems and changes around the world. Here are some examples. Developed countries like USA will turn to use alternative energies. Small fuel-efficient cars are getting popular among the Americans. On the other hand, the energy price is the main reason causing the food price inflation as energy is required during the food production process. I think so far, the poor people have showed their unhappiness to the issue of high food price by riots. I am afraid that if this situation does not get improved or keep getting worse, the problem of social unrest will also be worsened.

Besides the problem of food price, another effect i found interesting in the article is that the author thinks regionalisation will replace globalisation in the future. Due to the high oil price, the transport fee will also increase a lot. Thus, many developing countries like China will not be willing to transport goods to America any more because of high transport cost. Instead, China will be more looking at its neighbour countries like Japan which is much nearer than USA. As a result, there will be more regional business and development and the world may not continue to be flat any more. Wealth and benefits will also become difficult to share all around the world.

p.s. i do not manage to upload the article here...so sad:(

yingwei:)

USA SUBPRIME MORTAGE CRISIS: A VIDEO

Just thought we ought to know what's causing the economic downturn.

and here's where you can read all about it!
SUBPRIME MORTGAGE CRISIS ON WIKIPEDIA

It's not easy to understand I'll say as much!
But basically, somewhere around 2001 people began investing in property. By 2005, everyone was buying houses they don't need with subprime mortgages (meaning banks were lending money at interests rates higher than what is atypical) This sort of lending is risky for both lenders and borrowers due to the poor credit histories of borrowers (meaning they may not be able to pay the bank back at the end of the day!) People thought they could earn a quick buck by buying then selling in a few years.. well they were wrong! Because so many couldn't pay back their loans.. banks lost money, and houses were repossessed to be sold at lower prices (low demand, high supply) Banks make losses so the currency devalues!
THIS IS ULTRA-SIMPLIFICATION. THERE ARE MANY OTHER FACTORS. I MAY BE WRONG!
and quite irrelevant (Macroeconomics) but interesting right?

I mean how can you not at least TRY to grasp the gist of one of the biggest contributors to recession?
Afterall, economics is all about applying what you learn to current affairs!! (at least this is true for me... personally..)

Jingwei

Hope you all can see this.. I've never uploaded any photos onto blogger before! Sorry for the hideous colouring.. My scanner can't detect highlighting D: Anyway, this is a recent (Wednesday 7 May) article from TODAY (I know it's tabloid.. but it's also FREE! and delivered to my doorstep XD) about possible preventive measures for the expected economic downturn in Singapore.


Economic Concept
PPC! The whole point of attracting foreigners "particularly those with skills" and having "get more Singaporean babies" as No. 1 priority is so we can shift our PPC. "foreign presence is for the nation's long-term survival" Our economy can only develop further if we have more resources (human resource!). Another avenue for growth is "developing new capabilities and attracting mega projects..which create economic spinoffs" spinoffs like TOURISM (which means more business for retail and f&b and hotels. duh.) (:

It's been speculated that Singapore's economy is already nearing our PPC (maximum productivity) and this may be why we're experiencing inflation. Now I can't claim to know how this works exactly.. but it makes common sense no? When you max out on the production of something (meeting the limit) and everybody is going for the same good.. prices soar? THIS MAY BE HIGHLY INCORRECT! PLEASE DON'T QUOTE ME ON! DISPLAY OF PERSONAL IGNORANCE ONLY!
Disclaimer: PPC diagram is pure guesswork on my part. NO guarantee on accuracy!


Interesting Point
Here's an incentive for you to revise math! "financial industry..major employer in Singapore" Hahaha!
AND.. "Government can bring on projects" "if the domestic contruction industry slackens" hmm.. this might help with unemployment in times of recession (especially unskilled workers who will be hit the hardest) because new projects means there will be new jobs created!
Fiscal policy of "cutting taxes and boosting public spending" AS IF IT WILL MATERIALISE. We may know imposing taxes is ineffective but I personally don't see how the government would cut taxes.. We're talking about nearly a quarter of our country's GDP here! A slight decrease is enough to wound. Anyway we'll probably have to make up for it in another way (less subsidies for education perhaps?)


Word of the Day
wherewithal - the necessary means, especially financial means: didn't have the wherewithal to survive an economic downturn. (THIS I guarantee is accurate!)

Jingwei

Outsourcing of Jobs

Check out this parody of Walmart!



Okay, this is not really related to what we are currently doing for econs now. It's more of macroeconomics and about outsourcing of jobs.

Basically, due to the 'everyday low prices' policy at Walmart, or in fact many other supermarkets in America, pressure is exerted on American manufactueres to lower their prices. To cut costs, many American factories have moved their factories to places like China due to cheaper labour.

The end result is unemployment as factory workers lose their job. Not to mention as well the 'poor quality' of Chinese goods which many Americans complain about, as well as the recent scares of toxic traces detected in imported Chinese goods.

Just to highlight the amount of Chinese goods that Walmart is importing, statistics have also shown that if Walmart is a country, it would be China's 8th biggest trading partner (ahead of even Australia and Russia.

Finally, if these American manufactueres were to shift their factories back to America, it would create millions of jobs. However, would Americans really want to work as factory workers, given the low wages? Some analysts say some Americans will, as the jobs they are holding on to now (mostly as janitors or other low-paying jobs) offer even lower wages.

Also, if factories were to shift back, labour costs will rise, making goods more expensive. Would Americans complain about the high prices then? This is a question that has no definite answer.

-jensen