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Take Your Capitalism and Shove It

Sometimes I am extremely angered and frustrated by the wonderful invention we call capitalism. We all recognize capitalism, but do you really know what it means? It's essentially the type of economic system in which the means of production/distribution are privately/corporately owned. Thus everyone wants some benefit to their investment and therefore we have self-interest. We compete for business which results in money. In the end, it's that money that drives the whole system. The acquisition of more money means more control, which in turn, means more ways to acquire more money. It's a never ending cycle that favors the strong and makes the weak weaker. That's why you see the ever-widening gulf between the poor and the rich. It is what we have decided more or less as a society is the best way to run our lives; the endless quest for money.

So obviously competition and power comes with this system. You win as a competitor and you grow stronger which means you have more resources with which to compete and thus makes winning easier and so forth. As a result you get companies like Microsoft, AT&T and Xerox. AT&T was forced to split into seven 'baby bell' companies while Xerox was forced to license its copier patents. These two companies were affected long ago while Microsoft is still a topic of much grief these days. I won't bore you with the intricacies of that one, but a quick stroll to your favorite search engine will net you thousands if not millions of articles. So it would appear that you can't actually 'beat' your competitors or there would be none. Getting interesting already? We have a system that stresses the art of competing and usually we compete to win, but nope, sorry, you're not allowed to in this instance. You have to compete but never actually beat the competition. You have to compete to keep the other guy in the market. Seems somewhat self defeating no?

So what do we define as a monopoly? In the truest sense of the word, it means a market or commodity is 100% controlled by one group. Of course, we rarely have that happen nowadays so we move on to the very vague term of 'monopolistic practices'. That basically means you're not a monopoly but you're close and you act like one. You use 'unfair' competitive practices to force smaller firms out and you retain your iron fist rule over your domain.

So where am I going with all this?

There's a large lawsuit brewing right now between two companies right. You're 98% guaranteed to be using either one of their products right this instant. They make the 'brains' of our computers, the Central Processing Unit (CPU for short). The companies are Intel and AMD. Now you've probably heard of Intel before. After all, the Intel brand is the 5th most valuable in the world coming in above McDonald's, Nike, Disney or Mercedes. On the other hand is AMD which makes CPUs that are arguably more technologically advanced than Intel's Pentium line. You can read more here: AMD vs. Intel

So what's up with the lawsuit you ask?

Well, AMD has files the suit citing Intel "...has unlawfully maintained its monopoly by engaging in a relentless, worldwide campaign to coerce customers to refrain from dealing with AMD." Ok so first off, Intel doesn't actually maintain a monopoly. It's close at 80%+ of the microprocessor market, but not a monopoly by any means. The main backing for this case is that Intel has used practices that are anti-competitive which have kept AMD's success in check. Allow me to give you a bit of a background:

AMD could never break above the low 20% market share it held back in the heydays of the K7 processor in 2001. Now it's sitting fairly stably at around 17%. And they’re getting frustrated.

"We deserve to have a significantly larger share of the market than we currently have. By any measure we should be participating at a significantly higher number, and the only thing that is keeping us from achieving those numbers are the illegal, monopolistic practices of our competitor." Those are the words from Hector Ruiz's mouth, chairman, president, and chief executive of AMD. To me that sounds like the complaining of a 5 year old kid who isn't getting that toy he wants. May as well throw in phrases like 'the evil monopolistic entity' or 'scheming forces led by the dark Intel masters'... It would add more drama to the already over exaggerated images AMD is trying to create. I mean, the reason AMD doesn't have a larger market share wouldn't have anything to do with that fact that your competitor [Intel] spends hundreds of millions of dollars on advertising? Not even a little bit? While you spent how much?... Oops, that’s right, almost nothing... Sorry but you lose. Here, it's even in their own document. They even admit Intel has much more advertising power...

"33. Through its economic muscle and relentless marketing – principally its “Intel
Inside” and “Centrino” programs which financially reward OEMs for branding their PCs as Intel machines – Intel has transformed the OEM world."

What has Intel been accused of doing? They're giving rebates to customers who buy the large majority of their chips from Intel and brand their computers as Intel powered. OoOoOoO... Ever heard of volume discounts, or of competition for that matter? A company like Dell requires a very constant and large supply of CPUs to avoid supply shortages and related issues. Intel with its 11 fabs (factories for producing CPUs) has the capacity to satisfy the large volume customers. AMD with its 1 (that’s one) fab does not. So if Dell needs a large number of chips and AMD says 'Well we can supply about 50% of your computers but we can't guarantee which chips you'll get depending on our defect rate for that time period.' It just doesn’t sound very reassuring. Intel on the other hand says, 'We'll provide 100% of your chips and we'll give you a rebate for it, will you go for us?' I don't think Dell has much grief or option for that matter. Plus Dell would then have to develop two platforms for their PCs. That would cut into the efficient system they have built over the years. That system has allowed Dell to essentially beat the crap out of the other PC makers. Dell has hinted that it would use AMD chips on occasion; however it is heavily speculated that they merely do this to get a better bargaining position against Intel. Even if Dell wanted to switch to AMD, they probably couldn't efficiently.

Rebates for exclusivity are not uncommon in the technology market. Many companies such as IBM have been known to give out better deals for customers who are willing to purchase from them solely. I'd view it as more of a competitive than an anti-competitive practice. Technically bribing and other forms of payoffs are illegal in the system. However it will be a matter for AMD to prove that these are indeed payoffs Intel is giving to customers as opposed to very legal discounts. In addition, bribing and that sort of corruption is so rampant in the industry that it's enforced about as strictly as jaywalking.

So what is AMD trying to get from all of this? To many, this is a marketing technique. AMD doesn't have the money to advertise like Intel does. With this lawsuit, it gets a great deal of basically free advertising as well as making Intel out to be the 'big, bad bully'. The whole legal document they're putting in front of the court is strewn with self back-patting and technological mumbo-jumbo. It sounds more like a product launch platform than a law case. I hope the judge has a nice degree on the background of computer history and architecture... To give you a few examples, the lawsuit is filled to the brim with PR gems such as:

"6. Consumers ultimately foot this bill, in the form of inflated PC prices and the loss
of freedom to purchase computer products that best fit their needs. Society is worse off for lack of innovation that only a truly competitive market can drive."

"19. The computing industry hailed AMD’s introduction of 64-bit computing as an engineering triumph. Said Infoworld in its August 27, 2004, issue,

'You just gotta love a Cinderella story. . . . AMD’s rapid rise
from startup to $5 billion semiconductor powerhouse is, as
Humphrey Bogart’s English teacher once said, the stuff of
which dreams are made. . . . In the process, AMD has
become known as the company that kept Intel honest, the
Linux of the semiconductor world. . . . After decades of
aping Intel architectures, the AMD64 architecture, rooted in
Opteron and Athlon 64 processors, has actually been
imitated by Intel in the form of Nocona, Intel’s 64-bit
version of Xeon. In a stunning reversal of fortune, Intel was
forced to build that chip because Opteron was invading a
server market that the Intel Itanium was supposed to
dominate.
'

In what represented a paradigm shift in the microprocessor world, Microsoft endorsed AMD’s 64-bit instruction set and announced that Windows would support it. As noted by Infoworld, Intel then copied AMD’s technology for its own 64-bit offerings – an event that poignantly marked AMD’s technological emergence. Intel still has yet to catch up."

"20. AMD has since extended its AMD64 technology to the balance of AMD’s
microprocessor line-up (which now includes AMD Athlon 64, AMD Athlon 64 FX, Mobile AMD Athlon 64, AMD Sempron, and AMD Turion64 products). Owing also to AMD’s pioneering developments in dual-core processors and its introduction of an improved architecture that speeds up microprocessor communications with memory and input/output devices, AMD has seized technological leadership in the microprocessor industry. Its innovation has won for it over 70 technology leadership and industry awards and, in April 2005, the achievement of being named “Processor Company of 2005” at, to Intel’s embarrassment, an Intel-sponsored industry awards show."

I mean honestly, what's with that kind of BS in a court document? It's pretty clear what AMD's trying to do here. They're trying to promote themselves and their products...

I'll tell you the truth. I don't mindlessly think Intel is all good and all giving. It definitely has done things that in the grey zone or even in the black zone in terms of competition. It has done some strong-arming. But that is the result of our capitalistic world. AMD is blowing everything extraordinarily out of proportion and many of their claims will more than likely be slammed down in the courts. But they will have their publicity. In the end we seek money. That is the basis of this AMD suit. They have not named any monetary sum they're seeking, but numbers like 2, 3 and 4 billion dollars have popped up. While not too large of a sum for Intel (who has $16+ BILLION stashed away) it is a huge amount of money for AMD which is valued as a company at slightly over $8 billion. In addition AMD has chosen a prime time for the lawsuit. It has just recently inked several deals which will provide it more manufacturing capacity. Also their second fabrication facility is due to come online in 2006. This means it will suddenly have the ability to produce more CPUs. Thus they will at least be able to supply the growth in customers they hope to get from this case.

It may sound as though I'm biased towards Intel and I won't shit you, I am. I believe that, while they haven't been 100% legal in their practices, Intel has not even been the main, much less the only reason behind AMD's lack of success, which it claims. I think AMD is genuinely frustrated by their lack of success even though they (and even I) believe their technology is superior. I mean I friggin bought an Athlon64 system. But I got it because I do my research and analysis beforehand. Average Joe out there isn't going to know the benefits of the HyperTransport Link or an Integrated Memory Controller. The guys trying to sell you those computers out at FutureShop, BestBuy, Circuit City, etc, don't even know wtf they're selling usually. But we have to remember that in the days of the consumer, things don't necessarily sell if they're 'technologically' superior. Compared to Intel, their marketing and advertising is absolutely pathetic. That is their main problem. AMD has the right to be frustrated. I would be too if I couldn't gain a bigger toehold in the market. But to resort to a lawsuit I'm sure isn’t the most moral way out. But who said morality has any part in capitalism. ;-)

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Blogger Kailea wrote at 7/27/2005 1:10 PM

Hey Charlie,
It's a good thing I have you around to teach me interesting things like that. A feel smart just reading your stuff...
Love, Kailea    



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