Intel still convinced two brains better than one

When Intel launched its first dual-core processors, it hired Carl Reiner, the comedian who directed The Man With Two Brains, to bring some levity to the ever so technical presentation.

His message was simple: these chips performed better because they had not one brain but two.

But the plot could equally be an allegory for the choice PC makers have faced between Intel and its microprocessor rival Advanced Micro Devices.

In the film, brain surgeon Michael Hfuhruhurr, played by Steve Martin, has to decide between keeping the brain of his beautiful but self-centred wife in her head or transplanting it with that of a kindlier soul pickled in a jar in the laboratory of a brilliant scientist.

In the end, he opts for the latter course.

The PC industry has been married to Intel for better or worse since it invented the microprocessor in 1971. But over the past two years, AMD has held a performance and innovation edge that has seen it gain a new level of credibility and market share. The choice for OEMs (original equipment manufacturers) between which brain should sit on their computer’s motherboard has become more difficult as the pace of innovation by both sides has quickened.

Intel and AMD have close to 100 per cent of the market for the x86 processors that dominate the industry, with Intel chips traditionally finding themselves in more than four out of five PCs.

But the nimble and innovative AMD has made inroads, particularly in the server segment of the market. It took more than 27 per cent of the total PC market in the first half of this year, up from 18 per cent a year earlier, according to Mercury Research.

“I would say it’s more of a pitched battle now,” says Roger Kay, analyst at Endpoint Technologies.

“For a while it was more about Intel controlling the game and I thought AMD was a sparring partner – some company that Intel would allow to gain a bit of share if it looked as if the [anti-trust] authorities were getting anxious.

“Then when they weren’t looking too closely, they would beat them up.”

That was certainly the perception of AMD when it filed a major anti-trust lawsuit against Intel in June last year. It alleged that its bigger rival bullied big customers into buying exclusively from Intel and made rebates and incentives conditional on shunning AMD products.

“I believe the day of reckoning is coming,” says Hector Ruiz, AMD chief executive, although Intel has succeeded in getting the case postponed until 2009. “The goal is to stop Intel abusing its monopoly.”

He admits that AMD would effectively break any monopoly if it could reach 30 per cent market share. It got a big boost this year when Dell, recently toppled as the largest PC maker by HP, agreed to start using its processors for the first time.

Dell had been suffering for sticking solely with Intel while its rivals were using AMD’s better-performing server processors. But it started to use AMD chips just as Intel was regaining the advantage.

Roger Kay says a strong AMD helps PC makers drive a better bargain from both processor makers “The OEMs are getting a great opportunity to second-source. Dell is saying this is a long-term relationship with AMD, where the performance crown will trade back and forth over the next few years.”

Intel has had one of its toughest years financially, with falling market share, inventory problems and a price war with AMD forcing revenues down after three years of double-digit growth.

Paul Otellini, chief executive, has ordered a restructuring that will cut its workforce by more than 10,000 or about 10 per cent.

But technically Intel has excelled – moving from single core to dual and, last month, quad core processors that experts say have helped it regain its performance lead. “Coming off a pretty ugly ’04 and ’05, this thing is firing on all cylinders,” says Pat Gelsinger, a senior vice president at Intel.

“Everything’s ahead of schedule and we have re-leased over 40 new processors this year.”

AMD is also trailing Intel in manufacturing efficiency, with Intel making processors with narrower 65-nanometre circuits in high volume while AMD is still six months away from getting up to full speed on these cheaper chips.

“AMD are a year behind our cadence and if you think they are going to win the race to 32 [nanometres] or 24, you’ve got to be nuts,” says Mr Gelsinger.