AMD is going to ‘Celeron’ Intel’s Xeon line later this year and there is nothing Intel can do about it. SemiAccurate was quite impressed when we heard about this plan, it shows AMD is really maximizing their resources.
You might recall that in the distant past, in the era before Covid-19 and AMD’s Epyc CPUs, Intel’s Xeon was an outsized profit generator for the company. Depending on what year you looked at, Xeon would typically sell about 10% of the units and generate >30% of the profit for Intel. This profit allowed the company to beat AMD down on price at the lower end of the market where the post-Opteron products had to play.
Intel would use pricing on the low end of the market to suck any oxygen out of AMD’s revenue stream. When you can effectively subsidize everything you make that has direct competition, you can easily price that opponent out of the market. Any loss of margin in this sector can be made up by turning the screws on the high end where you have an effective monopoly. Depending on your point of view, this is either very smart business or cynical exploitation of a monopoly.
That was then, this is now, and the tables have turned somewhat, AMD is the clear leader in most slices of the market that they play in. On the server side, AMD can offer 2x the performance that Intel can and do it at less cost. The only constraint on their growth is wafer supply, something that is rapidly easing. If AMD is constrained to the point where they can only supply a percentage of the market, other than raising prices, how can they price Intel out?
AMD is somewhat constrained on pricing too, if they raise ASPs too much, their TCO advantage goes away and the pressure comes off Intel. If they keep prices too low, Intel feels the pain but they do too. Other than sending Morris Chang at TSMC large bouquets of flowers and chocolates that spell out, “please give us more wafers”, what can AMD do? With Milan, AMD came up with something really clever that should put Intel in a very painful place when it comes to server pricing.
Note: The following is analysis for professional level subscribers only.
Disclosures: Charlie Demerjian and Stone Arch Networking Services, Inc. have no consulting relationships, investment relationships, or hold any investment positions with any of the companies mentioned in this report.
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