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Intel v. AMD: The joy of blood feuds

Intel and AMD hate each other. And that's great for customers, says Fortune's David Kirkpatrick.

By David Kirkpatrick, Fortune senior editor

(Fortune Magazine) -- Trying to disentangle the endless competing technical claims made by Intel and AMD about their microprocessors is like refereeing a shouting match in a high school hallway. "That is such bulls---!" said one company's spokesman when told of the other's arguments. "They're scared s---less, and they should be!" fired back someone from the other company.

That is what writing about computer chips has come to - figuring out who is least likely to be lying. But believe it or not, that's a good thing, because it means that real competition has finally arrived.

Intel CEO Paul Otellini

For two decades Intel (Charts) overwhelmingly dominated the business. AMD (Charts) was like Wile E. Coyote, repeatedly poised to deal a powerful blow but always confounded at the last second by the fleet-footed Road Runner (Meep meep!). In 2003, however, AMD finally found some dynamite that worked: the Opteron, a chip for servers that Intel couldn't match.

For about two years AMD held a clear performance lead, which enabled it to enlist all the major computer manufacturers as customers - first IBM (Charts), then Hewlett-Packard (Charts), Sun (Charts) and finally, last year, the longest holdout, Dell (Charts). Its market share in servers, which was approximately zilch when Opteron debuted, crept steadily up to around 22 percent by the end of 2006, according to Mercury Research.

Since servers are where the most money (and industry glory) is made in the processor business, this was a very big deal. Meanwhile, Intel embarked on a painstaking process of imitation and by last year, after much internal Sturm und Drang, the company concocted product that matched much of what AMD achieved with Opteron.

Then late last year Intel reestablished its speed cred when it trumped AMD and shipped a chip called Clovertown, the first microprocessor with four computing engines, or "cores." ("Quad-core computing" is impenetrably complicated. To understand how the two companies' approaches compare, you have to factor in not only raw speed, Intel's favorite measure, but also things like performance per watt of electricity used, to which AMD is partial. Suffice it to say that both chipmakers have their strengths.)

Intel CEO Paul Otellini pointedly declared in public that for Intel it was about "bragging rights." He got them. For the first time in several years Intel started regaining server market share and accelerated the process by radically lowering prices. That hurt Intel's margins - but also grievously wounded AMD, which started losing big bucks. Its stock plummeted; Intel's rose. It was struck another blow Monday when it announced it would fall short of this quarter's revenue guidance.

AMD, you'll be non-shocked to learn, hasn't just been sitting around waiting for the next flying head kick from Intel; it too has been tinkering behind the scenes. By early fall it will release its most important new chip since Opteron, the quad-core code-named Barcelona. Randy Allen, who heads AMD's server business, claims Barcelona's performance will be about 40 percent better than Clovertown's. Whether or not that's an exaggeration (outside experts seem to think it isn't), Intel will respond in due course. And then AMD will. Then Intel. AMD. Intel. And so it goes.

The consensus among customers and analysts is that the overall playing field is now, perhaps for the first time ever, truly level. AMD is here to stay. "These are two well-matched players on their game," says the respected processor analyst Nathan Brookwood. "Which is weird when you consider the far greater resources that Intel can bring to bear."

"Technically, we view AMD and Intel as peers," says Greg Papadopoulos, chief technology officer at Sun Microsystems, which will soon sell servers based on chips from both companies. "Intel has engineering depth. AMD has focus."

The surest sign that AMD had come of age was when Intel stopped pretending it had nothing to worry about - and began letting its animus show. At a big Intel technical show last year, for example, senior vice president Pat Gelsinger logged on to a computer onstage. A huge screen showed his password: I HATE AMD.

Do we have to separate these two? Absolutely not. The more the fighting, the better the chips. As far as customers - which means all of us - are concerned, happiness is a nice brawl.


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