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How AMD made Rs 10,000 PC possible

November 30, 2005 13:52 IST

Intel is a brand synonymous with microprocessors, the little chips that give computers the power to process data. And in technology markets with millions of independent consumers, if brand power and technical power get into a mutual reinforcement loop, it is quite some force. That's the 'Intel inside' story.

AMD, short for Advanced Micro Devices, is a brand synonymous with. . . nothing particularly, though it is a brand of chips to rival Intel's. And in an Indian market with millions of independent consumers, increasing numbers have been evaluating AMD's proposition with an independent mind. And they're beginning to bite in. Could this become an "AMD insight" story? Read on.

End of Intelopoly

The US-based AMD made its first tentative foray into India four years ago. And according to IDC data, it put its chips in as many as 15 per cent of the 3.5 million computers sold in 2004-05 in India (that includes desktop PCs, servers and laptops). The winning combination?

Aggressive pricing, technological innovation and quick expansion of distribution channels. Delhi-based Skoch Consulting, which tracks the market, expects AMD to have at least a fifth of the market by 2006-07 -- despite rearguard action from Intel to protect its flanks.

Ajay Marathe, president, AMD India, wants a bigger slice than that. "Our target is to grow two to three times higher than the overall market growth rate. We are looking at growing at 70-100 per cent, annually." That could mean over a quarter of the market by 2006-07.

Should Intel worry? AMD has been rapidly expanding its offer basket to include almost everything Intel offers. In fact, having secured its presence in regular computers, AMD is now aiming at the lucrative server market, just 76,000 units strong but worth $295 million last year. AMD wants a 30-per cent share of this segment.

For his part, Surendra Arora, director, Intel India, does not want to display any more concern than necessary. "Let the customer judge the value of Intel," he says.

In some ways, the AMD challenge in India is a reflection of the global market scenario, where the challenger has already grabbed over 40 per cent of the consumer desktop market and around 8 per cent of the server space (and has sued Intel in the US for the alleged use of strongarm tactics to keep PC makers in exclusive loyalty). But the Indian experience is not quite the same.

Price Value Flux

So what has AMD done in India? It has stolen the lead in taking the customer up the power curve. The technical story focuses on AMD's innovation in offering a 64-bit processor at roughly the same price of Intel's 32-bit alternative.

For the uninitiated, most PCs are loaded with 32-bit chips, which means they can process 32 bits of data every second. AMD's 64 bit offering is not only four times faster, it offers more Random Access Memory (RAM), the instant memory that is needed to perform various tasks while the computer is on.

That's part of a twofold strategy, says Marathe. First, score a technological edge with 64-bit chips, segment by segment (desktops in 2001, servers in 2003 and laptops in 2005), thus upstaging Intel's upgradation curve (it launched desktop 64-bit chips only in March, and for servers only last month, and has left laptops unattended).

And then, turn up the knob on the sales pitch. Its advice to customers has been simple: why opt for weak old technology when extra power is already within reach?

For the customer willing to listen to a story of finer algebraic detail, AMD has its "dual core technology" to talk about. This offers virtually two processors in one, which, working in conjunction, delivers more than twice the performance.

The brand's popular image, however, continues to be that of a price warrior. Chip to chip, AMD sells at list prices about 20-30 per cent lower than Intel, enabling PC makers to meet lower price points in the Indian market.

Listen to Ravi Pradhan, country manager, India, Via Technologies India, part of a Taiwan-based firm that has a tie-up with AMD to bundle processors with its chipsets. "Of course they're cheaper," he says, "without compromising processing abilities, and that is why many PC makers are using AMD chips to offer PCs at Rs 10,000."

The idea of this price point, the magic figure of Rs 10,000, is to touch off an explosion in volumes. To this end, AMD is also working with HCL Infosystems.

"Nobody is making money at this price," admits Marathe, "as all the vendors have reduced their prices to make it possible. But if you get demand of 5 million units, you can make money."

This is part of the "light computer" vision of networking the country with cheap lightly-loaded machines. These would be machines that are just adequate for internet surfing, but which can also draw on remotely located heavy resources if needed.

Selling cheap machines requires deeper market penetration, and for this, AMD intends doubling its channel partners to 6,000 (across 300 cities instead of the current 150) within the next 12 months -- which it claims would put it on par with Intel's distribution.

Intel's Composure

Intel, meanwhile, has not lapsed into complacency. "We will do everything to win back customers we might have lost," vows Arora, who remains alert to any possible threat to Intel's long-running dominance.

Among Intel's big starting advantages has been the calibration of its technology to suit the software made by Microsoft for Windows, the standard man-machine user interface (hence the term "Wintel monopoly"). Intel and Microsoft tend to operate in alliance, taking customers up the technology upgradation curve.

So, argue Intel supporters, what's the point of a 64-bit machine so long before Windows Vista comes out (scheduled next year) to make appropriate use of 64 bit processing? Says Intel's Arora, "We come out with products when the market is ready."

At the market's lower end, Intel prefers to talk of monthly-outgo affordability rather than product price points. Says Arora, "We are not looking at it as a Rs 10,000 PC, but as a question of affordability: how much does he have to pay per month as an EMI to own a PC?"

Through its 'My First Intel' scheme, the company has tied up with public sector banks to offer loans at rates as low as Rs 300 a month. It is working out deals for bundled offerings too. So price is not a very potent weapon in AMD's arsenal after all.

Moreover, as Skoch's CEO Sameer Kochhar sees it, the price edge gets blunt as you go from the Rs 10,000 level to mid-range PCs for around Rs 25,000, where a saving of about Rs 1,000 does not easily get a switch from Intel to AMD. And the price-point game can drain AMD of cash.

"They are in the bleeding edge of the market," says Kochhar, "those who want to make inexpensive machines buy AMD, they have a lead there but you don't make money. Their challenge is to move up the value chain."

But in the server market, AMD is finding the going steep, according to market watchers. Intel's relationships with corporate and government bodies are proving quite durable, though government contracts no longer specify Intel supplies.

So, realistically speaking, can AMD pose more than a perfunctory challenge to Intel?

Marathe is convinced it can. He explains the server segment's poor showing so far, for example, as an issue of selling a product suited to Indian market peculiarities. The machines used in India as network servers tend to be upgraded desktops.

"We did not have a product here earlier. Intel was selling Pentium 4 in this market. But now we have introduced the Optron 100, which is a server-grade processor, and reliable -- with a price tag similar to a desktop's."

While Intel has good reason not to be daunted by AMD, perhaps the most interesting part of the story lies ahead.

As a brand, AMD has been uncertain of itself. Now it is slowly shedding its popularly held image as a price warrior in favour of a nicely differentiated value proposition. This should be interesting to watch. But can it combine a genuine market insight with its "dual core" advantage to set the mutual reinforcement loop into motion?

Surajeet Das Gupta