Abstract

Intel Outmaneuvering Competition

Formerly, CPU speed increased steadily due to Intel's advanced production process technology; however, such increases in speed are encountering certain obstacles. The main restriction on CPU speed is clock frequency during actual operation: increases in clock frequency result in large amounts of thermal energy, which ultimately hinder computer system stability, add to heat dissipation costs, and exacerbate energy consumption.

Intel's adoption of Hyper-Threading Technology will have a significant impact the development and competitiveness of future CPUs. The launch of this technology is the first time Intel has emphasized that improvement in CPU performance does not necessitate increases in clock frequency; Intel has long focused on clock frequency in the company's competition with AMD.

There has been no major revolution in software applications over the last few years. While increasing CPU speed may help to boost competitive advantages within the CPU industry, it does not do much to stimulate market demand. Intel's promotion of Hyper-Threading Technology will ensure that future competition in the CPU industry will be focused on performance and quality rather than clock frequency, and also indicates Intel has accepted that increasing clock frequency is unlikely to stimulate market demand at present. Future PC key component production will focus on adding CPU functions such as integrated Hyper Threading and integrated wireless LAN to boost differentiation. Software companies would subsequently be able to exploit added CPU functionality to develop innovative new applications, which would then stimulate PC demand.

Intel's strategy shows that the company is starting to undertake more precise segmentation of CPU utilization, as is exemplified by the development of the Banias CPU targeting the mobile PC market. Intel's strategy poses a threat to competitors; companies such as AMD do not have the resources needed to develop a wide range of CPUs for different uses. At the same time, Intel's strategy will continue to raise the entry barriers of the mobile PC market, which holds especially high growth potential.

In the desktop PC market, large volume shipments of AMD's next generation Claw Hammer will not begin until the second half of 2003. With Intel continually launching new CPUs, AMD's Athlon will gradually be forced out of the medium and high-end market and into the value-line market before mass production of the Claw Hammer begins. Duron may be forced to withdraw from the market altogether as prices are being pushed down below cost. Although the value-line market is well suited to AMD's products, low profit margins will affect AMD's competitiveness and reduce the resources available to AMD for the development of new products.

Average Unit Price Will Continue to Fall

Although Intel will be launching new chipsets in the fourth quarter of 2002, prices will not be very high. Additionally, Intel is still trying to liquidate inventories of old chipsets, such as the 845S. Finally, first tier motherboard manufacturers have been reducing prices to take market share away from second tier makers. It is therefore anticipated that the Greater Chinese motherboard industry's ASP will continue to fall in the fourth quarter.

Furthermore, no significant increase in ASP is anticipated over the coming 12 months, mainly because the Pentium 4 will remain the mainstream product over the coming year. With motherboards having reached a high level of maturity, the price of components will fall. Most of the first tier manufacturers have profit margins of around 10% to 14%. Given the limited growth of market demand first tier manufacturers will focus on seizing second tier market share; prices could thus fall yet further.

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