A Chip Off the Monopoly Block

What Xerox did with photocopying machines and Cadbury’s with chocolate bars

in India, Intel has done in recent years with the insides of a PC–primarily

chipsets and processors. The brand linkage has been so strong that Intel has

become synonymous with the product category itself. And there’s no disputing

that the Pentium brand signifies the generic term–processors, and the only

ones that come to a PC purchaser’s mind.

But Advanced Micro Devices has taken upon itself the task of changing all

that, and chewing its way into Intel’s market monopoly. It’s a tall order,

but AMD has already made some headway. Intel’s headstart–it started

operations in India in the late eighties–helped, but AMD’s new-found

aggression seems to be doing the trick. Consider this: AMD kicked off its India

chapter only in March 2001, and closed the year with a marketshare of 2%. Today,

AMD boasts a 11% marketshare in India, against Intel’s 77% (DQ estimates).

In the early days of computing in India, some 386s and 486s ran on AMD

processors. But Intel’s launch of the Pentium chip in 1993 changed all that.

Not just home consumers, IT heads across enterprises and newly-aware PSUs all

wanted their slice of IT and PCs–and inside those PCs, they wanted the

Pentium.

So how does one go about breaching Intel’s fortress? We decided to ask AMD–it’s

been trying hard enough. Clearly, the cards are stacked in Intel’s favor–it

has a headstart, far deeper pockets and far stronger marketing muscle. AMD,

meanwhile, compares well on technology and fares better on price. With its

recent deal with distribution giant Tech Pacific–Tech Pac will now sell AMD

products–the latter is likely to put up a better show on availability too.

Recently, in August 2002, AMD appointed Hagemeyer India Pvt Ltd–a

distributor of semiconductor components–as its new national distributor for

India. Hagemeyer, in turn, appointed Tech Pacific as its sub-distributor.

However, Tech Pacific will essentially function as the national distributor for

AMD, notwithstanding the nomenclature.

Prior to this new alliance, AMD had been selling in India through

distributors like Avnet Max, BBS Electronics and Intraco Technologies, with

Avnet being based out of Hong Kong and the latter two in Singapore. And as none

of these distributors had warehousing facilities in India, AMD’s processors

could be bought in India only against dollar payments. Now, the AMD line will

not only be available against rupee payments, but will also be stocked locally.

The impact of ready availability is already being felt–resellers and VARs

(value-added resellers) are already showing far greater interest in AMD.

The main hurdle for channels of quick replacement and replenishment of

spares, will be solved too. The earlier arrangements meant that tier 2 and 3

channel partners were not protected against AMD’s price fluctuation and the

channels were losing money in the process. With Tech Pac as a Tier 1

distributor, this too should change. "Besides, Tech Pac’s extensive

network will ensure penetration across A, B and C class cities," points out

AMD country manager Sanjeev Keskar.

	"The AMD brand is known globally, second only to Intel in volumes. Tech Pac has the experience to manage competing brands. We can do the same with processors"
K Jaishankar chief executive officer, Tech Pacific

With Tech Pac’s appointment, AMD has four distributors, eight master

resellers and over 1,200 resellers in the country. On the OEM front, AMD has

built alliances with Vintron, Wipro and global major HP.

A $3.9-billion company (revenues in calendar 2001) globally, the company has

14,000 employees worldwide. India is one of the three key markets identified by

AMD worldwide, besides Latin America and China. The company’s key products

include the Athlon range — as against Intel’s Pentium (the Athlon XP

processor was launched in India in November 2001), pitted against Intel’s P4

in the performance segment and the Duron (pitted against Intel’s Celeron) in

the value segment.

The company has announced its plans to globally launch the AMD Opteron, its

64-bit processor in Q1 of 2003. The product would be simultaneously available in

India. The new processor, AMD Opteron, is based on the eighth generation

processor core and will be made available for desktops and servers.

A leaf from the Intel book



Having maintained a low profile so far, AMD is now making fresh attempt to

eat into Intel’s share of the market, though given Intel’s stronghold in

India, it is a difficult proposition. However, there are rumblings of discontent

on the low and in some cases, negative margins Intel is said to be offering its

channel partners. Channel partners agree that there is little room for profits

in the Intel business, but the brand acts as a big draw for customers who then

end up buying the other products offered by the company. Tech Pac too, is said

to have moved over to AMD for primarily this reason and market sources state

that Tech Pac’s pact with Intel remains only on paper. Tech Pac incidentally,

asserts that it continues to be a distributor for Intel, as of now, attributing

AMD’s "addition" to its portfolio as a result of its "constant

scanning the market for new vendors so that customers can buy all their IT

hardware and software requirements from one source."

"AMD is a significant global brand in Processors and is second to Intel

in volumes globally. We have considerable experience in managing competing

brands in our business and are sure that we can do the same in CPUs," says

Tech Pac CEO K Jaishanker.

The Eight-Point Comparison
Intel			AMD
	First-mover advantage–in India since the late eighties			Started India operations only in mid 2001
	Indian operations on a firm footing			Indian operations at a nascent stage
	Stronghold on mind and marketshare			Grappling with the issue of brand awareness and marketshare
	Hefty ad and marketing muscle			A fraction of Intel’s advertising muscle, but growing
	Highest clockspeed			Only talks performance, not frequency
	Premium prices			Prices about 10% lower
	Extensive channel network, partners are well-trained			Still building up up channel network
	Viewed as a trusted brand for spares replacement			Training programs taking shape

But the buzz is that the reason for discontinuation is that it is difficult

to make money on the distribution of Intel CPUs. Tech Pac is a significant win

alright, but AMD has no plans to rope in any more distributors for fear of

"over-distribution". Ingram Micro has also clarified–it has no plans

to sign AMD." "As Intel’s largest distributor in the world our

partnership with Intel continues to be focussed and growing. Intel and Ingram

Micro will work towards maintaining the leadership position established in the

market," says Ingram Micro chief operating officer NY Prasad.

So how does Intel plan to curb AMD’s intrusion into its space? Refusing to

comment on AMD as a matter of policy, Intel’s Amar Babu maintained that the

company had not lost any marketshare. "We believe that we have a strong

product roadmap and the best solution for our customers / channel partners. Our

2000 partners across the country continue to support us the way they have been

all these years" he said. Babu’s confidence is not unfounded.

	“We’ve strong product lines and solutions for customers and channel partners. Our 2,000 partners continue to support us the way they have done all these years”
R K Amar Babu general manager (channels), Intel

Says Saket Kapur, CEO, Computer Vision, "Governments and corporates are

extremely particular about buying Intel-based machines alone. It is the SOHO and

small enterprises that depend largely on system integrators for guidance, and

this may tilt towards AMD in due course. But in 365 days, I may just come across

two or three customers who ask for AMD, basically computer-savvy kids–otherwise,

it is the Pentiums all the way."

Fortune Marketing managing director Manoj Gupta explains that he stopped

selling AMD-based machines after incurring heavy losses. "AMD-compatible

motherboards are not available locally and one needs to maintain special

inventories for these CPUs and motherboards. Obsolescence is very high and

re-exporting is a very expensive option."

OA Compserve’s marketing head Gurjit Singh too relates how he burnt his

fingers, but stinging him was AMD and it’s lack of OEM backup. "Once the

AMD processor-based PC is sold, there’s no one to take the onus for

after-sales obligations.

OEMs do not support the distributor and distributors come up with ad hoc

policies to wriggle out of any situation." Against this, Singh explains

that the compatibility (with any motherboard) and reliability never have been

issues with Intel processors.

Redefining technology



Even as AMD tackled its distribution problem with the Tech Pac win, a

base-level paradigm shift attempted to take on Intel on the technology front.

Interestingly, AMD had engaged in a much-hyped MHz war with Intel last year,

which culminated in Athlon reaching the 1-GHz mark first. But by December 2001,

AMD turned MHz-shy–it launched the ‘True Performance Initiative’, which

reiterates that the clockspeed of a CPU is no relevant measure of its

performance, and that application performance is what cuts the cake. Intel,

meanwhile, talks raw speed and GHz all the way. So which way does the consumer

turn?

Way to go



To begin with, what does AMD want to be seen as–a cheaper alternative?

"No way," says Keskar, asserting that AMD is "not just about

price but all about better performance at a lower price." In any case,

channel players like Fortune Marketing’s Manoj Gupta say if AMD were to play

the price game alone, it would lead nowhere–its processors, coupled with

motherboards from reputed companies like ASUS, cost nearly the same as Intel’s.

And if the idea is to cater to a price-conscious buyer, there are cheaper

options too.

Plans to target the enterprise market and make a dent in the mobile devices

segment are afoot. But first, a strategy for channels, because the ‘white box’

market contributes to more than 50 per cent of the PC market in India. Keskar

outlines the company’s channel strategy, which aims to serve each level of the

channel network. System integrators for instance, are given the complete AMD

kit, assured RMA (Return material authorization) and provided sound technical

training. System integrators who succeed in the online testing and training

program are awarded a ‘silver certification’ by AMD. In December 2001, the

company held roadshows in 21 cities and tied up with Microsoft for its Windows

XP and PowerOffice launches.

A major win has been getting Director General Supplies and Disposal to clear

AMD processors for PCs the Government intends to buy. Right up to June 2002,

government tenders would specify that OEMs with Pentium machines alone could

apply. The support of the IT secretary, persistent efforts at lobbying, and

submitted samples finally paid off in altering this.

AMD recently won a contract for 3,000 PCs from Wipro for the Maharashtra

government.

It is, however, a path well-trodden by Intel. Channel partners like Kapur ask

what’s new, "Intel’s been there, done that, do something radical."

OA Compserve’s Singh sees the Tech Pac deal as a "last ditch

attempt" by the company to raise its head in India. He says: "Intel

needs competition. With AMD finally getting tough, it’s got some."

Manjiri Kalghatgi In New Delhi