July 18, 2005
AMD sues Intel
Please note that contributed articles, blog entries, and comments posted on EDACafe.com are the views and opinion of the author and do not necessarily represent the views and opinions of the management and staff of Internet Business Systems and its subsidiary web-sites.
Jack Horgan - Contributing Editor


by Jack Horgan - Contributing Editor
Posted anew every four weeks or so, the EDA WEEKLY delivers to its readers information concerning the latest happenings in the EDA industry, covering vendors, products, finances and new developments. Frequently, feature articles on selected public or private EDA companies are presented. Brought to you by EDACafe.com. If we miss a story or subject that you feel deserves to be included, or you just want to suggest a future topic, please contact us! Questions? Feedback? Click here. Thank you!


Large companies generally have a broader product portfolio than smaller possibly niche players. This enables them to offer bundles of products and services at prices that smaller players can not match when their products are bought separately from multiple suppliers.


Major manufacturers and retailers are also major purchasers of products and product components. These large firms will naturally seek to leverage their purchasing power to obtain favorable pricing and T's and C's. A customer would expect to pay less per unit for 10 units than 1 unit and considerably less for 100 unit. The larger customer would also expect more in the way of service (installation, training, customization, technical support). As an aside CRM vendors often tout the ability of their software to identify unprofitable customers who frequently are among the largest customers but of course there is the network or drag impact.


In November 2004 Frontline did a segment on Wal-Mart whose business model is based upon attracting customers by offering the least expensive products. In particular they recounted the relationship between Wal-Mart and RubberMaid, the leading producer of rubber products for the home. RubberMaid had a great reputation for high quality at reasonable prices. It had been named America's most admired company by Fortune magazine in both 1993 and 1994. The firm began to sell products to Wal-Mart. Over time Wal-Mart became its largest customer. When the price of its raw materials rose dramatically, RubberMaid needed to raise its prices. They went to Wal-Mart to arrange for a pass through of
its increased cost. Wal-Mart refused to accept the new prices and dropped many of RubberMaid's products. The loss of Wal-Mart as a major customer led to the demise of RubberMaid. The squeeze on prices has forced many Wal-Mart suppliers and Wal-Mart itself to increasingly turn to China as a source of products.


The issues presented in the previous paragraphs demonstrate that a dominant supplier by virtue of that dominance has considerable advantage over smaller competitors. One can add to that aggressive marketing and sales practices. The question becomes at what point that supplier's actions crosses over the line into violation of antitrust laws.


In a speech in February Deborah Platt Majoras, FTC Chairman, said
“In the crucible of the marketplace, companies may succeed by beating their competitors in price or quality, and perhaps even driving them out of business. In most instances, such market results are and should be perfectly legal. We focus on protecting competition, not competitors. It is only when firms seek to “stack the deck,” by taking actions outside the realm of competition on the merits, that the antitrust laws must be invoked. “Free” market does not mean free of responsibility.”
Does a monopoly harm consumers or the general public?


Those who believe the answer is yes argue that monopolies can charge higher prices, crush potential competitors and stifle innovation in efforts to retain their monopolistic position. Those who believe that the answer is no argue that history rather than theory proves that these fears are unwarranted. Leading companies recognize the potential of disruptive technologies and therefore invest heavily in R&D. Remember Bell Laboratories when AT&T had a monopoly in the telephone industry. Undeniably IBM and Intel have significant R&D operations. Leading companies recognize that charging artificially high prices invites competition from low cost suppliers and may limit the total available
market.


AMD financial performance in last quarter.


On July 13th AMD reported sales of $1.260 billion and net income of $11 million for the quarter ending June 26th. Second quarter sales were flat compared to the second quarter of 2004 and increased three percent from the first quarter of 2005. The operating loss was $7 million as compared to operating income of $72 million in the second quarter of 2004 and an operating loss of $46 million in the first quarter of 2005.


Robert J. Rivet, AMD's chief financial officer, said
“Our microprocessor business delivered another record quarter driven by increased demand for AMD server and mobile processors from our largest global OEM customers. Once again we continued to gain momentum with microprocessor sales growth increasing 38 percent compared to the second quarter of 2004. The solid overall demand was enhanced by our newer processor offerings. Strong Dual-Core AMD Opteron processor sales contributed to an 89 percent revenue increase in our server products from the prior quarter. This demonstrates the acceptance of the AMD64 platform by enterprise customers. Likewise, the AMD Turion 64 processor captured more than 60 design wins and drove record mobile
sales in the thin-and-light mobile PC category.”


Postscript


The lawsuit has just been announced. Intel will undoubtedly put forward a vigorous defense. There is no way of anticipating what further facts and legal arguments may emerge. Therefore it is premature to speculate on the possibly outcome of this matter.




The top five articles over the last two weeks as determined by the number of readers were


Cadence Completes Leadership Transition; Ray Bingham Retires as Executive Chairman Bingham has served as executive chairman of Cadence(R) since May 2004, after serving as president and chief executive officer since 1999 and as executive vice president and chief financial officer since 1993. He was succeeded as CEO by Mike Fister in May 2004. His successor as Chariman is Dr. Shoven, the Charles R. Schwab Professor of Economics at Stanford University, and the director of the Stanford Institute for Economics Policy Research. Dr. Shoven has been on the board since 1992.


EDA Industry Reports Flat Revenue in 1st Quarter of 2005 The EDA Consortium's Market Statistics Service (MSS) announced that EDA industry revenue for Q1 of 2005 was $989 million, versus $995 million in Q1 2004. Total product revenues, without services, were $912 million in Q1 of 2005 vs. $918 million in the same quarter of 2004.


Synopsys Announces Production Support for New Oasis File Transfer Format The Galaxy Design Platform and Design For Manufacturing tool suite support the entire Open Artwork System Interchange Standard (OASIS) file transfer format with all current production releases. All relevant Synopsys software now support the OASIS format for design and production, including; Astro, IC Compiler, CATS, Hercules, Proteus, SiVL and Star-RCXT software products.


Cadence Announces Second Quarter 2005 Financial Results Webcast The webcast will begin Wednesday, July 27, 2005 at 2 p.m.(Pacific)/5 p.m. (Eastern)


MatrixOne Introduces New PLM Environment for Synchronous Workgroup Collaboration MatrixOne Designer Central, a comprehensive workgroup design application, allows product designers and their extended supply chains to manage the design process and collaborate from one central application, regardless of the design tools they are using. MatrixOne Designer Central eliminates the need to support multiple CAD workgroup data managers.




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-- Jack Horgan, EDACafe.com Contributing Editor.


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