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Is the "megacorporation" business model crumbling?

By cezarg in Op-Ed
Sat Apr 21, 2001 at 06:26:45 PM EST
Tags: Hardware (all tags)

According to this article at The Register, AMD managed to accomplish what is seemingly an impossible task these days: they beat the Street's earning expectations.

Now this isn't perhaps too exciting in itself other than the fact that yesterday, AMD's rival announced that essentially they were in deep trouble. This presents an honest question: why such a discrepancy in attitudes?

I think I understand the answer. The reason for Intel's struggle and AMD's overachievement lies in their respective consumer bases.

Intel captured the hearts of CTOs and large hardware purveyors (Dell, Gateway, IBM etc.). As a result of this financially sound customer base INTC grew and grew (trying hard not to say ballooned) possibly beyond it's sustainable size.

On the other side we have AMD which had very little corporate backing to begin with and whatever inroads they managed to make into the enterprise market lie in the merit of their own product. Their real customer base however is not a CTO planning to splash big bucks to upgrade his company's PC base. Instead, AMD sells to the hobbyist market and they do it well. Home users interested in computers who prefer to have systems tailored to their own taste and within a reasonable budget almost by default go with AMD cpus. The reasons for this are numerous and beyond the scope of this rambling, but it suffices to say that it has a lot to do with cost effectiveness and the "bang for your buck" factor.

What's the point of all this? My point is that perhaps it's a healthier strategy to go after a smaller but dedicated market niche and thrive catering to your loyal customer base instead of going for world domination full throttle. I'm not saying that the above statement is necessarily true but it really looks like Intel's fortunes are strongly tied to the corporate buyer meaning that wall street events will have a direct and measurable impact on Intel's bottom line. I'm not trying to say that AMD has a superior business strategy. One might argue that Microsoft grew and succeeded without having their niche market and they did rather well, all considered.

Which is the better business model? Which of the two is ultimately better for the consumer? Looking forward to your words of wisdom.


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Is the "megacorporation" business model crumbling? | 27 comments (20 topical, 7 editorial, 0 hidden)
The problem with Big Brother in the last 10 years. (3.20 / 5) (#1)
by Greggbert on Wed Apr 18, 2001 at 10:51:27 PM EST

Big Brother corporations could be as strong as they were in the 80s if it weren't for all these damn "partnerships" and "cooperative marketing arrangements" they seems to be coming up with every five minutes. I don't know. I sort of years for the years when world domination was a goal and every employee knew what the intended outcome was and what their part in the process was. If you look back at those "in search of excellence" type documentaries by people like Tom Peters, you will see that gleam in the eye and desparation in the voice of the common worker that told you their goal was to "bury the fuckin competition and drive them into the damn ground !!!" Those were the times when it was fun to go to work because you knew what you were fighting for. You were fighting to make a difference and to win god damnit ! You weren't going to work that day to form "aliances with the competition". God what pussies corporate America has become. I still remember that famous quote from Philip Kahn, then President of Borland who said something like "we are going to put an ice pick in bill gate's head". Don't you think that his employees could get behind THAT ?!?! Everytime I hear that some firm formed a strategic aliance with a competitor on the radio on the drive home I just want to drive my car into a tree. God bless America...
If you don't understand anything that I have posted, please accept that I ate paste as a small child...
What would Americans do, if (none / 0) (#18)
by mami on Fri Apr 20, 2001 at 11:21:27 AM EST

they couldn't justify all their actions with their need to compete and win ? Are you guys addicted to compete for the sake of competition ? No other goals in life than winning ?

[ Parent ]
The chip market (4.00 / 2) (#2)
by Miniluv on Wed Apr 18, 2001 at 10:53:09 PM EST

I think what we're seeing is not that one business model is better or worse, but rather that there are multiple markets inside the computer hardware world, and that it requires different strategies to reach them.

The reasons hobbyists swear off Intel, technology wise, are the same reasons that corporations often swear by them. Things like hard-to overclock, read "remark", chips, well-tested but conservative chipsets, and memory technology aimed at sustained usage instead of bursted access.

There is also the fact that Intel and AMD are very much yin and yang to each other, and we should all fear the preeminence of one coupled with the death of the other. AMD would, likely, end up earning a moniker as loathsome as Chipzilla were they given the opportunity. I believe the competition AMD has brought to the mass-market PC chip space will ultimately be the only thing that can save Intel as they begin to worry about falling out of the black.

Love them or hate them both Intel and AMD have some very bright engineers working for them. From time to time these engineers have been shunted out of the controlling role they ought to be taking in product developement, and eventually the situation changes as profits slide towards losses.

In the long term both companies, as well as consumers, have nothing to fear and everything to gain from increased competition in the chip market.

My slippery slope leads to a gooey-centered strawman.

You are reading way too much into this,.. (4.25 / 4) (#3)
by Carnage4Life on Wed Apr 18, 2001 at 10:53:11 PM EST

The reasons that AMD is doing better than Intel are marginally related to the fact that Intel is a larger corporation than AMD. I suppose one could claim that Intel's recent screwups are based on the fact that they kept on rushing their plans so as to make investors happy even though it would have been wiser to go slower but this is true of any publicly traded company.

Which is the better business model? Which of the two is ultimately better for the consumer? Looking forward to your words of wisdom.

Ask yourself this question by doing comparisons outside of the hardware industry. Compare AOL to mom & pop ISPs, Barnes & Nobles to local bookstores, Starbucks to local coffee houses, Walmart versus local stores, Blockbuster to a local video rental chain, etc and your answer then depends on if you prefer personal service to dealing with large companies.

Of course the receny failures of DSL companies in the U.S. (NorthPoint and Covad) seems to indicate that being a small company trying to compete with a larger entrenched company is not as easy and profitable as you may think.


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Enough research... (4.00 / 1) (#11)
by cezarg on Thu Apr 19, 2001 at 12:28:14 AM EST

will always tend to support your theory... is what you're trying to tell me, right? Point taken.

I do believe however that running your business purely on the principles of economies of scale is flawed. There is so many products that I'd be willing to pay more for if they were just a tad more like the way I really want them. I know that to 70% of the people the only consideration when making a purchase is the price. But who serves the other 30%?

[ Parent ]

Blue man group (4.00 / 2) (#5)
by yankeehack on Wed Apr 18, 2001 at 11:08:53 PM EST

Some food for thought. Intel stock actually rose today to a bit over $28 a share. This rise occurred even after there was a Wall Street Journal article today decrying that Intel earnings declined 82% in the fiscal first quarter this year (sorry, dead tree edition).

So what does this mean? Personally, I think that they are going to be in a world of hurt for a while, but will bounce back. If AMD is the only player they have to contend with, AMD has a ways to go, for two reasons. First, Intel has waaaay more mindshare with the average consumer (and probably PHB) than AMD. Think of the Blue Man Group. Think of marketing strategies like like this one with Gateway. Second, AMD marketshare rose because a few PC (notably low cost) makers are placing AMD products in their machines. And guess what, people who want low cost machines don't care about their processors.

General, then specific (4.66 / 3) (#7)
by babylago on Wed Apr 18, 2001 at 11:21:46 PM EST

First, the general:

Keep in mind that AMD basically wants to be like Intel in all the ways that are supposedly bad. They want to be big and profitable. Chip manufacturing demands a lot of capital expenditure, which does not happen if you can't borrow large amounts of money, which does not happen if you are any combination of small and profitable. Also, just because AMD is smaller than Intel and made a profit does not in any way prove the conjecture that the megacorporation model is dead. GM hasn't exactly declared bankruptcy, for instance.

Then the specific:

My point is that perhaps it's a healthier strategy to go after a smaller but dedicated market niche and thrive catering to your loyal customer base instead of going for world domination full throttle.

I think that Apple and Steve Jobs have taken this particular strategy as far as it will go in the computer hardware market.

[ Blog | Hunnh ]

And I thought (3.00 / 1) (#14)
by Ratnik on Thu Apr 19, 2001 at 10:56:28 AM EST

Gee and I thought the reason Intel had lower earnings was because they couldn't keep up with the sudden demand for their processors. Which was stated by more than one computer manufacturer as the reason THEY didn't make their own earnings expectations. So it isn't a matter of which business model small or large. It was a simple matter of under estimating the demand. Something which also bit AMD before.

Yech (4.00 / 1) (#15)
by trhurler on Thu Apr 19, 2001 at 11:40:55 AM EST

Come on, man. The reason almost nobody makes expected numbers anymore is because of the full disclosure regulations. It used to be, if you paid off the right people and kept them happy with info nobody else had, you could get them to keep their estimates for your numbers nice and low, so that beating them wasn't too hard. These days, if you tell anyone, you have to tell everyone, so bribing analysts is a much trickier business. Analysts tend to see what the company is willing to show the public, which means they don't see the very worst stuff unless the law happens to require it, which means their estimates are often somewhat unrealistic.

With that aside, your theory is crap. Intel is underproducing product. Not overproducing. AMD is making a killing the same way Intel originally grew - not by serving the big expensive makers, but by being the low end of the market. Nothing new here, nothing to see, please move along.

'God dammit, your posts make me hard.' --LilDebbie

Mass customisation (5.00 / 1) (#16)
by Paul Johnson on Thu Apr 19, 2001 at 11:45:54 AM EST

The way of the future, according to the gurus right now, is in Mass Customisation. This is one of the key concepts pioneered by Dell: you called them up and specified the PC you wanted, and they built it to order and shipped it to you. Today if you buy a Dell PC there is a sticker with a serial number on it, and if you type that number into the support site it gives you the updates that are relevant to your computer.

The idea behind all this is to try to replicate the experience you have as a major customer of a small company: they know you and your requirements in detail. But they also give you the big company reliability and branding.

You are lost in a twisty maze of little standards, all different.

News for us, maybe, but not for Suits. (4.00 / 2) (#17)
by Jacques Chester on Thu Apr 19, 2001 at 09:53:08 PM EST

Business literature on strategy, positioning, conglomeration pros-and-cons is quite extensive and intensive.

In a quickie defence of the MegaConglomoCorp, you will find that there are organisational synergies and - more importantly - sheer economies of scale unattainable when pursuing a "niche model".

The downside is lack of focus, which is why mega-conglomos tend to operate as groups of companies, rather than as a single company. This adds considerable flexibility and "firewalls" each department. It can, however lead to unwanted infighting - witness IBM and AOL-Time-Warner.

Well now. We seem to be temporarily out of sigs here at the sig factory. We apologise for any inconvenience this may cause.

The honeymoon is over (5.00 / 4) (#19)
by jabber on Fri Apr 20, 2001 at 12:06:07 PM EST

I don' think it's about the size of a corporation, but rather about the quality of product they put out. Maybe, just maybe, the general public is becoming immune to the hype.

Big corporations, which are accustomed to ramming things down the consumer's collective throat, are having problems left and right. The economy has slowed and the projections made by 1998 MBA recipients just are not panning out as expected.

Small dot-coms that did us such a big favor by making geekiness sexy, are still folding up their card tables by the score. No product to sell, all talk and no substance. Geeks are just typical guys after all.

But those companies, large (AMD is relatively big. They have a FAB for God's sake) and small (just how many people does TogetherSoft employ?) that put out a good product are doing pretty well. Delivering on one's promises is a great way to advertise. Good customer service garners more respect than a stack of four-color glossies in every product box. Doing the job without chest puffing, instead of claiming to be able to do the job, is what is starting to matter.

I think that maybe the generic consumer is starting to see the stark reality of the 'new economy'. You can't eat hype. You can't run hype on vapor hardware. You can't drive hype to work, and your kids can't play with it.

Now we're seeing the backlash. Not only is the hype of corporations (both large and small) falling on deaf ears, it is beginning to be seen as an insult! "Sure, you can make a multimillion dollar advertisement, but where is the product? Why is it so expensive, compared to your non-advertising competitor?" Yes, Intel, that one is for you.

Someone mentioned the Blue Man Group. They are awesome in their own right, but they are also a very good symbol of what's wrong with Intel and the other advert-driven corporations. Lot's of noise. Lot's of flash. All make up, and you don't know what's really underneath it all.

It's not the megacorporations that are dying, it is the marketting paradigm. People are getting sophisticated, and now actually want to get SOMETHING for their money besides and entertaining commercial.

[TINK5C] |"Is K5 my kapusta intellectual teddy bear?"| "Yes"

Article material? (none / 0) (#20)
by cezarg on Fri Apr 20, 2001 at 12:17:09 PM EST

I enjoyed your comment a lot. I think I'm generally in agreement with you. Although I feel that the way a company does its marketing is at least somewhat correlated with their size and the consumer base they cater to. For instance large companies try to paint with as wide a brush as they can and make products that are supposed to be used by Joe Bloggs ie. products that neither satisfy the newbie nor the connesieur.

Anyway what I was going to say is that maybe it's worth if you could turn your comment into an article? I would vote it up for sure.

[ Parent ]

Great point (4.00 / 1) (#21)
by jabber on Fri Apr 20, 2001 at 12:54:20 PM EST

So you're saying that because large companies try ot cater to a wider audience, they are unable to effectively impress any smaller subset of that audience? That makes quite a bit of sense. I'd be curious to see the economics of advertising, and compare the cost of broad marketting versus parallel niche marketting. I'll have to think about that for a bit.

Thanks for the encouragement on making an article out of the previous post. I'll dance with it a bit, fold in your point and maybe a few others, and see what grows out of it. It won't be before next week though, and I'm afraid that it might just be stating the obvious. :)

[TINK5C] |"Is K5 my kapusta intellectual teddy bear?"| "Yes"
[ Parent ]

Big dumb ... sometimes (4.00 / 1) (#22)
by wytcld on Fri Apr 20, 2001 at 04:22:56 PM EST

It's a least interesting that a firm with as much history of being smart as Intel has started turning out badly-designed chips. But the hobbiests often lead the way when a tech giant stumbles - consider the original movement from mainframes to PCs that hurt IBM so badly, even though it tried to roll with it in the same way Microsoft has tried to roll with the Net. You can say "Yeah, but most PCs were IBM after awhile," or "Yeah, but a lot of the Net clients are Microsoft now," but both lost a lot of stock value in those transitions. What IBM learned is, "Next time, identify the hobbiest leading image (Linux) and surf that wave."

AMD isn't small, and it didn't market to hobbiests particularly, it just built better chips than Intel for the market that uses those chips. And those who aren't going to waste money make up for their financial cheapness sometimes with smarter purchasing, so they're ahead of the curve on spotting value.

Much of the dot.com failure had to do, not with the size of the startups (many were quite small in terms of staffing, on the corporate scale), but with their willingness to waste money - the notion that being rich made up for being stupid (as if they were all part of the Bush family). A whole buncha startups had enough funds to keep a small team of bright people going for years, and blew through it in a tenth of the time buying Porches and Sparcs when they coulda been successful with Hondas and $800 build-it-yourself AMD/Linux boxes.

Cheap is beautiful. Consider Holland and Scotland - happy, prosperous people, and cultures that don't tolerate excessive expense.

Didn't this get settled in the 70's? (3.00 / 1) (#23)
by khallow on Fri Apr 20, 2001 at 04:59:40 PM EST

I understand that the conglomerate was the latest thing way back in the sixties. Then the 70's came and went. A lot of those just didn't work out. Phillips Morris, Pepsi, and Du Pont are the best examples that I can think of off the top of my head. As was pointed out to me in my story attempt, a couple of cool examples don't make a story.

Intel's problems are more likely self-inflicted with help from a slowing economy than to a decimation of its corporate customers. Also, people tend to buy the cheaper brand in bad times (like now).

Stating the obvious since 1969.

People and analysts are forgetting something (3.00 / 1) (#24)
by fluffy grue on Sat Apr 21, 2001 at 09:00:48 PM EST

AMD doesn't just make Athlons. They make a LOT of special-purpose ICs which go into a lot of devices. I somehow doubt that CPUs are their core market - it's their most visible market, granted, but it's certainly not the only thing they do, or even the biggest thing they do.

In fact, most CPU manufacturers are like this. Motorola springs to mind readily. Intel's pretty rare in that they only make stuff for computers.

Frankly, Intel's the niche player here, not AMD.
"Is not a quine" is not a quine.
I have a master's degree in science!

[ Hug Your Trikuare ]

People and analysts are NOT forgetting something (none / 0) (#26)
by infraoctarine on Sun Apr 22, 2001 at 05:00:36 PM EST

AMD has two major product lines, CPUs and Flash memory; CPUs are their most important business. As for the special-purpose ICs you talk about, let me quote from AMD's Q1 financial statement:

AMD's other IC products and foundry services, which currently account for less than 10 percent of corporate revenues, will continue their decline both in absolute terms and as a percentage of total revenues.

That's why people and analysts aren't talking about those businesses.

[ Parent ]
Oh (none / 0) (#27)
by fluffy grue on Sun Apr 22, 2001 at 05:39:16 PM EST

Never mind, then. My bad.
"Is not a quine" is not a quine.
I have a master's degree in science!

[ Hug Your Trikuare ]
[ Parent ]

Megacorp? Intel? (none / 0) (#25)
by EriKZ on Sun Apr 22, 2001 at 03:43:26 PM EST

Sheesh, the title has NOTHING to do with the content.

Intel has enjoyed a monopoly in the home PC business, for the past 10 years, when everyone and his brother bought a computer.

They have an incredible profit margin on those chips also. So what happened? Idiots got into management, because it doesn't matter what you do, the money keeps on rolling in.

They've known about this slow-down for a while, and have been trying to corner another chip market with high margins. They couldn't find one. Now the upper management is freaking out. Why? Because they can't make ridiculous profits off of chips sales any more. Just great profits. What a bunch of babies.

AMD is doing well because they've had to scratch and claw their way to this point. Every part of their organization has had to perform or die. They're getting what they've earned.

Intel isn't going anywhere, but they need to get their act together. They're an incredibly large and powerful corporation, and as soon as they become accustomed to the "post internet boom" era, things should calm down.

Is the "megacorporation" business model crumbling? | 27 comments (20 topical, 7 editorial, 0 hidden)
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