AMD & Intel: The "Big MO"

Momentum. Consistent Growth.

Who's got it? Who's lost it? What are the behavioral implications within a firm?

In my prior post, I considered why Intel is in the situation it currently faces. Now, I want to consider that situation, in contrast to its chief competitor, AMD.

For most of my early career, I had a friend at Intel. She became an early Intel millionairess, thanks to their Wall Street-style incentive compensation, at least in the early years. I believe she joined the chip maker in 1980 or thereabouts.

Back then, Jerry Sanders was the flamboyant CEO of AMD. He had a very tough job. The only reason AMD existed was that Intel's customers drew the line at being totally subservient to the chip giant. It was one thing to pay high prices to buy new chips on Intel's schedule. It was quite another to have no other option whatsoever. So device customers kept AMD on life support in order to maintain some slender thread of bargaining power with Intel.

How the worm has turned! But, let's be realistic. Today, as I pointed out in my previous post, Intel is a reasonably diversified chip maker. While its core revenue machine is still pc and laptop chips, it has substantial other applications and, thus, product lines. Which is probably what got it into its recent trouble. AMD is still largely, as I understand it, a conventional PC, server and laptop chip supplier.

So, in discussing this with my partner last night, between squash games, I arrived at an insight lost to me for over 20 years. As it struck me, memories of the years I spent at AT&T suddenly came rushing back. Being on a losing, shrinking team is no fun. Life sucks, and career prospects suddenly look very dim. There is a visceral, human behavioral reaction to momentum in business that goes, I believe unnoticed.

Think of what life at AMD must be like right now. You're in the press, more than ever before, as a charging tiger. You've just grown revenues during a period when your always-imposing, larger competitor shrunk! You're the toast of customers everywhere, for actually listening to their needs and creating product for them. How novel! Growth is abundant. Your share is growing in a stable to declining market. So, for you, it's actually a growth market. It's not the same world Intel sees. At all.

Wouldn't you love to see the electronic flow of communications and resumes from Intel employees to their AMD contacts? I can just envision the sapping of emotional energy among young Intel engineers as they face several months of internal witch-hunting...oops....cost cutting, by Paul Otellini & Co. How paralyzing this is going to be for Intel and its employees.

I would hazard to guess that there is now an intangible energy, an initiative, dare I say, advantage, with AMD. They have, as George Bush used to say early in his failed 1976 race for the Republican presidential nomination, the "big mo." I suspect that, coupled with competent management and Intel's self-inflicted wounds, it should make for continued success for the near term at AMD.

It is, once again, a Schumpterian force. It's consistent growth. For AMD, in a positive direction. For Intel, now, in a downward one. My investment style, and my research focus, have always involved consistent business performance. I have found, contrary to what others seem to believe, that it is its own reward. With this recent competitive story developing between Intel and AMD, I think I have also rediscovered an intangible reason why consistency matters. It is its effect upon humans engaged in business endeavors.