Mactel Inspires Other Strange Bedfellows
Now that Apple has started using Intel chips, will Dell start using AMD chips? While at first the two events may not seem connected, I think they are, but I dont think youll see an AMD chip in a Dell box until certain behind-the-scenes financial and marketing negotiations make sense for Dell.
It would be nice if vendors made product and component decisions based on customer wishes and needs. It would be nice, but it isnt the reality under which the technology industry (or most industries, for that matter) operates. Supplier decisions are often based less on technology than on co-marketing agreements, product placement agreements and exclusivity deals. Sorry, but thats just the way it is.
These agreements are usually invisible. Vendors would like you to think they are the champions of users needs. The invisible usually doesnt become visible unless one supplier approaches monopoly status and the resulting courtroom fight reveals previously private agreements, which become public as part of legal proceedings.
The anti-monopoly proceedings against Microsoft resulted in disclosure of what Microsoft was charging varying PC manufacturers for its Windows operating system. The heart of the complaint AMD filed against Intel in Delaware last June was AMDs contention (quoting from the AMD complaint): "Just like Standard Oil and Alcoa before it, for over a decade Intel has unlawfully maintained its monopoly by engaging in a relentless, worldwide campaign to coerce customers to refrain from dealing with AMD."
AMDs list of alleged coercion tactics by Intel includes forcing major customers into exclusive or near-exclusive deals; using rebates, allowances and market development funds to limit purchases from AMD; and threatening retaliation against customers introducing AMD computer platforms.
Intel has denied any wrongdoing, and this isnt a column trying to judge when hardheaded business practices cross the line from, well, hardheaded business practices to illegal. This is a column that talks about all the elements that go into a vendors decision on what components it should use to construct its products.
Dell is acutely affected by the cost of the components used in its computers. Its model is brilliant in many ways. Dell pushes the cost of technology R&D largely to its suppliers, constantly perfects the manufacturing process, and has built a financial model where the company builds a good product at a lower price than the competition and gets paid for its final product before it has to pay for the cost of components. The model also locks the company into a strange supplier embrace. Dell is a huge customer and can get the best supplier pricing and programs, but its thin-margin business requires those pricing deals for continued good financial performance.
When I asked Michael Dell at the recent CES show if the company would consider AMD chips, he said it could happen. Since then, Dell President and CEO Kevin Rollins said the AMD possibility islots of vagueness herea possibility. Dell and Rollins are masterful manufacturing and financial executives, and they wont allow AMD into their fold until the numbers work. Or until AMD offerings by their competitors cut into their sales at a rate where saying no skews the balance sheet. That is a long way from happening, but Id be happy to be proved wrong.
Which gets me to Apple Computer and Steve Jobs. The Intel endorsement by Jobs is remarkable, and I assume that the pricing and promotion agreements worked out between Jobs and Intel are also remarkable. Apple gets first dibs on the Core Duo multicore chips; Intel dedicates 1,000 employees to Apple; and Apples advertising takes a bunch of jabs at Intels best customers by characterizing them as boring box makers. And then there are those co-marketing dollars and programs of which we are not aware. Intel has bought into the Apple machine and vice versa, and I dont think there is any room in the honeymoon bungalow for AMD.
eWEEK magazine editor in chief Eric Lundquist can be reached at firstname.lastname@example.org.
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