Year 2009 *Painful for some* , **Excruciating for others**

Year 2009 is few minutes away. I can not help but to make some predictions for the high tech and IT industry. The year will be very painful for some companies and less painful for others. Those who do not have cash will have a tough time competing with new products.

Being specific in the war for processor supremacay, luck is on Intel's side in 2009 as the company has >$10 billion in cash and can claim the performance crown for the year. It is still at least one node a head of AMD in process technology and has a much bigger capacity than the competition. It has put great products in Nehalem and Atom which have no serious competition in the segments they compete at.

Being strapped for cash and undefined restructuring, AMD will continue conceding supremacy on the processor performance side but may claim performance / watt or performance / dollar here and there but nothing serious. This is not because AMD does not have the competency to design and produce a better product, but it is becuase it does not have enough cash to spend on R&D and process technology to catch up with Intel during this recession.

So, if I am in the shoes of AMD decision makers (and thank God I am not), I would really focus on survival rather than competing head on with the bull at least for the next 2 years. AMD's competitive advantage is not in their product at this time, it is in the market! In other words, major OEMs and the Japanese, will continue offering products based on AMD just to keep it afloat and to prevent a scenario of one provider of CPUs. So AMD should focus on getting a "good enough" product to the market during this year to pay for the bills (Immediate strategy) and to rebuild that credibility Barcelona destroyed.

Long term strategy of AMD should be on focusing on the ATI artery because it is a good and a healthy one. ATI should not exist to exclusively serve AMD CPU division but should be semi-independant arm which has its own products as well as a coordinated products with the CPU division. AMD also needs to minimize or cut the number of designs and products; i.e., make few good ones rather than many bad ones. AMD strategy of competing with Intel on every market segment is a bad one because it failed. It should stop at once. Remember how Intel Viiv and AMD Live tanked. The difference is Intel can afford to lose few million dollars but AMD can not.

nVidia is playing a dangerous game and needs to refocus in 2009. This 2008 soldering defect needs to not happen again. ATI recent products seem to have given them a low blow. It seems nVidia is gettig itself distracted from competing in what it does best and is focusing on an unwise PR fight with Intel. The nVidia CEO needs to chill because he can not hurt the feeling of Intel no matter how much he tries.

HP will not feel as much pain as Dell and others because they are more focused and their product does not break as easily. HP seems to transform more of itself to the services side and that will be kinf of immune to the pinch of the recession. But HP employees in the USA will feel the pain. Hurd's knife seems to always cut from this side. IBM is less vulnerable to the recession as it got out of the PC business a while ago.

The "used to be" gaming companies such as Voodoo and Alienware will continue to be diluted in 2009 simply because they are being decimated by big corporations and people do not have enough money to spend on new rigs. You can sense the decimation by their recent products and the talk from their "used to be" owners. Read Rahul's blog to find out he is not talking like an HP old executives; he talks about cost effectiveness and configurations that "make sense"; not what the customer wants!

Other companies: Apple will find less customers willing to pay much for iPhones and iPods. Microsoft will continue to make money and will not be hurt as bad since it does not make much hardware. Micron and memory companies will continue to suffer as memory has to get cheaper.

On the none high tech or IT industry, things will be mixed up. Expect Starbucks to keep the nose dive as $4 coffee cup will find less and less customers. Walmart, Target, Ross, Marshal will thrive as more people will turn a way from department stores and brand names such as Abrecrombie, Old Navy, Macys, and so on.

American car companies will find it very tough to survive in 2009. Having non competitive products will drag their offerings to the ground and they will have no choice but to lose money on almost every car they sell to empty 2008 inventory.

Restaurants profitability will go down for sure and may be Americans will get healthier ;).

Couple of places will be profitable for sure: The health and military industries. If you are a stock investor, health and military stocks are your best bet.

The Laptop War has Started!

Man! He who designs the sleekiest laptop wins!
The laptop seems to be the next frontier in the fight between Intel vs.AMD and HP vs. Dell. I have a feeling "we are not in Kansas anymore". The Santa Rosa vs. Griffin war did not start since Griffin is not out there, yet. But all signs are pointing to a huge battle. Just look at the concept design by Ziba for Intel (the 0.7" laptop) and look at those latest Santa Rosa based HPs. I have not seen but can not wait to see the Apples'

The laptop is emerging to become a fasion statement just like the iPod. It is the lifestyle and you know what? People will pay premiums for these as they once paid for an MP3 player called iPod. It is no longer a battle for the low end laptop market in mobile town, certainly no in the West (but may be in developing countries). You can thank Apple for igniting the war and for Intel and AMD for the low power processor and long battery life designs.

So, what are we (consumers) in for? We are in for the most exciting part of a movie that started slow. I expect we are going to see sky rocketting sales of laptops on the expense of desktops in the next 3 quarters. It seems Dell is not paying attention. Just take a look at their latest laptop Santa Rosa designs and look at which retailor they partnered up with!

Would an extra cash help AMD?

Did AMD loose market share due to unavailablity of cash? This is a tough question to answer. Before answering such a question, lets look at how AMD got in trouble in the first place:
1. AMD got too comfortable with their original 2003 Opteron processor for too long. The cow got old and it is dying; stop milking it!
2. AMD underestimated how quick and hard Intel would come back swining. But AMD never used the HT to its full advantage. The legacy FSB did not punish Intel strategy very much.
3. AMD tried to do too much too quick: Planned for a quick market share gain and did not really plan it very well. Amd in the process, it did screwed its partners, the channel.
4. It signed Dell at a time when it needed the cash the most. If you ask Dell suppliers, you would know that Dell gets its profit from squeezing them. Very bad move!
5. Got too arrogant and thought that it can move to a new process technology, a new 300 millimeter wafer fab, and a new architecture at the same time it is supplying the same old chips.

So, could the extra cash have helped? Not really! AMD thought it needed the cash to upgrade the fabs and move into new architecture but forgot that upgrading the process technology and constructing a new fab would take years to ROI; a time they do not have. AMD should have focused on either moving to the new process or the new architecture. Little tweaks of the Opteron on a new process technology could have helped them bring a competitor to the Clovertown and Kentsfield and stop the market share loss.

AMD celebrated too quick and got drunk at the wheel and the result was a crash and loss of all market share gained in a year in just one Q. It saw success after success in getting big OEMs to adopt their procs and was blinded by that to the point where they signed customers without knowing that IBMers and HPers are looking for their best interest first, and so was Dell. These guys signed up AMD because they had a superior technology 2003-2005.

As long as your product is superior, you win! That is a very important lesson they should have learned from the Opteron success. AMD's strategy of trying to break the monopoly too fast was the wrong one. They should have taken slow but sure steps. Breaking a monopoly takes time. I hope they learned that lesson at least! One more thing they should learn: In business, your enemies are sometimes your best frieds. If it was not Opteron, there would be a C2D.

My advice: settle your case with Intel and stop the distracting yourself; focus on superiority, you have the talent! And by the way, Intel is not the only competitor you have!

The Road Ahead for Intel

Did Intel overcome its problems? It depends who you ask. Sure, Intel's core II due has been unbeatable on many fronts for several months. But how long will C2D maintain Intel's edge. The short answer for that is: not too long!

AMD proved to Intel that good old times are gone and it is all about the superiority of the product. The good all times when the margins were 60% will not come back unless AMD will go out of business. But I am sure AMD will make sure they will not go out of business. I am also sure that IBM will not let Intel rule the world of processors. IBM has been poring millions and millions of $$ to make sure they are not held by the "you know what". On a side note, Intel also will not allow for the disappearance of AMD. You see, you need a small company to live so you keep your family jewels far away from the government hands.

Intel proved to AMD it is also about execution and marketing. When their product was inferior, marketing stepped up and pushed sales up (2005, Intel Sales were their top record). AMD tried the marketing piece. It did help them when they had a superior product, but it did not perform as well when they did not have a competitive product. Also, execution history is not on AMD's side.

If Intel has not accepted the good old 80% market share company days are gone, then they will loose more and more. But I think they realized that. For Intel to stay competitive and have larger market and sales share, they have to execute very well on a superior product. For AMD, they just need to execute and deliver on time and IBM will do the rest. Intel has to fight on many fronts.

Is AMD out of steam for 2007?

I got to admit that the last two quarters were not so hot for AMD. Q1 2007 seems it is going to disappoint for sure but by how much? What I can read from Hector's comments in March, a month ealrier than when he should, that it is going to be probably the worst quarter for the last 3 years.

The most disturbing problem is in the incosistency of what AMD had said and what they had not say. They said that Barcelona is due Q2 07 but they did not show anything meaningful, yet. I mean, Q2 starts next month. They said it will be 40% better in performance than clovertown but they also said no meaningful impact till Q1 2008.

If this is not confusing to investors, I do not know what is? Sadlym it idicates tough times are coming AMD's way!

Can Michael revive Dell?

So, Michael is back in top position at Dell, or is he? Did Michael ever leave Dell.. Not really!
Dell is not failing becuase of the newly ex. CEO, no, really! Dell is failing due to a misstep after a misstep over the last few years.

The main misstep is customer service. Dell and Rollins thought that they can pocket some more money rather than create a good customer service. In the process, they created a brand name so cheap that it ryhmes with "Government Cheese"; if you have money, you would never buy it!

A second misstep is the freaking cheap A$$ design they created. I had to change my power adapter on my DELL laptop 3 times and that is not because the power adapter died (the power adapter is about $100 each). It was because the power socket keeps breaking. My CD/DVD ROM keeps loosing contact during operation! My only USB port is also broken. And forget about the laptop look. Ask Dell customers what motivates them to buy another one of these pieces of gargabe.

A third misstep, listening to Rahul! It looks like Rahul advised Dell to sign up to use AMD Chips while he himself signed up for C2D. The result: Dell no longer was getting the preferred customer service from Intel. The mistake was not signing up AMD, it was timing and genuinity. Dell signed up AMD at a time when investors became pissy and at the time when C2D started seeing the light. The move to AMD chips was to please investors and mask the problem longer.

The 4th misstep is keeping with the same old business model without update. Michael: customers have evolved and their number 1 priority is not saving $$ anymore. Many customers want an elegant design as the computer is becoming personal! It may have to be hip or match with rest of furniture. Many customers would like to "dink" with a laptop before they decide they want to buy it and they can not do that with it on the internet only, can they? But they can touch an HP laptop!

So, how can Michael save Dell? Well, he can not! Not with the same old mentality at least. You can not teach an old dog new tricks. He is part of the problem.

But here is my advice: Dell needs to provide a better customer service, rethink the design of their systems, and complement their internet model with Dell stores. Now, you see why Dell can not revive Dell?

Dell = AMD's big Mistake!

So, everybody heard the news. AMD disappointed wall street big time inspite of its painted rosy picture last month. What happened? Is it due to the price war with Intel? Not, entirely! Brace yourselves: it is actually the Dell effect! And yes, you heard that right. You want me to say it again? IT IS THE DELL EFFECT!!!

AMD was so excited they got a piece of Dell, but it discovered afterwards that it was a very sour piece. AMD thought that Dell was the ultimate victory, so, they really did not do their homework before signing the dotted line. What AMD is dicovering now is this: Dell will drain their inventory, alienate their relationship with the channel, and squeeze their margins as much as possible. Evidence: Q4, 2006. AMD will discover that everytime they cut their cost, Dell will be there to collect the new savings!

AMD was locked up with a price war with Intel for few quarters. There is no doubt that this price war is a factor in Q4 results, but the biggest factor was and will always be Dell. What AMD is going to find out is that they may even have to alienate their relationship with other vendors to make Dell happy. Those are relationships they worked very hard to get in the last couple of years.

You see, Dell will play both AMD and Intel for more discounts. That was a major part of their strategy to afford offering their products as such a low price and make money and that is why they were number 1 PC company for a long time. Now, Dell will use the AMD vs Intel competition to shave more profits of the bottom line of both. End result: Dell wins!

AMD did not need to wake up from the sweet dream to find the bitter reality at a time where they need to up their profits to be able to afford paying for ATI and their new fabs. Do not forget their development of new architectures. Sorry, but this big booboo is a big one Hector!