With its acquisition of ATI, AMD is looking to break Intel's monopoly on the chip market by offering more flexibility to PC manufacturers and moving into emerging markets, according to an AMD executive.
By incorporating ATI technology, AMD is looking to offer chip platforms – including a central processing unit, a graphics chip and chipset – for use by PC manufacturers, said Thomas M McCoy, AMD's executive vice-president and chief administrative officer.
The platform approach is also used by its rival Intel, which dominates the chip market.
For example, in the server market, where AMD is strongest, the company had a 22.9 percent market share compared with a 76.8 percent share for Intel at the end of the first quarter this year, according to market researcher IDC.
Intel declined to comment for this story.
New platforms will be used to move AMD into the expending digital device market, where ATI graphics chips have a stronghold.
AMD will also move into emerging markets, such as South America, India, Western China and Africa, where demand will rise for low-cost, integrated processors with graphics capabilities, McCoy said.
"In particular, we need to grow our business on the mobile side," he said, adding that ATI is strong in the sector.
AMD's partnership with nVidia, ATI's main competitor in the graphics chip market, will not change. AMD is "highly dependent" on nVidia and will continue to work with the company as long as customer demand remains, McCoy said.
ATI has worked with Intel for decades even though Intel has been developing its own in-house graphics processing capabilities. The purchase by AMD will not shut out Intel, McCoy said.
"It will be Intel's choice if it wants to preclude that [relationship] or not," he said.
McCoy alleged that Intel has hurt PC makers by not giving them enough of a selection of chip platforms, and that this limits innovation by the manufacturers.
He said AMD will let PC manufacturers have a greater say in designing chip platforms.
PC manufacturers would like to see a market where two chip producers hold equal market share, since the manufacturers could then play the suppliers off against each other, according to Brian Gammage, a vice-president at Gartner.
However, PC manufacturers may not show much interest in AMD's plan to offer more input in chip design, since uniformity of PC components is key in the PC industry, said Gammage.
Hardware for the mass market can't be changed dramatically because it has to work with standard software, Gammage said. There is a limit to the amount of differentiation PC makers can offer to the mass market.
And overall, as PC components have become commodities, costs have been cut in the manufacturing supply chain to the point where PC makers compete mainly by cutting retail prices, Gammage added.
Dell, for example, has historically led the PC market in its mastery of logistics and ability to reduce supply-chain costs. One of the major manufacturers using Intel chips and the PC market-share leader, it has been a victim of its own success, Gammage said. Other PC makers have learned from Dell, which is now reduced to single-digit growth.
It means AMD is charging ahead in an uncertain market.
"There's a very clear gamble going on here," Gammage said. "AMD is looking to buy this acquisition to take a greater share in a market where when volumes go up, prices come down."