AMD vs Intel: Technology, Competition, and Sustainability

demand. 4 If either duopolist developed a more powerful or cheaper chip and increased
demand, the one with greater unused capacity would be able to supply the demand, while
the one without excess capacity could not.
IBM delayed adopting the i386 for a year, and Compaq became the biggest PC
seller. Intel’s slogan of “Intel Inside” led users to identify the microprocessor as the key
part of the PC. What mattered was the brand of chip not the brand of the box. As 386
competition arose, Intel started paying half of its OEM and merchant advertising costs for
Intel-equipped products. Big computer retailers and brands would feature their Intel
products (for which they got rebates and ignore AMD. AMD never seemed to pay
rebates. There were no old x86’s PC’s that could compare with those using the i386. The
part had come to dominate the whole. The clone makers did nothing to improve the PC,
and Intel took increasing control of the computer’s interior, introducing the PCI bus
which increased overall speed by four or five times, and permitted the new, faster chips
to perform up to capacity. Intel began markerting chip sets and mother boards, increasing
its share of value added.
The faster i486 (1989) dominated the PC industry until 1993, even though other
companies later introduced 486s.
In 1993, Intel introduced the faster technologically-advanced Pentium. A math
professor discovered and explained an error in the floating point unit, and disclosed it an
Internet newsgroup whence it rapidly spread to the headlines. Intel had discovered the
same defect earlier, and had decided that it was not bad enough to recall the defective
parts -- an astonishing blunder. The defects were repaired in future steppings of the chip,
but when the “floating point error” became public there was a storm of criticism. IBM
stopped selling Pentiums for the time being. Memories are long, and Intel haters keep up
complaints to this day. Intel finally got it offered replacements, first to serious math
users, and later to every purchaser. Intel took a $475 million charge to cover the recall,
and lost much prestige but had the best year in its history. There was no rival to the
Pentium until AMD’s answered in 1005 with the AMD 586 K5.which some brilliant
design ideas but was poorly executed. Meanwhile, Intel developed the P-6 or Pentium
Pro. AMD acquired NexGen, (started by former Intel engineers who had helped design
the Pentium). The NexGen team developed the AMD K6. It was successful technically
and commercially. It saved AMD. It was superior technically to the Pentium and cheaper
than Intel Pentium II. Capacity limited, AMD contracted to build and operate Fab 30 in
Dresden as part of an integrated semiconductor initiative in former East Germany. It
joined all the right clubs and begged large subsidies as befitting a German Company. The
next years were filled with vigorous competition. Intel introduced the successful Pentium
II, based on the P6 architecture in 19977, Both the PII and AMD’s K6 went through
speed upgrades, as the transistor and line width were reduced, and production moved
from 150 mm wafers to 200 mm wafers in the new fabs that both companies built. AMD
usually lagged a year or so in the new technologies, but its chips drew closer to Intel in
speed and performance. The Pentium III, introduced in 1999 and went through speed
upgrades but suffered from the dot.com collapse in 2001 which set IT spending back. The
Pentium III fell behind the AMD Athlon speed in 2001 and AMD seized the virtual Blue
4 A well-known monopolistic practice pioneered by Alcoa.
4