Intel Corporation (NASDAQ:INTC) holds long-term advantages over smaller rival Advanced Micro Devices, Inc. (NYSE:AMD) in the microprocessor industry. While there have been rising fears that Intel Corporation (NASDAQ:INTC) may have trouble competing with emerging processor design firm ARM Holdings plc (ADR) (NASDAQ:ARMH), I believe this has been blown out of proportion. Intel Corporation (NASDAQ:INTC) is the dominant force in the roughly $30 billion computer processor market, and has benefited tremendously from the proliferation of personal computers in the past few decades. Intel Corporation (NASDAQ:INTC) has long held the lead in microprocessor technology and performance, while Advanced Micro Devices, Inc. (NYSE:AMD) has mostly been an also-ran. Although Advanced Micro Devices, Inc. (NYSE:AMD) has emerged periodically as a threat, such occurrences are few and far between. After being caught off-guard several years ago when Advanced Micro Devices, Inc. (NYSE:AMD) narrowed the competitive gap between the two firms, Intel Corporation (NASDAQ:INTC) has gone on an impressive streak of out-innovating its smaller foe while reasserting its stranglehold on the microprocessor market.
The runaway success that Intel has had in the processor market can be traced back to the firm’s economic condition. As the world’s largest semiconductor company, Intel has a massive research and development budget that is unmatched. In addition, it has the financial resources to invest in cutting-edge semiconductor manufacturing technologies. These advantages enable Intel to push processor performance and lower manufacturing costs at a much faster pace than AMD. Although Advanced Micro Devices, Inc. (NYSE:AMD) has shown it can trump Intel in a particular processor generation, it has never been able to maintain its lead in successive generations.
In the microprocessor market Intel has seen the emergence of a new competitor in ARM Holdings plc (ADR) (NASDAQ:ARMH), which can be real threat to Intel and whose processor designs populate most smartphones and tablets. ARM’s attempting to move upstream, while Intel tries to extend its presence downstream with its Atom chips.
ARM’s growing presence in server processor IP should allow the firm to gain modest market share and receive another top-line boost, and it has projected 18% annual revenue CAGR for the company over the next five years. ARM Holdings plc (ADR) (NASDAQ:ARMH) reported strong first-quarter earnings and gave investors a solid second-quarter outlook that was in line with my expectations for the firm.
Intel continues to go full throttle, and has laid out aggressive plans to introduce new chip architectures every two years in an effort to widen its lead over AMD in the processor performance race. In 2011, the firm launched its Sandy Bridge chips, which combine computer and graphics processors onto the same silicon, and further pushed the envelope of semiconductor fabrication technologies with the release of 22-nanometer (circuit size) Ivy Bridge chips in 2012. In the next few months, the firm is scheduled to release a new processor architecture, code-named “Haswell,” which has been designed with power efficiency in mind.
AMD historically managed to maintain a minor share in the market by providing a low-cost alternative to Intel’s higher-performance chips. But then in 2003-06, AMD took the lead in processor performance and gave Intel a run for its money. Riding on the strength of its Opteron server processors, AMD took significant share from its rival and added PC makers such as Dell to its list of customers. But the success was only temporary; AMD has since lost its processor performance crown to a resurgent Intel. Its immense scale allows the firm to maintain R&D levels that dwarf those of AMD and boast the most advanced semiconductor manufacturing technologies in the world. As a result, Intel is generally better positioned than AMD in the race towards building faster chips, which is the key to gaining share in the microprocessor market.
The semiconductor industry is cyclical, which causes fluctuations in Intel’s financial performance. Intel must hold on to its technology lead in order to maintain its position as the behemoth of the microprocessor market. Failure to do so would result in share loss to AMD.
The article Is There Any Competition Between AMD and Intel? originally appeared on Fool.com.
Ahsan Aslam Khan has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel. Ahsan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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