AMD selling beauty and the brand

Chipmaker to tout zippy graphics and industry deals when selling chips for basic PCs this year--a pitch too narrow, some say.

Tech Industry
Advanced Micro Devices' hopes for limiting Intel's surge in 2007 are coming into focus.

Things have changed a bit in the ongoing tussle between Intel and AMD. After a three-year hiatus, the Core 2 Duo brought Intel back into the good graces of the PC enthusiast, and price wars have taken their toll on AMD as it prepares to announce disappointing earnings later Tuesday.

The company plans to counter the positive reviews of Intel's chips by pointing out that the processor alone doesn't make the PC. It's taking aim at the performance of Intel's integrated graphics chips, emphasizing its work with graphics specialists such as Nvidia and its own ATI Technologies graphics division.

The weapons for this duel? The standard armament, of course: little colored stickers. AMD hopes its Better By Design effort will convince consumers that graphics performance matters, as Microsoft's graphics-heavy Windows Vista operating system gets ready for its debut. But the chipmaker might be courting an audience that doesn't particularly care.

Intel's Core 2 Duo was a hit with the legions of Web sites that scrutinize processor performance. AMD won't have a true answer until the middle of this year, when it launches quad-core chips. So, in looking for an Intel weakness to exploit, it has settled on the performance of Intel's chipsets with integrated graphics.

A chipset connects the processor to the memory and the rest of the system. Low-end and middle-of-the-road PCs usually come with a basic graphics processor integrated into that chipset. Any PC user truly concerned about graphics performance usually buys a separate card from companies like Nvidia or ATI with a processor and memory dedicated just for graphics performance.

PCs with integrated graphics are designed for basic Web and e-mail computer users, people who just want enough visual acuity to check the temperature on a weather map or zap an emoticon. This is good enough for a surprisingly large segment of the PC buying population. Price-conscious buyers have made Intel the primary supplier of PC graphics technology through its integrated graphics chipsets.

The problem, as AMD sees it, is that people don't realize how much more they'll appreciate higher-performance graphics--especially in Vista, said Scott Shutter, AMD's division brand manager for mobile products. "Graphics is a key component as you move into the Vista era; both the consumer and commercial market will have more of a need for better performance from a system aspect," he said.

For several years, AMD has turned to Nvidia and ATI to make integrated graphics chipsets for its processors. Those companies are obsessed with graphics performance, and have historically turned out better-performing products for the integrated market than Intel, said Jon Peddie, an analyst at Jon Peddie Associates who closely follows the graphics industry.

Intel looks at the integrated graphics market a little differently from its competitors, said Josh Newman, product marketing manager for Intel chipsets. Intel designs a chipset with a certain transistor budget, and once the essential chipset functions have been satisfied, the graphics team gets only a certain amount of "gates," or transistors, to work with, he said.

"Graphics is a key component as you move into the Vista era; both the consumer and commercial market will have more of a need for better performance from a system aspect."
--Scott Shutter, AMD division brand manager

Therefore, Intel offloads a decent amount of graphics processing onto the main CPU to help boost graphics performance. This approach makes it very cheap to put basic graphics technology inside a PC, about $3 or $4 per chipset, Newman said.

AMD's integrated graphics technology, on the other hand, is essentially the low-rent version of technology that was designed first and foremost for standalone graphics processing, said Dean McCarron, an analyst at Mercury Research. "Nvidia and ATI do graphics first. They are graphics companies, and people are expecting them to deliver a certain amount of performance," he said.

That nicely sums up AMD's new twist on PC marketing: branded graphics are better. It's a variation on AMD's playbook from the past few years spent searching for a response to Intel's Centrino marketing strategy.

Centrino--and the lesser-known Viiv and VPro brands--are designed around the premise that Intel will provide PC makers with all the essential hardware needed to run a PC. In exchange for using an Intel-specified lineup of components, PC makers get the right to slap a colorful Intel Centrino or Viiv sticker on their PCs and other marketing support from the chipmaker.

AMD has countered that strategy by taking the opposite tack. It tells PC makers and consumers they can select from a wide variety of combinations using the best that third-party chipmakers have to offer for chipsets, graphics and wireless technologies. In its latest iteration, this is known as Better By Design, Shutter said.

PCs sold this year with AMD's processors will come with a sticker--colorful, of course--that will feature brands from different companies such as Nvidia, Broadcom, Atheros and other AMD partners alongside AMD's own brand. AMD believes that consumers will recognize the various brands affixed to the PC and make the association that the graphics or wireless performance of that PC will be better than the Intel one sitting next to it, which doesn't have any specific graphics brand, Shutter said.

However, PC buyers who recognize the message of the brands are more likely the savvier customers who will want discrete graphics cards, said Stephen Baker, an analyst with NPD Group. "Sure, it matters, but you're talking to people who are already listening to you," he said.

AMD's approach targets a narrow class of PC shoppers: the price-sensitive buyer obsessed with graphics performance, McCarron said. Shoppers with money to spend who care about graphics--and who have made associations with Nvidia or ATI--are going to make sure they get a dedicated graphics card for either an Intel or AMD PC.

Most buyers looking to keep costs down aren't as concerned about graphics performance, and will take the best deal from either company. AMD may have an advantage on graphics benchmarks, but the untrained eye has trouble recognizing that advantage on two PCs sitting next to each other on a retail store shelf, Peddie said.

"The problem is that if you go and look at the two things together, and there's not someone there to explain it to you, and Intel has the better price, they'll get the deal," he said.

It would be one thing if Nvidia was spending tons of money on marketing its products to the mainstream, Baker said. In that case, the presence of Nvidia's brand might help people decide which PC to buy. Building a widely recognized brand, however, is quite a challenge for companies that lack Intel's bank account.

"I don't have $400 million to go launch a new brand," AMD's Shutter said. "Where Intel has their vast amount of resources to go and do it their way, this is a guerilla tactic."

Over the last few years, AMD hasn't needed to take to the hills to compete with Intel. It simply rammed a better product down the bigger company's throat. But until AMD's quad-core products are ready in the middle of this year, the company must pick and choose its battles wisely. Analysts aren't convinced that stickers will make the difference but note that the company is better off operating from a position of strength.

"AMD has a superior part, but they don't have a vehicle for making consumers understand it," Peddie said. "It's got to be frustrating as hell."

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