Those of us aware of AMD’s tremendous potential as a chipmaker have to be disappointed by Apple’s recent news that it has chosen Intel as the sole chip provider for its Macintosh computers. In addition to the Apple news, AMD continues to strike out many of the world’s largest PC OEMs, such as Dell. If the Apple news is true, this would come as a yet another financial hit to AMD and its strategies. Unfortunately for AMD, it is trapped in a vicious circle of supply and demand.

While manufacturers like Dell, Apple and others do care about performance, value and possible alternative chip suppliers, they always have a difficult time picking AMD as a supplier. The reason is clear: limited supply. Larger OEMs like Dell (and even Apple) demand high volumes of chips to fulfill its orders. Since AMD can’t provide such quantities, it’s hindering its own success in the market. We can’t exactly blame AMD with this because it has to work with the limited financial resources it has.

The vicious cycle for AMD operates somewhat like this: AMD wants to expand à AMD can’t expand due to limited revenue à AMD proposes OEMs to offer PCs equipped with its chips à OEMs decline due to lack of enough chips à AMD is back to square one. Clearly, this is neither AMD’s nor the OEM’s fault. AMD wants to supply its chips, but OEMs need enough quantity to cover the millions of PCs they retail annually.

Since Intel’s business ventures go beyond making processors, it can cope with the costs of opening new fabrication facilities, thereby increasing production and offering better deals to OEMs that need to purchase quantities in the millions. Additionally, Intel can accept some losses in its chip business here and there, while AMD really can’t.

Though OEMs, including Apple, are aware of the architectural issues with Intel’s microprocessors, it’s not much of a concern to them. The majority of the market they retail to isn’t aware of the issues, and the systems are "fast enough" for the customers they are targeting. How much of the general computing population do you think will know the performance difference between dual-core Intel and AMD microprocessors? Yes, that’s right – not very many. The main thing many customers are looking for is affordability and brand recognition, and Intel can definitely offer that.

Some might argue that AMD’s upcoming fabrication facility should be able to keep up with the Apple’s and possibly other OEM’s demands, but that will likely not happen. Assuming the news information is indeed true, Apple has plans to completely move its entire product line to Intel processors by mid-2007, with its iBook and PowerBook line of systems moving to Intel microprocessors by mid-2006. The current plans on AMD’s financing, construction scheduling, capacity and operational schedules for its new fabrication facility are unknown, which makes AMD a huge risk. Apple can’t simply hope for AMD to deliver a working fabrication facility to meet its timeframe by the time Apple ready to move its product line to x86 architecture. After all, Apple would be investing heavily in AMD and although that could turn out to be a good thing for AMD, it’s still a risky to make a decision hoping that AMD will cope with demands.

In this scenario, AMD is once again backed into a corner. For AMD, the problems are difficult to remedy, as they are quite interwoven. AMD simply can’t ramp up its production without financial support, and few companies are willing to opt for AMD and risk having their production schedules slipped. Evidently, having superior technology and better overall performance isn’t going to help AMD this time around.

Regardless, AMD can rest assured that they are the darlings of the enthusiast market. If you go into the forums on any popular hardware publication, you will be surprised at the amount of traffic in the AMD section as opposed to the Intel section. You might just be shocked at the typical 4 to 1 ratio in favor of AMD. We definitely know who makes the superior product these days. I often hear my colleagues say "Does Intel still make CPUs?", or "Intel, isn’t that the name of those funny blue men?" Ahem, right. Well, I hope you get my point.