If AMD Collapses, Consumers Might Have Fewer Budget Computer Options

Always a distant-second to Intel in terms of marketshare, it seems like AMD has consistently fallen on hard times. The last several years have been particularly unkind to the little chip-maker who could. For several years, their part of the CPU industry has begun to slip away as they've lost more money and customers to both Intel and NVIDIA (with whom they compete in the graphics chips arena).

Last week, news began to spread that AMD might have to shutter its doors, and if the manufacturer folds, it could have a big impact on the prices consumers will pay for computers, especially laptops.

AMD's Business Woes Come to a Head

Over the past year, AMD has had to cut its workforce multiple times — most recently slashing it by 15% — because the company has lost a considerable amount of its cash flow. Furthermore, AMD is seeing stiff competition in the mobile sector, as its typically low-power and low-cost chips are being threatened by ARM Holdings, makers of even better low-powered, low-cost chips. AMD's stock price has thus plummeted over 60% this year while its debt has increased to almost $2 billion.

How Can AMD Avoid Shutting Down Production?

In order to avoid demise, AMD can invest more in R&D and new technologies in order to obtain a better position in the mobile chip market. The company could also buyout another company already in the mobile market to get a head-start. But likely on account of AMD's declining cash reserves, the company instead announced that it will license several technologies from ARM to build its next generation of low-power chips for servers. However, the products that would result from this deal aren't expected to see the light of day until 2014, which might be too late.

Some analysts believe that the only remaining options for AMD are for it to sell off its patents or put the entire company on the market. However, due to a convoluted agreement with Intel over a license that allows software to run on both Intel and AMD chips, any company looking to buy AMD is also buying a huge legal conundrum. Intel has agreed not to sue or block any purchase of AMD, but for just one year. During this time, Intel would have to hold negotiations with AMD and the purchasing company to come to a new agreement, meaning AMD essentially can't sell or transfer its technology to a new company without Intel giving it the go-ahead.

Without AMD, Consumers Will Have Fewer Affordable Computer Options

If AMD collapses, it will be terrible for shoppers who want low-priced budget computer systems. Sure, in the short-term, we might see fire-sale-quality discounts on AMD chips and computers that feature them. But in the long-term, the disappearance of another chip manufacturer means that Intel would face none of the competition that has kept its prices in check. Historically, Intel chips have been more expensive than AMD chips anyway, but Intel knew that it had to put limits on how much more expensive they could be because AMD was there to pick up any disillusioned customers. Without AMD, there will be less pressure on Intel to price its chips as aggressively.

But more importantly, AMD has always been the cheaper option for those who don't need the fanciest configurations. Consider, for example, the fact that just this month we listed two nearly-identical laptops. One was a 4-lb. HP Pavilion 14" Sleekbook with an Intel Core i3 dual-core CPU, as well as 4GB of RAM, a 500GB hard drive, and Windows 8, for $399.99. We also listed a similar Sleekbook, with the same RAM, storage, and OS, for $374.99. The only difference? It featured an AMD dual-core CPU, instead of Intel. In this case, that difference saved you $25, but in many cases it could save you much more.

From another perspective, the Intel laptop is only $25 more because AMD exists. In a world without competition, that Intel laptop could cost much more, simply because there would be nothing stopping Intel from charging computer makers a lot more for its chips.

Front page photo credit: Vault Networks
Photo credits: Xbit Laboratories and Anandtech