It’s not AMD.
As Moore’s Second Law, the idea that the cost of producing computer chips rise with their complexity, continues to bite down hard, AMD has become the Washington Generals to Intel’s Harlem Globetrotters.
Intel’s real rival today is IBM, and this holds important clues to the future of Intel, and of technology in general.
IBM’s latest chip offering is the Power7.
It’s what makes IBM Intel’s biggest headache that is most illustrative. IBM puts its chips into its own computers. Its systems, in turn, are often part of a larger sale, one that includes service, support, and software.
IBM has used this strategy to grab server market share, a whopping 12 points of share since 2004. The reason Oracle bought Sun was to acquire some of this vertical integration.
But wait, there’s more. Wikipedia notes that the Power7 emerged from technology originally created under contract to the military starting in 2006.
So this is not just a chip. It’s a system, and it’s not just a system, but one whose research was subsidized in part by the government. The chip was produced in Rochester, NY, Austin, Texas, and a research center in Germany IBM has run since the 1950s.
It’s by having multiple revenue streams, including those from selling complete computer systems rather than just chips, that IBM has become dangerous to Intel. Its path to future progress is clearer.
IBM is going “up the stack,” grabbing full value from the market for what it makes. Intel, by contrast, mainly sells chips. So when IBM sells a Power7 chip in a system, Intel has to sell hundreds of chips to make the same revenue. And it’s revenue that Moore’s Second Law consumes.
I have written about Moore’s Law throughout my career, but Moore’s Second is also vital to any understanding of 21st century change. Complexity comes at a cost, and as complexity increases exponentially, doubling every year or two, so costs increase.
All this squeezes competition over time. It also forces companies to seek new sources of revenue, running up the value chain in order to pay for the next generation of innovation.
Moore’s Law set a locomotive on the tracks. It started moving slowly, because when 2 becomes 4 it’s not a big deal. Gradually the speed increases, and now 2 trillion is becoming 4 trillion. Cash is coal in this analogy, and IBM just has more sources of it right now than anyone else.