On October 12, one of the motley fool staffers (Stephen Simpson) wrote a piece entitled AMD Simply cant Win. In it, the writer seemed to me to hav ea far too negative stance on AMD that was just not warranted by some of the current facts. I felt compelled to point that out in the series of letters that follows.

http://www.fool.com/News/mft/2005/mft05101220.htm?ref=foolwatch

Mr. Simpson,
In your missive entitled "AMD Simply Cant Win" (October 12, 2005), you wrote about the juxtaposition of AMD announcements relative to the overall market intra-day trends and the apparent correlation that tends to have on keeping AMD from having a breakout day. I wanted to touch on a few of your points and just share with you my own humble thoughts. One of the many things you point out is that:

To me, the bigger issue is simply the fact that AMD has never been able to emerge from the considerable shadow of Intel (Nasdaq: INTC). In fact, it sometimes appears that Intel keeps AMD around just to avoid antitrust concerns."

Absolutely. In fact, its a little known industry tidbit that intel has infused AMD with cash several times, similar to the Microsoft "deal" a few years back whereby Microsoft gave Apple millions of dollars in a deal of questionable value to Microsoft, other than sustaining a primary contender to point to during antitrust hearings. Later on, you contend that:

"In such a well-established market, I can't see any pressing reason to buy shares of the runner-up. Sure, AMD has won a few battles with Intel in the past, and maybe customers such as Hewlett-Packard (NYSE: HPQ) and Sun Microsystems (Nasdaq: SUNW) can drive them higher. But we've had a long, long time to watch AMD, and it's never proved capable of delivering sustained high performance."

For years you have been absolutely correct. I have to tell you, I am not a financial analyst or even in the financial industry. I work IT and have for years. Ive used AMD processors at home since the days of the k6-2, and have ample experience with the pentium iterations as well as xeon and opteron at the server level. In all this time, I have to tell you that in the past 2 or 3 years, AMD R&D has paid off in innovation after innovation. Hyper-Transport. DDR RAM Integration. Teaming up with Nvidia to get specialized chipsets built for the enthusiast market. x64-86. AMD has had innovation after innovation and established itself clearly as a market leader in the enthusiast space. Still, in the broader market, intel is still the most user friendly. I mean really, when is the last time you heard of someone having a problem getting a driver for an intel chipset?

Intel, though at times technologically inferior, has the supreme advantage of being the entrenched Alpha company, if you will. It has been industry knowledge, widely acknowledged within the major Desktop and Server vendors that "rebates" (AKA payoffs) have been keeping intel as the dominant player in server and desktop design. Announce a model based on an AMD chipset? Oh gee, I dunno if we can give you as big a rebate this year... I know you have already based your annual sales model on the inclusion of these things but... well that AMD desktop you guys are planning... i dunno about that. If there are no new designs being engineered for your processor, no additional units are going to be sold.

I would submit that although it will take time, the antitrust case against Intel will prevail. It will be a difficult, expensive, uphill battle for AMD but the simple truth of the industry is that Intel has been engaging in practices that if properly documented will be deemed improper. With adequate safeguards imposed by the judicial system, allowing AMD to compete on the basis of technology and innovation rather than what amounts to a system of financial kickbacks, I strongly feel that AMD will improve its bottomline, leverage newly-online fabrication facilities to continue innovation into lower-power, more efficient processors, and deliver the sort of long-term sustained performance that the investment market has craved.

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In his reply to me, Stephen wrote that:

Mr. Frazee,
The larger issue, for me, is this -- companies that don't have a history of success tend to continue that poor history. So, I'm not saying that AMD *can't* do better and create a sustainable and high-quality business, but I think the odds are against them.

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I felt compelled to reply, even though I partially agree with his point:

I would definitely have to agree, the chips are stacked against them. One of the big numbers from this past quarter's results that I havent seen much talk about is that the accounts payable has almost doubled over the same quarter last year. And while this can certainly reflect accounts due for materials of ongoing sales operations, the ratio of accounts payable against last quarter's revenues are very large. Beyond that, AMD still has had massive debt against losses in years past.

In order to deliver solid long-term performance, AMD needs to work on paying down long-term debt, buy back a little bit of outstanding stock, capitalize on the antitrust suit and the ensuing PR, do a better job of marketing to the mainstream desktop space, and continue to focus on deals with hardware vendors to bundle in hardware products.

One place that AMD continues to fail over the years is PR. The model numbering idea? Disaster. Not because of the idea but because of the presentation and lack of public education. If you dont get out there and let the public know what you are doing, users see 3200+ and something about 2GHz and dont know what the hell is going on. In the enthusiast space, they can capitalize more and more on the market by Spendin g a few man hours of developer time, drop technical info to major online periodicals for the tech space. Ars Technica. CNet. A few gaming magazines. Make a big deal out of what you guys are working on with Nvidia and next couple generations of hardware.

This new fab? I have seen one interview, just one about what that means to AMD. Get out there and say something. Get the AMD name in front of the public, educate them that there is an alternative to Intel, and continue to execute.

AMD has the ability to deliver this sort of long term performance but I too am unsure if they will be able to recognize and capitalize in areas where for years they have appeared ignorant.