Zardon

interesting article at ZDnet news today, here is some of the article, the rest can be seen at http://zdnet.com.com/2100-1103-915032.html:

Both AMD and Intel proudly claim they can make chips cheaper than the other guy, but after going through the math and examining the two companies' divergent strategies, analysts conclude it's a dead heat.
It probably costs Intel $21 or less to pop out the silicon inside a Pentium 4 on its most advanced manufacturing lines, while AMD shells out $22 or less on its best Athlon chip, according to analysts' estimates. Eventually, after several more manufacturing steps, these turn into processors that sell for between $130 and $637.

Intel and AMD, however, tell a different story. For the past year, AMD has said the smaller size of its Athlon and of its upcoming Hammer chips give the company a physically intractable advantage.
Intel Chief Financial Officer Andy Bryant threw gas on the fire at the company's analyst meeting in April by declaring that Intel's new factories, which process larger wafers, with 300-millimeter diameters, make it the low-cost leader. He added that Intel's yield, or number of good chips per wafer, was 50 percent higher than that of an unnamed competitor.

"Through these investments we have cost leadership," Bryant said. "Don't buy a story that says Intel has a cost problem."

Days later, AMD Chairman Jerry Sanders gleefully responded to Intel's claim of superior yields.

"How do you spell 'bull****'?" Sanders asked investors and analysts at Merrill Lynch's Hardware Heaven conference in San Francisco in late April. "The only way they could do that would be to invent a perpetual-motion machine...We will put our yields up against anybody's."

A cost advantage would be a crucial weapon for either company. Astronomical fixed costs are a brutal fact of life in the semiconductor market. Manufacturers have to spend billions on factories, equipment and employees before the first chips even come out. Success or failure largely hinges on making as many chips as possible to spread the "hard" costs as thinly as possible. Smaller chips, or larger wafers, lower expenses by letting makers produce more chips from each wafer. Low manufacturing costs also ensure low prices for consumers.

Tough talk aside, neither Intel nor AMD achieved a major edge, a situation that won't likely change with the next generation of chips. Still, the equations are filled with so many variables and accounting assumptions that the debate will likely never be settled.

"I don't think either one has a significant advantage" in terms of cost, said Kevin Krewell, an analyst with Microprocessor Report, an influential industry newsletter, who added that calculating costs "is an inexact science."

Instead, chip prices will be the overriding factor in the competition, and once again AMD's lower prices will likely hurt the company.

Sizing up the competition
The battle between AMD and Intel largely comes down to the differing strategies each company took with the design of its chips.

Sunnyvale, Calif.-based AMD focused primarily on reducing the size of its chip, called the "die." (The die is tested, wrapped in a ceramic or plastic package, and then sold as a processor.) "Thoroughbred," a version of the Athlon chip manufactured using the 130-nanometer manufacturing process--which refers to the average size of the features on the chip--occupies 84 square millimeters, 36 percent smaller than the latest Pentium 4 chip, which takes up 131 square millimeters.

"AMD has a distinct, differentiated strategy," said Joe Osha, an analyst at Merrill Lynch, who added that the manufacturing costs are close. "They don't have the ability to spend money (on new factories) at the same rate as Intel"--new factories that would allow AMD to produce larger wafers. "The strategy is about as good as you could have come up with."

The advantage will continue even after both companies shrink their chips in 2003 by moving to the 90-nanometer manufacturing process.

"Prescott," the next version of the Pentium 4, will occupy 90 square millimeters, according to AMD estimates, while Clawhammer, AMD's next-generation chip, will take up only 63 square millimeters. By that time, Thoroughbred will take up only 50 square millimeters.

Intel's die sizes "are just too damn big," said Sanders, adding that AMD enjoys a 43 percent to 80 percent cost advantage, depending on the chips being compared.