How Intel's New Skylake Chips May Put Additional Pressure on AMD

The first reviews of Intel's PC enthusiast-focused processors based on the company's new Skylake core hit the Web a few weeks ago. As far as CPU performance goes, Skylake has proved to offer a respectable boost from the company's already leadership Haswell family of chips.

Interestingly enough, a number of third-party reviews showed that these Skylake processors deliver a fairly substantial boost in integrated graphics performance compared with the older Haswell chips. In fact, the tested Skylake processors appear to offer integrated graphics performance that is, in many cases, very close to what chips from longtime PC processor rival Advanced Micro Devices bring to the table.

It seems reasonable to expect that Intel's improved graphics technology should further bolster the attractiveness of its processors relative to those from Advanced Micro Devices, potentially leading to market share shift in favor of the former over the next year or so.

Why is this such a big deal?Intel's processor offerings have tended to feature better CPU performance than AMD's respective parts, but AMD's have had the advantage in terms of raw graphics performance. With Skylake, though, it seems that Intel is poised to lead in terms of integrated graphics performance, particularly in form factors that actually value strong integrated graphics (i.e. laptops, all-in-one PCs).

Indeed, although the recently launched Skylake chips offer graphics performance that is still behind AMD's best desktop parts, Intel's upcoming higher-end mobile-focused Skylake parts should offer substantially higher performance.

For example, the just-released desktop Skylake chips come with 24 of Intel's "Gen. 9" graphics cores. However, according to various leaks, for 15-watt and 28-watt notebooks, Intel has parts that include double the number of graphics cores, as well as 64 megabytes of fast on-package eDRAM cache -- enabling enhanced graphics performance.

For even higher-performance laptops, Intel is expected to launch chips with four CPU cores, 72 of the company's latest "Gen. 9" graphics cores, and a large 128-megabyte eDRAM cache. I expect that such parts will be quite fast -- as far as integrated graphics goes, at any rate.

It seems reasonable to expect that Intel's premium Skylake mobile processors (i.e., the configurations with additional graphics resources) will put Intel in the lead as far as high-end integrated graphics performance in PCs goes.

The lower end Skylake parts with 24 graphics cores could deliver close to the kind of graphics performance that one might expect from AMD processors but with vastly better CPU performance, making Intel's chips more attractive to potential customers.

What this means for investorsI think Intel's Skylake-based products will further improve the company's already robust competitive positioning vis-a-vis AMD. Although AMD's market share in PC processors is quite low at this point, it's not zero, which suggests that there's still room for Intel to nab market share.

Such a share shift in Intel's favor probably wouldn't have a big impact on Intel's business at this point, but continued share erosion on AMD's part could put it in an already tighter spot than it's already in.

Keep in mind that at current revenue and operating expense levels, AMD is losing money. If the struggling chipmaker cedes additional share to Intel in the PC market (a market that is generally viewed to be in secular decline), then AMD could yet again be compelled to lower its cost structure to stay afloat.

Given that AMD's current financial difficulties look as though they're caused by a relatively weak product portfolio, further reductions in research and development spend (which have come down substantially in recent years) may ultimately mean that the company is just delaying its inevitable demise.

AMD's research and development spending has been in decline for years. Source: AMD.

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Ashraf Eassa owns shares of Intel. The Motley Fool owns and recommends Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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