I’ve talked before about the disadvantages of the Intel 8086. But in spite of its weaknesses, it won. The CPU you are using right now descended from it. Even if you’re reading this on a smartphone, the server that sent the page to your smartphone has an Intel 8086 descendant in it. So what are some advantages of Intel processors? They won for a reason.
Intel won because it priced its CPUs cheaply, but not too cheaply. Plenty of companies came and went who made better CPUs. Digital Equipment Corporation is a fine example. But Intel CPUs were cheaper than CPUs from companies like DEC, HP, Sun, and others. That gave Intel a larger market.
In the 1990s, about a half dozen companies tried their hand at undercutting Intel’s prices, selling clone CPUs. Intel held them off in two ways. First, the Intel chips usually were faster at math operations necessary for 3D gaming. Between this advantage and the competitors’ much lower margins, Intel slowly drove all of them from the market except AMD.
Pricing CPUs too cheaply cuts into the capital necessary for future investment. Commodore once had a vertical integration that could make Intel jealous. But Commodore rarely invested money into making its manufacturing more efficient.
Aggressive, predictable price cuts
Intel generally cuts prices every quarter, and has been doing so for decades. Computer manufacturers love this, as it lets them design a model to hit a price point months in advance. Intel can do this because they own a large number of chip plants, nicknamed “fabs” in the industry. They always have some number of fabs idle, undergoing modernization to get ready to produce the next generation of smaller, faster, and cheaper chips. When a fab is ready for the new manufacturing process, Intel shuts down and modernizes another one. Intel rotates the fabs in and out of production so it can always make those price cuts.
Intel hardly needs IBM now, but in 1981, winning IBM’s backing was critical. IBM used the Intel 8088 CPU in its IBM PC. Microsoft really wanted IBM to use the Motorola 68000 CPU and run Xenix, Microsoft’s Unix, on it. I’m not making that up. But the Intel 8088 was a lot cheaper than the Motorola 68000. The IBM PC was anything but cheap, but the Intel 8088 let IBM get the profit margin it wanted.
You know the rest of this story. The IBM PC grew popular, thanks to IBM’s big name and a killer app called Lotus 1-2-3. Other companies cloned the IBM PC and turned it into an industry. Hundreds of imitators were more than happy to accept thinner profit margins than IBM. Intel went from sharing the desktop CPU market with Commodore, Zilog, and Motorola to having all of it. From there it moved upward into high-end computing too, where it had been non-existent.
If IBM had listened to Bill Gates and built a 68000-based Xenix machine and called that the IBM PC, Intel would probably be in a different position today.
Intel’s formula wouldn’t work if the chips weren’t any good. Intel had a good-enough chip at a reasonable enough price to attract IBM. And by the time any Intel chip reached obsolescence, Intel had a new, good-enough chip ready to replace it. That allowed Intel to hang in there until its chips caught up with other competitors one by one. It took a quarter century to catch them all. But markets favor the good-enough, cheap-enough solution. Intel did a better job of positioning itself in that sweet spot over the long haul than anyone else.
From time to time, AMD makes a better chip. AMD did it in 2005 with its Athlon 64 line, and then did it again in 2017 with its Ryzen line. The competition keeps Intel honest, but AMD’s advantage, when it gets one, typically only lasts one chip generation. Intel has built up such an advantage since the 1970s that it will have to do a lot of things wrong for a very long time to squander it.