Honey, we missed our exit
When Hector Ruiz was in charge of AMD he decided to delay the move from 65nm to 45nm. At the time it was done to save money, but it actually hurt much more than people realized. It put AMD almost a generation behind in terms of process. This meant that AMD would not be able to push into higher performance CPUs in the same way that Intel was. They had to begin to cut things out to maintain die size and thermal envelopes.
The first thing to go was cache; AMD found that for the most part they could do away with this due to their much higher memory bandwidth than Intel's Northbridge bound systems. This was a good plan until Intel was able to push the FSB up to match memory speeds and also added in shared cache with the Conroe CPU. At that point AMD's decision came back to haunt them. Suddenly Intel had the lead in CPU performance and even memory bandwidth. This was something they had not enjoyed since the Athlon was launched back in the Slot A days!
Still, AMD has excellent engineers and an R&D department that is one of the best in the world. So we expected them to come right back and drop a bomb on Intel. Sadly this did not happen as the Phenom was very late to market and had a bug that killed up to 25% of its performance in certain applications. AMD lost some market acceptance and consumer trust; at least as far as their CPUs go. However, AMD was not stilling back and crying; they began to rework the Phenom.
Eventually, they hit the market with the Phenom II. This CPU was about two years too late, but it gave the performance that we should have seen when the first Phenom was released. As AMD could not compete with Intel's current high-end CPUs, they opted for a tried-and-tested approach. They went for the price/performance market.
If any of you remember the K6-2/3 days, AMD marketed to businesses and consumers by having a better performance per dollar than Intel. Sure, the Intel CPU was faster, but you had to pay significantly more to get it. So AMD made sure everyone knew that. At the time I worked for a shop that was 80-85% AMD sales. We had a huge DIY crowd and they gobbled up the AMD CPUs. Then the Athlon hit and sales jumped to 90-95% over the PIII and then especially the P4, but I am digressing here. The point is that AMD had a massive DIY following in those days that carried on through the Athlon 64, Opteron, Athlon X2, etc.
When the AM2 CPUs came out things fell off. People felt cheated; the AM2 was not a big step up over existing AMD CPUs. In reality it did not bring much more than DDR2 support (which at the time was not that good). Then Conroe hit and the rest you all pretty much know.
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