Has Intel crushed AMD?
The scrappy chipmaker has plenty of life left – but mistakes have cost it dearly.
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| AMD’s manufacturing facility in Dresden isn’t yet producing enough quad-core chips to boost the bottom line. Photo: Sven Doering/AMD |
If you’d like to beat up on Advanced Micro Devices CEO Hector Ruiz, now would appear to be a good time. Ruiz has won praise for helping the chipmaker mature into a worthy challenger to industry heavyweight Intel, but as he prepares for a Thursday meeting with Wall Street analysts, AMD has the look of a well-used punching bag.
Its stock this year has dropped by half, and in recent weeks it has dipped below $10 per share for the first time since 2003. That price marks a disheartening throwback to the days when PC makers didn’t take AMD’s processors seriously and its market share was weaker at about 15 percent. There’s good reason for the share price collapse: though AMD landed a few good shots in recent years, Intel (INTC) has bounced back with a popular, competitively priced product lineup that’s grabbing back some market share and erasing its rival’s profits.
As a result, AMD (AMD) is bleeding cash — the company reported a loss of $396 million last quarter alone. That puts AMD in a tricky financial position. The company has more than $5 billion in debt, much of it from the acquisition of graphics chipmaker ATI, but it it needs cash both to finance future projects and to pay for earlier acquisitions. (The ATI purchase is still causing headaches; AMD today said it will take a significant writedown from the $5.4 billion transaction, a possible sign it overpaid.)
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| AMD got a boost from the original Opteron server chip and other advances, but Intel has come back with a vengeance |
That’s not all the bad news. AMD’s answer to the Intel onslaught, its much-hyped Barcelona server chip, is plagued by glitches and the company hasn’t managed to ship it in time to save the day. Word of the latest setback came last week — AMD now says the chip that was originally due this summer won’t reach most customers until just before spring 2008. There are even rumors that Ruiz could face pressure to step aside.
AMD’s success or failure will have a broad impact on the computer industry. Though Intel dwarfs the company, AMD has produced innovative designs that have given PC makers more options. Perhaps most important, AMD gets credit for keeping Intel from getting too complacent, spurring both companies to produce better technology.
But all is not lost for AMD or its investors. True, Ruiz had recently built the company’s reputation on technology that business customers use for back-end computing tasks, and AMD executives bragged too soon that Barcelona would leave Intel in the dust, leaving egg on their faces. But there are still plenty of other areas where AMD can hope to make money. For example, industry observers are buzzing that the company seems to be winning back customers to its graphics processors. And if AMD continues to gain market share in the fast-growing laptop segment, it will go a long way.
“If you plot our trajectory from Q1 all the way through Q3 in our public numbers, every quarter we have done a little bit better than the quarter before,” says Mario Rivas, AMD executive vice president of the computing products group, which handles processor development. “We have better average selling prices, better margins — still in the red, but now we are very close to the black.”
Analysts agree. “AMD has actually gained a lot of share, a lot of acceptance,” says ThinkEquity Partners analyst Robert Burleson. “I don’t think it’s a disaster for AMD. Certainly they need to recover.”
At this week’s analyst meeting, however, Ruiz is sure to field plenty of questions about servers and Barcelona. For AMD to have a fighting chance against a resurgent Intel, it will have to prove it can fix these sorts of problems. So what went wrong?
Pride Before a Fall
For starters, it’s clear that AMD’s top bosses drank too much of their own Kool-Aid. At the same time that they over-estimated the impact Barcelona would have, they under-estimated Intel’s ability to respond with its own server chip improvements. Gordon Haff, principal IT advisor for consulting firm Illuminata, says that cocksure stance was on full display. “Execution aside, one of the problems with Barcelona is that they set up this expectation that Barcelona was just going to whip Intel,” Haff says. “As recently as mid-to-late summer, that was the kind of message they would bring out: When this chip’s out there, Intel’s just going to have to duck and cover.”
It’s easy to understand how Ruiz & Co. could get a bit overconfident. Just three years ago, AMD was pumping out profits and its stock was rocketing upward. A server chip code-named Hammer had busted open the corporate market for AMD. Rather than focus too much on raw speed, AMD’s chip designers made sure Hammer would be energy efficient and would do a good job running both older software and newer 64-bit applications.
A financial edge from edgy PC design (Photos 1-7)
AMD caught Intel flat-footed. Not only did the company win sales with the Hammer chip, which it marketed as Opteron, but it also got something more valuable: respect. No longer did computer makers view AMD products as just a last-ditch option when they couldn’t afford Intel chips. AMD was an innovator. The customer roster reflected the change. Though only IBM (IBM) had signed up with AMD to use Opteron when it launched, AMD was soon selling chips to every major server shop except Dell (DELL).
Even better, a halo effect from Opteron spread to AMD’s other products. The same PC makers who flocked to Opteron for their servers began using more AMD chips in their desktops and laptops too, boosting the company’s market share and revenues.
So in 2004, as AMD’s executive strategy committee including CEO Ruiz and President Dirk Meyer planned the next act for Opteron, they were thinking big. The future, they knew, was in multi-core processors that have more than one computing brain on a single chip. The next server battle would be won or lost, they decided, with four-core processors – so they would try to design a quad-core chip more elegant than the one Intel was bringing to market.
The Barcelona Gamble
While Intel planned to reach quad-core quickly by taking two dual-core chips and tying them together, AMD would instead try to leapfrog Intel with a strategy it calls “true quad-core,” where all four cores were designed to work together optimally and efficiently. Sure, the complexity of the Barcelona design meant Intel could claim quad-core bragging rights first, with its dual-core compromise. So AMD would have to hope customers would wait a little longer to check out Barcelona, and count on AMD to deliver another Hammer-like breakthrough.
By mid-2007 though, things clearly weren’t working out as well as AMD executives had hoped. An AMD team in Texas was working with customers to run tests on the chip when the design flaw surfaced. After an internal panel reviewed the glitch and determined that it could possibly afflict real-world customers, they decided to take the chip back to the drawing board, Rivas says. “The design itself, intrinsically, is a good design,” he says. “We will get silicon in early January. We will take it through its paces, we will test it, and start delivering samples to our partners.”
New design in HP’s business displays (Photos 1-5)
Delays weren’t the only problem. AMD also announced that the first versions of Barcelona would run more slowly than expected. The rationale was that most server customers don’t buy the fastest chips, anyway; they prefer slower, more affordable chips that run more efficiently. But with AMD’s belated chip expected at speeds slower than Intel’s available offerings, Barcelona was looking much less like an Intel killer. Last week’s news of further delays were the third blow; AMD executives now say Barcelona won’t ship in healthy volumes until the end of the first quarter, when it will be nearly a year late by some measures.
“Barcelona is the most complex x86 processor ever designed,” says AMD’s Rivas. “We encountered some unexpected challenges when we were wrapping up the part in the middle of November. … Unfortunately it requires another revision of the silicon.”
Rivas says the revised Barcelona design should be available in mid-January, and the chips will ship in volume at by spring 2008.
Meanwhile, Intel has taken full advantage of AMD’s gaffes. In November, the chip giant announced an updated version of its quad-core Xeon, dubbed Penryn, that’s made with an advanced 45-nanometer manufacturing process. (AMD’s 45-nanometer Barcelona chip isn’t expected until late next year.) Intel’s competitive move weakens the chances that AMD will pull in big profits when the first big volumes of Barcelona chips finally arrive.
Two Competitors
Despite AMD’s Barcelona headaches, much of the server market seems to be rooting for AMD.
“I think AMD’s proven themselves as being an enterprise-class product — if they’d had this kind of glitch before they had proven themselves, it would be far more detrimental,” said David Driggers, co-founder and chief technology officer at Verari Systems, a specialty server maker in San Diego. “People are cutting them a bit of slack. I think most of the marketplace knows that to have really healthy technology, we need two competitors, not just one. I think even Intel knows that now. They’re sharper and stronger now because of AMD.”
In the laptop and desktop market, where trends will ultimately decide AMD’s fate, customers are taking a similarly patient tone. AMD is gaining market share in consumer laptops, but still has a long way to go in the higher-end business laptops that command a premium and deliver profits. A new AMD laptop processor due in 2008 should help the company make gains with smaller businesses, and another in 2009, code-named Puma, could lure larger businesses.
Philip McKinney, Hewlett-Packard’s (HPQ) chief technology officer for its PC division, said the major hurdle for AMD to clear in the business laptop market is power efficiency.
“If you look at the product line today and you stack up Intel against AMD on a chipset basis, the AMD chipsets are still at a negative power impact. In the enterprise market, that’s the number-one criterion for selection – it’s battery life,” McKinney says. “But the current roadmap at AMD we think is very, very strong.”
If AMD can deliver the planned laptop chips on time, we might see a day when these Barcelona woes seem like a bad dream. For AMD executives, and scarred investors, that day can’t come too soon.
I recently purchased an HP Pavilion DV6646US labtop. It features an AMD processor. I can’t remember how much grief I got from my friends about the choice I made. Of course, they work at Dell and they tell me about the horror stories about AMD labtops. I was sketpical at first, but I risked it and handed Circuit City $800.
As a consumer, I willing to pay for what I get. As a full time accountant, I ask myself why should I invest in technology that’s going to get outdated in the next three months. Who keeps up with all this stuff? Unless your job depends on the quality of your computer or that you are filthy rich, I don’t see any point. As far as my “investment,” I love it. I own two core 2 duo labtops that I purchased last year. Both of them cost way more than $800. My AMD beats it by a mile. Thanks to Vista little CPU meter, it never gets past 50%.
My first two PC’s were both AMD. Considering the abuse both I and my family have put them through over the years, I will have to give AMD high marks for durability. Having said that, I have begun looking into replacing my aged AMD 2200+ x64/ATI 9250 combo with something that won’t have a coronary with Vista. Frankly, the performance gap between AMD’s CPU technology and Intel’s Quad core offering is far too wide to ignore. In addition, ATI’s inability to keep up with the GeForce 8800 series cards in the new graphics-intensive games put another nail firmly in the AMD coffin. Sad to say it, but AMD has nothing out now that would convince me to concentrate my search on anything but Socket 775.
AMD = Advanced Micro Disasters
Their chips are a joke. I wouldn’t let my dog use a device with an AMD chip in it. I believe that AMD chips should be used for that “One Laptop Per Child” thing. They aren’t looking for real power with those things.
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http://www.soundclick.com/bands/page_music.cfm?bandID=64492
The big difference between AMD and Intel is rather simple. Intel makes computer parts of all types, all colors, all varieties and does them VERY well in huge volumes quickly and AMD does not. When Intel’s management finally let their engineers (and money) loose, the new line of processors came out and smoked AMD in every respect. Out produced, out engineered, out marketed and most importantly, out cashed, there’s no way AMD could keep up. Intel cuts its margins on processors, so what, make it up in flash memory or other chips and destory the competition. Intel wins.
They [AMD] should to return to where it came from and selling lower cost, lower end processors that are not necessarily the hotrod …but gets the job done. They’re missing out in multi-million dollar data centers (not as energy efficent, not faster, not more reliable, less configurations), in the desktop world, the mobile world, all of them. AMD loses.
Enthusiasts may talk a big talk but they don’t drive the market — business does. I am a developer, I am an IT pro and I’m an investor (small time) and I’ve yet to consider AMD for the last few years. Three years ago, maybe. Today, absolutely not. AMD does not offer a superior product in any respect for any platform.
Do I think AMD is dead? No. Do I agree with the article? Yes, AMD has screwed up as of late, the quads would’ve helped. Do I think they can make a come-back? Probably not like before, Intel’s paying attention now. Will they always be there? I hope so, competition is good.
I’ve been a big fan of AMD for years. They’re certainly not dead in the water yet. I’m no IT profession, industry insider, or financial guru.. I’m just a “computer enthusiast”.. But for the last several systems I’ve put together, AMD has provided me with excellent value, efficiency, and reliability.. far better than the boxes I was building using Intel chips.
Is that in any way “Definitive?” Of course not. Nor does it mean I think that AMD can “do no wrong.” I firmly believe that the aquisition of ATI was an utterly boneheaded move, considering ATI was/is strictly a “2nd rate player” in the video card market..
But all in all, AMD builds a superior product, in my opinion. Better chip design, better support architecture, and ultimately, less relying on clock speed as the “be-all, end-all of performance”.
When the AMD “Phenom” X4’s hit the market, I’ll be standing there with cash in hand. Now if I could only find somebody to make a motherboard with all the features I want that’ll use Rambus’ XDR2 memory..
To Gumby, Rio Vista, California
I guess you haven’t yet heard that Intel’s Nehalem platform will be carrying integrated graphics within the cpu on certain models, which kind of steals AMD’s thunder, before it even launched.
Hey you muckers!
It will probably be the Fusion chip that will help AMD. Fusion will have graphic coprocessor inside the processor chip and eliminate graphic card or intergreated graphic card on the mobo. It iwll spell energy efficiency that will win the battle! Most of us are not gamers that demand 250 watt graphic cards . We want computers that can be left turned on around the clock and not worrying about utility bills. We are sick and tired of booting up computers or paying too much for electricity for idle compuyters with power hungry moderate graphic cards or intergrated graphics chips. I suppose that the graphic component in the Fusion will consume only five or ten watts or less.
To Julie, Austin, TX
Perhaps I didn’t word myself as clearly as I had hoped. My point was that K6, K7, and K8 weren’t all-AMD designs.
K6 was NexGen, K7 and K8 were designed by what was left of the NexGen team/AMD, so it wasn’t AMD on their own that designed K7 & K8.
By the time K8 rolled out, most of the NexGen team had left AMD.
- JM
To JM, Silicon Valley
You are incorrect. K6 was from NexGen. K6 kept them alive after the K5 debacle.
The K7 and K8 designs were in-house and have been excellent triumphs of technology. Ruiz seems to still be catching the glory of K8 success despite that it was conceived and initial tapeouts complete before he ever got there.
Barcelona happens to be as late as just about every other major processor launch from either AMD or Intel the last 10+ years. Kudos to Intel for not being late on their last major launch which is what is hurting AMD right now.
I wonder if AMD R&D teams really care about their success since stock options have been taken away. With no link to future fortunes, what incentive do the engineering teams have to combat Chipzilla?
Let us not forget: At least AMD was performing field testing whent they caught the flaw; dont forget Intel Pentium Math: 1 + 1 =2.00000001…
AMD shall return as long as they continue their partnership with MS!
http://fakesteveballmer.blogspot.com
My Acer 5100 with AMD Turion 64X2 Mobile technology TL56 is a marvelous piece of technology with fluid and fast performance and dazzling ATI Radeon Express graphics:in all excellent value for money. Better times will come for AMD and its investors when current Barcelona glitches will eventually be solved!Time to buy the shares….
One thing this article fails to mention is that the K6, K7, and subsequently, K8, designs, we NOT in-house designs for AMD. They were originally designed by the company NexGen, which AMD bought after they screwed up their K5 design. Funny, now the next chip, that’s all-AMD in design, was late, underperforming, and full of bugs… Just like K5.
It’s a shame that both Intel and Amd are the dominant cpu players today. The most effecient and powerful chips have gone the way of the dinosure and now we’re left with x86 architecture. Now all the rage is to use the gpu of the video card to make up for the x86 floating point short comings. Man, I miss the days of Mips, DEC alpha, Hp Pa-risc, Power PC… If these companies had what Intel had we’d be computing light speeds ahead of what we are today.
The article’s title misses the real point. Intel didn’t crush AMD. AMD self-destructed. AMD’s latest creation has a bug, cannot be ramped up in volume, and cannot attain high clockspeeds. Also, by overfocusing on quad-core, AMD is left without a competitive dual-core solution to compete with Intel’s dual-core desktop and notebook offerings. AMD has repeatedly shot itself in the foot and self-destructed.
AMD made gains on Intel when Intel’s development was unfocused/misdirected. Now that AMD is in Intel’s crosshairs and chip development is focused in the correct direction, I’m afraid AMD doesn’t stand much of a chance.
AMD did get overly confident. When you name your chip “the hammer” and start taking market share away from the industry leader in the highest performance and profit segment, you’re going to get their attention. Intel refocused and cut some of their dumber initiatives like Itanium and Rambus and introduced the low-power high-performance Core architecture based upon the P3. Now there will be no mercy for AMD, and don’t be surprised to see Intel two full architectures and die shrinks ahead of AMD within three years.
Unfortunately, AMD is nearly a full process node behind Intel. AMD’s most advanced production process is still 65nm while Intel moved to 45nm earlier this year. That is going to be a big hurdle to overcome, especially given the steady decline in microprocessor ASPs.
AMD put too many eggs in one basket and got poached eggs. Having one hit wonders will not satisfy anyone. Intel is back, that’s not going to change anytime soon. AMD needs to shake up it’s processor design team and get some REAL work done short term and long term. AMD’s job now is to keep Intel’s chip pricing in check as #2 and hope for the day their processors earn some respect again. That said, I won’t be buying an AMD chip this time around.. maybe next time if AMD’s r&d finally produces a better processor widget.
AMD is crushing itself.
Just as Intel did in recent years.
Ruiz’arrogance, hubris, and propensity to behave as a spoiled brat in filing specious lawsuits against Intel is a summative prescription to get his chips cleaned. AMD can’t compete on a ethical playing field so it resorts to hyperbole, lies, media gamesmanship, posturing, frivolous lawsuits, paid testimonials, and unadulterated bs. On the good side of the ledger, it serves to deflect criticism of Intel on specious charges of behaving in an uncontested arena. Envy will get it nowhere.
Dearborn, MI
what are you talking about? it has only been in recent years that Intel has even come close to “crushing” AMD(which i think is an overstatement). Intel was hellbent on chip speed, and still kinda is. AMD takes into account chip speed, energy consumption and is aiming to take another hit at Intel in the server market.
Bottom line: Intel is a huge company with their hands in a lot of different markets. All it takes is one chip in the server market that could make Intel keep playing catchup in that market to AMD, as long as AMD runs their business efficiently with their new found market share(CA$H).
What they fail to mention is a lot of AMD’s success in the K6/K7/K8 time frame (”A server chip code-named Hammer had busted open the corporate market for AMD”), was due to NVIDIA’s partnership. NVIDIA made world-class chipsets for AMD CPUs, reaching new heights in performance (overclockability - a key feature for gamers) and technology (SLI, Hypertransport, dual gigabit ethernet). Prior to NVIDIA’s partnership, AMD’s fortunes were tied to SIS, ALI and Via, and none of those guys where going to take AMD to nirvana. One decision I really criticize Hector for is that he thought ATI and NVDA were interchangeable when he made his acquisition.
In the “two competitors” section, the piece completely ignores the fact that AMD’s graphics group is fighting a world-class competitor in NVIDIA as well. The last great product ATI had was Radeon 9700 and NVIDIA has been taking market share since. It really feels like a case of the Germans fighting on two fronts in late WWII, resources are stretched thin, and there is no possible way to focus your attention to win one of the wars. A battle here and there perhaps. But the war, no possible way.
I suppose this article was written before the filing of the ATI impairment charge and ahead of the Financial Analyst meeting.
How does this bode for AMD? This is a well written article but would like to see post Financial Analyst meeting revisions if it makes sense to do that.
Cheers
What do you mean when you asks “Has Intel Crushed AMD”?That took place back in 1986 as you are well-aware of. Don’t forget now that Intel keeps AMD around for protectionism. That’s why AMD has been dead and yes buried since 1986!
The key of investor is “Buy LOW,Sell HIGH”???So,Is that the good time to BUY AMD stock yet???
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A senior writer for Fortune, Jon Fortt focuses on technology and innovation in Silicon Valley - a subject he's been reporting on since his days as a rookie reporter for the Lexington (Ky.) Herald-Leader. Before joining Fortune in 2007, Jon had reporting and editing stints at Business 2.0 magazine, and the San Jose (Calif.) Mercury News, Silicon Valley's hometown newspaper.
I believe AMD is just paying the price for being a distant number two to Intel. Both my laptops are AMD-powered and output has been nothing short of excellent. They are cost-effective,too.
Rumour mills along with their mediocre perception have contributed to the undoing of AMD. Not to mention, Intel will always get the better of AMD even if AMD takes lead in the short-run. Someone has rightly mentioned on this forum that AMD, instead of taking on Intel head-on, should carve a niche as a cost-effective, value-for-money chip maker.