Monday, May 14, 2007

AMD Rumble with NVIDIA?

On May 10 NVIDIA (NVDA) reported its first quarter results and had an analysts conference. During it they commented on how well things have gone for the first part of the second quarter. An unexpected outcome was a comment on how well AMD (AMD) channel sales are going.

Today AMD promoted some new products that should help it compete with both Intel and NVIDIA and got a pretty good one-day rise in the price of its stock. Is the future suddenly rosier than investors thought after AMD reported disastrous Q1 results?

Until 2006 there were two major personal computer microprocessor rivals, AMD and Intel (INTC), and two major graphic microprocessor rivals, NVIDIA and ATI. In 2006 AMD bought ATI. But Intel was already a far larger company that AMD, and NVIDIA was considerably larger than ATI. To give some perspective, here are Q1 2007 revenues for the 3 companies:

Intel $8.9 billion
AMD (+ATI) $1.2 billion
NVIDIA $0.8 billion

So in Q1 NVIDIA, which grew 24% from year-earlier, was approaching AMD in size, which shrank revenues 7% from year earlier.

Once it shed its memory division, AMD was mainly a CPU play. OEMs who made AMD based computers bought motherboard chip sets and graphics processors from NVIDIA, ATI, and other suppliers. When AMD bought ATI it gained the ability to engineer chip sets and graphics chips to work will with its microprocessors, but it also made it into a rival of NVIDIA, where before they had been allies. But NVIDIA was already in the same situation versus Intel, which makes its own motherboard chip sets and makes embedded graphics chips, but not the high-end stand alone chips made by NVIDIA and ATI.

So now PC OEMs have some interesting choices. They can go all-Intel for the processor and motherboard, but still give clients the option of adding a graphics card or using an embedded NVIDIA graphics chip. Since the graphics interface is standardized the card can come from NVIDIA or AMD's ATI division. They can go all-AMD. Or they can mix and match. NVIDIA claims, and has clients who agree, that their motherboard chip sets are better than those made by AMD or Intel. If NVIDIA ever decided to make a Microsoft compatible-microprocessor they might dominate the entire field, but that would be a very expensive and risky undertaking. All three companies have some very smart engineers, but it looks to me like the NVIDIA guys have the edge.

In Q1 AMD reported that they had allocated processors to large companies like Dell and HP, but demand was soft there (they did not name a specific company; it may have been more than one). They failed to allocate processors into channel sales (smaller OEMs); by the time they knew they had channel demand and big OEM weakness, it was too late in the quarter to move processors in the right direction.

NVIDIA said they think AMD channel sales are doing better this quarter (which would make sense, if it was just an allocation issue). They think that because their sales of AMD compatible chip sets are up. While it is possible that just means OEMs are just changing chipset partners, most likely it means more PCs with AMD Athlon processors are being sold.

AMD's announcements today were going to come sooner or later, but sooner is better. NVIDIA last week boasted that in April it introduced the first graphics chips that can run DirectX 10; they claimed a huge lead. But he lead was not that big, given that today AMD started selling its Radion HD 2000 series of chip that also supports DirectX 10 and High Definition video play capability.

AMD's true-quad-core chips were demonstrated today, but it will be a while before you can get one. They will be available in server models (Barcellona) and desktop models (Phenom). Intel brought out a quad-core-ish thing in late 2006, but it had two dual-core chips on a socket together. The AMD product is integrated on a single piece of silicon and has integrated memory management, a feature Intel chips continue to lack and a reason Intel chips typically underperform in real world situations.

Except for the enthusiast market I don't see much immediate demand for the quad-core desktop chips. My 2006 vintage AMD Athlon 64 dual-core system runs Windows Vista 64-bit at blazing speeds, allowing me to do my work and play video or music simultaneously. That wonderful feature is a nice demo, but the reality is work and entertainment don't mix well for me. And 1 gigabit of memory has worked very well even when running multiple applications.

The kick for AMD will probably be in the server market where true-quad core with power management and virtualization will be a blessing for anyone running a data center.

Meanwhile, watch for amazing things from NVIDIA. Their graphics computing initiative is just a small sprout now, but I suspect it represents the future of computing.

I own AMD stock but not Intel or NVIDIA stock.

[See also my summaries of recent analyst conferences with Intel, AMD, and NVIDIA.]
[See also corporate web sites for Intel, AMD, and NVIDIA]

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