Monday, October 29, 2007

AMD Virtualization Wars

For years now AMD (AMD) and Intel (INTC) have been slugging it out in the microprocessor market. The next arena for this slugfest is virtualization, the process in which a single computer can run multiple instances of an operating system, or even entirely different operating systems (typically Linux and Microsoft).

Intel has been the dominant player in the microprocessor industry since the 1980s and still dwarfs AMD. But AMD gained a great deal of market share earlier in the new millennium with its Opteron and Athlon processors. Unfortunately it did not gain enough to prevent Intel from having a comeback in 2006 that has extended up until at least now. The main cause of AMD's insufficient gains during a period of time when it processors outperformed Intel's on any basis was human nature. Most businesses had standardized on Intel processors; many did not even consider taking advantage of the AMD proposition. I think a lot of this was influenced by the broad ownership of Intel stock among key decision makers, but I can't prove that without doing some costly research.

The question for those owning AMD stock (including me) and those rare people considering buying it should be: what will happen in Q4 2007 and in 2008. This will be highly dependent on the new quad core Opteron processors (code named Barcelona) and their virtualization features.

There are plenty of technical articles being written on virtualization and on AMD's and Intel's versions of it. The reality is, however, that until there have been a number of large-scale commercial installations that use virtualization 24 hours a day for long periods of time, we won't know if one design is superior to the other.

Virtualization seems like no big deal on a desktop or notebook computer. It is basically making possible in software what used to be done, in a clunky way, with a hard disk partitioned between two operating systems. Now using VMware or other virtualization software both operating systems can run at the same time, sharing the microprocessor, memory, and network bandwidth.

But according to Rackable Systems, making a server farm work well with virtualization is not so trivial of a task. Server farms already have issues with interconnecting all of their computers. There is an issue called load balancing: if you are, say Amazon (a Rackable client) and have thousands (or millions) of people searching your gigantic Web site all the time, and the Web site has to be coordinated with a database and a shipping system and a content management system, well, in non-tech speak it gets hairy. A virtual operating system sitting idle is just a waste of expensive equipment.

Rackable has a new line of servers ready for introduction that are engineered from the ground up for virtualized server farms. Probably IBM, Dell, Sun and HP are working on this issue too and will make their claims.

It will sure be interesting to see if this virtualization-ready line is available in only one flavor, AMD or Intel, or if it available for both.

Another area of interest in the AMD versus Intel battle is processors for notebook computers. In this area I see pundits constantly reporting that AMD cannot possibly compete. Yet it seems like every quarter AMD picks up a bit of market share in notebook computers. Partly this is because Intel started with so much market share and does have good notebook technology. Intel likes to charge its customers through the nose when it has no competition (hence accusations of monopoly pricing). Surprise, most people don't feel like they can pay $2000 for a notebook computer that will be broken on obsolete in 2 years. People really like computers to be in the $500 to $700 price range, and to make a profit in that market many notebook computer manufacturers have turned to AMD. With AMD readying a new line of notebook-optimized microprocessors, motherboard chips and graphics chips, it is possible that it may gain even more market share in 2008.

I consider investing in AMD to be a risky business. Investors should always balance the risks in their portfolios by diversification.

More data:

AMD home page
Intel home page
My AMD page with links to summaries of AMD analyst conferences
VMware virtualization

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