AMD Ships First APUs on Analyst Day

Computer chip maker AMD announced it began shipping its new APUs (Advanced Processing Units) to computer makers this morning from its Singapore plant. At its analyst day presentation AMD executives described and demonstrated the APUs, which combine an advanced CPU (general purpose computer processing unit) with an advanced GPU (graphics processing unit) on a single chip.

Emphasizing what a groundbreaking point has been reached, CEO Dirk Meyer held up a typical sized CPU and then a mid-range GPU card, which was about the size of a small paperback book. Then he held up the APU that will have the equivalent CPU and GPU computing power. It was smaller than the CPU chip, about the size of a postage stamp. I know that the GPU card contains not only a GPU chip but memory, a fan, and connections for video output, so the comparison was a bit of an exageration. But it is a sort of computing grail achievement that goes beyond mere size comparisons.

Of course, knowing AMD has been working for years to achieve this feat, much larger rival Intel has announced that it will also have an integrated cpu/gpu product release for 2011. AMD executives mocked it, as well they might. We know it is an inferior product. It supports a graphics standard called DX10, which is now four years old. AMD supports DX11. It is true that most older software and games can't take advantage of DX11.

But many games already can, and most graphics software updates are moving to DX11. So Intel will be making an offering that can't cope with new games or software. When you buy a new computer, it is often because you want to take advantage of new software. Intel will be leaving consumers in the lurch.

Nevertheless, Intel is the Goliath, and AMD's previous attempts to take on the giant have had mixed results. Intel's profits are usually higher than AMD's revenues, and Intel spends way more on R&D than AMD. A few years ago Intel was so far behind in graphics, it is remarkable that they are maybe only 2 years behind now.

Intel will heavily outspend AMD in marketing, and will omit to tell consumers that its chips can't run DX11. So for AMD to take a lot of market share in 2011, it has to get its story out. In my experience retailers are more interested in Intel advertising subsidies than in making sure consumers make an informed choice between computers based on AMD and Intel. I would hope that tech "geniuses" would tell show off their stuff by telling the public to choose AMD if they want good graphics and video capabilities. But it seems that a lot of technology mavens are employed by Intel and Apple.

If the word does get out that Intel cpu/gpu combination chips are not good enough, AMD's ability to take market share could become capacity constrained. Intel has a huge production capability to match its market share; AMD's capacity can only be expanded so much in the short run.

Still, even a 10% increase in revenues for AMD in 2011, with maybe a 1% increase in market share, would be a boon for AMD.

Watch this space closely. The actual computers will start being available to the public in January, traditionally a slow period for computer sales. Public acceptance of the new AMD products, or resistance to Intel advertising, should be knowable by March or so, and act as a predictor for the remainder of the year.

For investors a key element will be margins. AMD believes that with the new processors (and server chips introduced in 2010) it can improve its non-GAAP gross margin from about 40% for 2010 to about 44% to 48% in 2011. If that turns out to be true (if Intel does not start a price war), then earnings will rise nicely and AMD will be in an even better position to compete with Intel in 2012.

Dirk Meyer showed an HP thin light notebook running gaming level graphics using the new APU chips. He claimed it could run 8 to 10 hours on one battery charge, and would cost less than $600. I want one, and it would work a lot better for me than a smaller form factor tablet computer. This ability to reduce power consumption is being introduced across the range of new AMD products in 2011: for netbooks, notebooks, desktops, and servers. That is good news.