Friday, January 21, 2011

AMD: Fusion Without Dirk Meyer?

I admire Dirk Meyer, who recently resigned (under pressure) from computer chip maker AMD (Advanced Micro Devices). I also admire Hector Ruiz, his predecessor as CEO. But both men apparently had their flaws as AMD's leaders, and if you want to value AMD stock appropriately, you should understand the dynamics of the situation.

Dirk only served as head of AMD for about two and one-half years (he was promoted in July 2008). They were very eventful years. Notably, AMD became a fabless company by spinning off its foundries to GlobalFoundries, and the first models of the Fusion line of combined CPU/GPUs on a chip (APU, for Advanced Processing Unit) were released.

The problem is that the Fusion concept was in place when AMD bought graphics chip maker ATI back in 2006. Note it is now 2011. It took AMD five years to put a graphics processor on the same chip with a CPU.

That was simply too long. Rival Intel, a much larger company, brought out an admittedly inferior set of chips combining CPUs with GPUs this month. But that is probably good enough, since Intel can heavily out-advertise AMD.

Imagine, now, that the first Fusion chips had come out in the summer of 2010. It would be a whole new ball game. Intel would try to stall their OEM partners, but it would be a hard sell because they would have to get OEMs and consumers to accept an inferior product late. A six month lead in the computer industry can be an enormous advantage, as AMD showed by bringing out DX-11 capable discrete GPUs about six months ahead of rival NVIDIA, which had been the dominant discrete GPU company, until then.

While no one would say getting out a new line of chips is an easy task, the blame for the delay really has to be taken by Dirk Meyer. This is the second time in the last decade this has happened. Mid-decade AMD had a temporary advantage over Intel in the server market with its Opteron chip. Dirk was then chief operating officer, and when Opteron went from single to dual core, there were serious delays. Those delays enabled Intel to introduce new products and beat back the Opteron challenge. AMD has never been able to regain the market lead in server chips, although its newest 12-core processors are much better than Intel's at certain tasks.

But what investors really want to know is, what is next? Yesterday's call (see my AMD Q4 2010 analyst conference call summary for details) demonstrated that the board of AMD is looking for faster execution on plans to bring out new, specialized processors that can better compete with Intel in certain markets. The typical press view, and Wall Street sell-side analyst view, is that it is about AMD pursuing the tablet computer market. That would be only one small facet of it.

The new Fusion chips run the new DX 11 graphics standard. The Intel chips can only run DX-10 (it is fair to say Sandy Bridge is instantly obsolete). But Intel just made a deal with NVIDIA that doubtless allows it to import their DX-11 designs. How long will it take Intel to move that to silicon? Probably not that long.

Which means AMD has to execute faster. As the smaller, underfunded company, it has to stay ahead technologically and offer a good value proposition to OEMs and end consumers. AMD needs to deliver on the promise of Fusion and perhaps APU's that incorporate other special functions. Maybe even cell phone technologies.

It is a big task, and it needs a leader who can speed up the ball game without causing any fumbles. As we saw in the last decades, fumbling when up against Intel amounts to losing the game.

Dirk Meyer would be a superhero if he had gotten Fusion into consumer laptops in time to make them the mass-market choice for the 2010 holiday season. Instead the products are going to start ramping in Q1, which is a slow sales quarter, and have to sell against the confusion Intel is trying to create in comparing the two technologies. It is going to be a hard sell.

See also:
AMD main page
AMD Fusion
my other AMD articles and conference summaries

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