Last Thursday, August 12, 2010, NVIDIA (NVDA) reported its results for the quarter ending August 1, 2010, its second fiscal quarter of 2011. The results could be taken as a glimpse into July for the semiconductor industry since most other companies in the space reported second quarters ending June 30th. There is a concern that the recent boom in chip sales could slow appreciably because of slowing (but not really reduced) end demand by businesses and consumers.
Here I want to discuss the big trends engulfing Nvidia and the future of computer processing, including graphics processing. If you are interested in details of Nvidia's 2nd quarter, see my NVIDIA Q2 Analyst Conference Call summary.
Since graphics on personal computers began to be important in the late 1980s there has been a divergence between the central processing unit (CPU) and the graphics processing unit (GPU). Fans of history may recall that before that there was a similar divergence between the CPU and the floating point processor (FPU); you could pay extra for a computer with an Intel 8087, if you wanted to do math, or use math to accelerate graphics calculations.
This divergence between general computing needs and floating point math and graphics needs is fundamental. In an era that may be coming to a close Intel and AMD (and once upon a time, Motorola) produced most of the CPUs for the industry while ATI (now part of AMD) and Nvidia made the graphics processing unit. Many computers had no GPU, allowing the graphics work to be done by the CPU, which is fine for slow work like word processing. Intel, Nvidia and AMD also all made motherboard chipsets that included some GPU capabilities. As usual, those became more capable with time. Your $1000 GPU card of 2000 is not as powerful as the lowest end Intel graphics of today. On the other hand graphics demand has gone up with both the introduction of high definition video, fast rendering needs of games, and graphic content production systems. You don't want Intel graphics for any of those.
Conversely, the powerful GPUs from Nvidia and AMD can now be used to accelerate many processes that CPUs do more slowly. Mostly scientists, engineers, and graphics designers are taking advantage of these capabilities, but they will trickle down towards the mainstream. Moms may use them to convert an HD video to lower definition, or vice-versa.
For the most part FPUs were killed when floating point processing started being integrated into CPUs like Intel's Pentium. As transistor sizes shrank, and Windows became the common operating system, that became a natural way to give users more for their dollar.
2010 is the year that GPUs and CPUs are being merged onto a single chip. Unless you are an industry insider, you won't see the products until 2011.
Because high end GPUs actually use more silicon space than the current CPUs, there will continue to be life for independent GPUs, typically on video cards, for at least a few years. Video and graphics content makers, scientists and engineers will want workstations that include both a high end GPU and a high end CPU card. But the rest of us will probably migrate to the new combined cards (AMD calls them APUs, advanced processing units) between 2011 and 2015.
While Intel might be behind AMD in graphics, I would not want to bet on its losing a lot of market share in the new combined CPU/GPU arena. Intel's profits dwarf AMD's revenues, and their R&D budget is correspondingly higher. They will find ways of keeping their market share, most likely.
For Nvidia there is a bigger problem: they don't make GPUs at all. But before addressing that, let's look at the new tide coming in: mobile processing, mostly based on ARM-based processors.
Mobile devices are rapidly becoming more powerful, as you can see from the iPad, iPhone, Droid, etc. The key is low voltages with corresponding low power consumption, plus the usual shrinking of transistor sizes making it possible to integrate more processing capabilities into the processing units.
It is conceivable that just as PCs wiped out minicomputers and even, for the most part, mainframes, the new mobile CPUs could start invading the notebook, desktop, and even server computer space. It is already being tried, the reasoning being that a swarm of small, low-energy units can make ideal virtual machines for serving web pages.
Nvidia has the Tegra platform, which you'll be seeing a lot of later this year. It integrates an ARM CPU, an Nvidia GPU, and motherboard chipset functions on a single chip. It is a beautiful piece of work.
It also appears to be winning out over AMD in the high end GPU for non-graphic computations market.
I am not ready to declare the long line of evolution from 8086 chips to be over. They may just absorb what is best, and morph to meet changing user needs. But the competitive dynamics are certainly going to change in the next few years. If Nvidia's Tegra is a competitor, so are chips from Apple, Marvell, Broadcom, Qualcomm, TI, and many others. In fact too many companies have pinned their hopes on ARM processors. Even if ARM becomes the architecture of the future, it is likely that a couple of these companies will gain a marketing or manufacturing advantage, and the field will narrow over time.
Nvidia's best hopes for future profits are probably in specialized graphics processors for high-intensity computing. These may no longer be necessary for the average person's desktop or notebook, but high-end GPUs are subject to much less competition and therefore have higher profit margins on each unit sold.
Showing posts with label processors. Show all posts
Showing posts with label processors. Show all posts
Monday, August 16, 2010
Friday, April 16, 2010
Paint AMD Black: Profits at Last!
AMD, contrary to expectations, posted a profit in the first quarter of 2010. This is remarkable. The maker of computer processing unit (CPU) and graphics processing unit (GPU) chips was not expected to show a profit until well into 2010, if ever.
In Q4 2009 AMD's rival Intel paid it $1.25 billion to settle (probably true) allegations that Intel had engaged in illegal, monopolistic practices that lowered AMD's sales earlier in the decade. Whether or not AMD was profitable in Q4 is problematic. GAAP (Generally Accepted Accounting Principle) net income (profit) was $1.18 billion. But take away the $1.25 million from Intel, and you have a $70 million loss. On the other hand AMD claimed in had non-GAAP net income of $80 million. But to get that number they had to exclude GlobalFoundries, which is the new company holding the fabrication facilities AMD had formerly owned 100% of. Still, Q4 revenue of $1.65 billion was up an astonishing 42% from Q4 2008.
Q1 2010 had positive net income any way you look at it. Revenue was up 33% from $1.18 billion in the year-earlier quarter. But there were a number of one-time charges and benefits related to spinning off GlobalFoundries that need to be examined by investors. GAAP net income was $257 million. Most of the time companies give non-GAAP numbers because they are higher that GAAP numbers, but in this case AMD owned up that on a comparable non-GAAP basis net income was only $63 million (then again, prior guidance was for negative that figure). See my AMD Q1 2010 Analyst Conference Summary for a more detailed explanation, or the AMD 4/15/2010 earnings release for a number of reconciliation tables between GAAP and non-GAAP numbers.
Because of the cyclical buying patterns of both consumers and enterprise buyers, the first half of the year is typically slower for AMD and Intel than the second half. Even with the global semiconductor industry climbing rapidly out of the recession (or, as I prefer, the Panic of 2008), AMD was expecting to show a loss this quarter. What made the difference?
AMD has introduced some very competitive products lately. In servers, it offers chips with more cores than Intel (although Intel cores allow more threads per core, which helps in some multi-threaded software applications). In notebook computer chips it has been coming from behind, which makes it relatively easy to gain market share. In graphics chips AMD picked up a lot of market share from competitor NVIDIA these last two quarters, and with very good profit margins (there's a manufacturing capacity shortage, so no price war at present).
As we move into 2010 the most probable trajectory is fairly sweet for AMD, but of course competition with NVIDIA and Intel will remain fierce. One way to categorize servers is by number of processors; most low end servers are 1P, while 2P servers are very popular. There has been a historic price premium for 4P and up servers because of the difficulty making that many chips communicate effectively with each other. Now, at least for 4P, AMD has solved that problem. The new 6000 series 2P chips are ready for 4P. At first they will be used mostly for 2P boxes, but the incentive to move to 4P boxes, especially in virtualized server farms, will be significant. A 4P box would have 4 AMD processors with as many as 12 cores per processor, or 48 cores. Each core can easily run as a virtual machine, so for instance for Web server farms, each box would be the equivalent of 48 Web servers. The economies of scale will be quite attractive.
On the other hand, a lot of tech guys just wait for Intel, no matter how slow Intel is. So how much actual market share AMD will pick up while those guys are waiting for Intel is not predictable.
There are other new products being introduced this year, but the next big thing is Fusion, in which chips can act as both CPUs and GPUs. Look to hear more about that this coming fall.
In Q4 2009 AMD's rival Intel paid it $1.25 billion to settle (probably true) allegations that Intel had engaged in illegal, monopolistic practices that lowered AMD's sales earlier in the decade. Whether or not AMD was profitable in Q4 is problematic. GAAP (Generally Accepted Accounting Principle) net income (profit) was $1.18 billion. But take away the $1.25 million from Intel, and you have a $70 million loss. On the other hand AMD claimed in had non-GAAP net income of $80 million. But to get that number they had to exclude GlobalFoundries, which is the new company holding the fabrication facilities AMD had formerly owned 100% of. Still, Q4 revenue of $1.65 billion was up an astonishing 42% from Q4 2008.
Q1 2010 had positive net income any way you look at it. Revenue was up 33% from $1.18 billion in the year-earlier quarter. But there were a number of one-time charges and benefits related to spinning off GlobalFoundries that need to be examined by investors. GAAP net income was $257 million. Most of the time companies give non-GAAP numbers because they are higher that GAAP numbers, but in this case AMD owned up that on a comparable non-GAAP basis net income was only $63 million (then again, prior guidance was for negative that figure). See my AMD Q1 2010 Analyst Conference Summary for a more detailed explanation, or the AMD 4/15/2010 earnings release for a number of reconciliation tables between GAAP and non-GAAP numbers.
Because of the cyclical buying patterns of both consumers and enterprise buyers, the first half of the year is typically slower for AMD and Intel than the second half. Even with the global semiconductor industry climbing rapidly out of the recession (or, as I prefer, the Panic of 2008), AMD was expecting to show a loss this quarter. What made the difference?
AMD has introduced some very competitive products lately. In servers, it offers chips with more cores than Intel (although Intel cores allow more threads per core, which helps in some multi-threaded software applications). In notebook computer chips it has been coming from behind, which makes it relatively easy to gain market share. In graphics chips AMD picked up a lot of market share from competitor NVIDIA these last two quarters, and with very good profit margins (there's a manufacturing capacity shortage, so no price war at present).
As we move into 2010 the most probable trajectory is fairly sweet for AMD, but of course competition with NVIDIA and Intel will remain fierce. One way to categorize servers is by number of processors; most low end servers are 1P, while 2P servers are very popular. There has been a historic price premium for 4P and up servers because of the difficulty making that many chips communicate effectively with each other. Now, at least for 4P, AMD has solved that problem. The new 6000 series 2P chips are ready for 4P. At first they will be used mostly for 2P boxes, but the incentive to move to 4P boxes, especially in virtualized server farms, will be significant. A 4P box would have 4 AMD processors with as many as 12 cores per processor, or 48 cores. Each core can easily run as a virtual machine, so for instance for Web server farms, each box would be the equivalent of 48 Web servers. The economies of scale will be quite attractive.
On the other hand, a lot of tech guys just wait for Intel, no matter how slow Intel is. So how much actual market share AMD will pick up while those guys are waiting for Intel is not predictable.
There are other new products being introduced this year, but the next big thing is Fusion, in which chips can act as both CPUs and GPUs. Look to hear more about that this coming fall.
Saturday, January 23, 2010
AMD Q4 2009
AMD reported on its fourth quarter of 2009 this Thursday. It was a quarter of impressive improvements, with sales up 18% sequentially and 42% from the year-earlier quarter. That is excluding the almost $1.25 billion payment from Intel, which was entered in the operating expense accounts, and so did not appear in revenues. AMD also excluded the payment from non-GAAP numbers.
The hot money bailed out Friday, sending the stock price down over 12% to below $8. That is the way of hot money. Looking at the charts, my guess is a lot of hot money bought in above $8 during December and January, which makes this another example of hot money being stupid money.
Investors, the people who actually reap profits from business activity, need to look at the moving parts within AMD to see whether staying long is justified. The main reason to suspect it is not is that AMD is competing against Intel and NVIDIA, two very tough competitors. In addition, ARM-based processors are coming on strong against the x86 brethren, so in the next few years companies like Marvell (MRVL) may be nibbling even at mighty Intel's heels.
First, look at measures of profit. I'll use three: GAAP net income, non-GAAP net income, and EBITDA. Again, I exclude the $1.242 billion Intel settlement. GAAP net income was negative $64 million. Non-GAAP net income was positive $80 million. EBITDA ((Earnings Before Interest, Taxes, Depreciation and Amortization) was $282 million, impressive except that AMD has a lot of debt and so interest, and has invested a lot of capital and so depreciation does represent cash spending in the past. Still, I think it is fair to say that by some investor standards the quarter was profitable. The non-GAAP and EBITDA numbers exclude the former fabrication business. This makes sense to use since that business has been spun off (to GlobalFoundries). Starting in Q1 2010, AMD will be fabless.
As to the future, we want to know whether revenues will continue to ramp, and whether profit margins on revenues will continue to improve. Which means we have to look more closely at product trends.
AMD is now in the graphics processor business, and after years of struggle is showing some success. NVIDIA is the company to beat, and while that is still a distant goal as far as chip revenues, AMD almost certainly gained market share in Q4. AMD has the only GPUs (graphics processing units) that work with DirectX 11, the newest graphics standard. This attracts forward looking purchasers, and resulted in graphics revenues of $427 million, up sequentially 39.5% from $306 million, and up 58% from $270 million year-earlier. The worry would be that NVIDIA will have a better DirectX 11 capable processor some time in 2010. It is not a for sure thing, given how NVIDIA has been stumbling the last couple of years. While I don't expect AMD to have another year of 58% GPU revenue growth, I suspect whatever NVIDIA does, AMD will see healthy growth this year. We are going into a computer refresh cycle, and NVIDIA's slowness to market means it lost opportunities to be built in to systems.
In the CPU business revenue growth was robust, if not as eye-popping as with GPUs. Revenue was $1.214 billion, up 13.5% sequentially from $1.069 billion, and up 39% from $873 million year-earlier. Growth was described as broadly based, but Opteron 6-core server processors were described as having been a source of strength.
If profit margins expand along with revenues in 2010, today's AMD market capitalization of $5.3 billion is going to seem ridiculously pessimistic. On the other hand, since AMD still has almost $5 billion in long term debt and liabilities, any further stumbles of the kind we saw this last decade could have very serious consequences.
Q1 is typically seasonally down for CPU and GPU manufacturers. Given that AMD was not able to ship enough of its new GPUs to meet demand, there is at least a possibility that Q1 revenues could be closer to flat for AMD. That would be a very good sign for the full year 2010.
On the whole I would say I think AMD stock looks undervalued at $8 per share, but then I am a long-term AMD investor, so maybe I am being overly optimistic.
For more details, see my AMD Q4 2009 analyst conference summary.
See also amd.com
The hot money bailed out Friday, sending the stock price down over 12% to below $8. That is the way of hot money. Looking at the charts, my guess is a lot of hot money bought in above $8 during December and January, which makes this another example of hot money being stupid money.
Investors, the people who actually reap profits from business activity, need to look at the moving parts within AMD to see whether staying long is justified. The main reason to suspect it is not is that AMD is competing against Intel and NVIDIA, two very tough competitors. In addition, ARM-based processors are coming on strong against the x86 brethren, so in the next few years companies like Marvell (MRVL) may be nibbling even at mighty Intel's heels.
First, look at measures of profit. I'll use three: GAAP net income, non-GAAP net income, and EBITDA. Again, I exclude the $1.242 billion Intel settlement. GAAP net income was negative $64 million. Non-GAAP net income was positive $80 million. EBITDA ((Earnings Before Interest, Taxes, Depreciation and Amortization) was $282 million, impressive except that AMD has a lot of debt and so interest, and has invested a lot of capital and so depreciation does represent cash spending in the past. Still, I think it is fair to say that by some investor standards the quarter was profitable. The non-GAAP and EBITDA numbers exclude the former fabrication business. This makes sense to use since that business has been spun off (to GlobalFoundries). Starting in Q1 2010, AMD will be fabless.
As to the future, we want to know whether revenues will continue to ramp, and whether profit margins on revenues will continue to improve. Which means we have to look more closely at product trends.
AMD is now in the graphics processor business, and after years of struggle is showing some success. NVIDIA is the company to beat, and while that is still a distant goal as far as chip revenues, AMD almost certainly gained market share in Q4. AMD has the only GPUs (graphics processing units) that work with DirectX 11, the newest graphics standard. This attracts forward looking purchasers, and resulted in graphics revenues of $427 million, up sequentially 39.5% from $306 million, and up 58% from $270 million year-earlier. The worry would be that NVIDIA will have a better DirectX 11 capable processor some time in 2010. It is not a for sure thing, given how NVIDIA has been stumbling the last couple of years. While I don't expect AMD to have another year of 58% GPU revenue growth, I suspect whatever NVIDIA does, AMD will see healthy growth this year. We are going into a computer refresh cycle, and NVIDIA's slowness to market means it lost opportunities to be built in to systems.
In the CPU business revenue growth was robust, if not as eye-popping as with GPUs. Revenue was $1.214 billion, up 13.5% sequentially from $1.069 billion, and up 39% from $873 million year-earlier. Growth was described as broadly based, but Opteron 6-core server processors were described as having been a source of strength.
If profit margins expand along with revenues in 2010, today's AMD market capitalization of $5.3 billion is going to seem ridiculously pessimistic. On the other hand, since AMD still has almost $5 billion in long term debt and liabilities, any further stumbles of the kind we saw this last decade could have very serious consequences.
Q1 is typically seasonally down for CPU and GPU manufacturers. Given that AMD was not able to ship enough of its new GPUs to meet demand, there is at least a possibility that Q1 revenues could be closer to flat for AMD. That would be a very good sign for the full year 2010.
On the whole I would say I think AMD stock looks undervalued at $8 per share, but then I am a long-term AMD investor, so maybe I am being overly optimistic.
For more details, see my AMD Q4 2009 analyst conference summary.
See also amd.com
Thursday, December 3, 2009
Marvell Technology (MRVL) Blows Past Competitors
Even non-engineers can appreciate the engineering of Marvell Technology Group (MRVL). After making a number of technological break-throughs in 2008 and earlier in 2009, revenues are ramping very quickly as products containing their semiconductor chip systems are being built.
For an overview of Marvell technology, see Marvell Under the Hood. For my past analyst conference summaries, see Marvell Analyst Conference Summaries.
Revenue for the quarter ending October 31, 2009 was $803.1 million, up 25% sequentially from $640.6 million and up 2% from $791.0 million year-earlier.
Net income of was $201.6 million, up 245% sequentially from $58.5 million and up 183% from $70.9 million.
EPS (earnings per share) were $0.31, up 244% sequentially from $0.09 and up 181% from $0.11 year-earlier.
Cash and equivalents ended at $1.46 billion. Cash flow from operations wa $203.5 million. $196 million free cash flow. Inventories rose to $239 million to deal with areas of tight supply. Long term liabilities are $174.3 million.
Non-GAAP, which excludes $34.4 million in stock-based compensation, $26.5 million amortization, $1.9 million restructuring, but adds back in the $32.6 million tax benefit: net income $231.8 million. EPS $0.35.
Guidance for fourth fiscal quarter 2010 was $802 to $850 million in revenues. Networking and storage sequential growth, with normal seasonal slowdown of wireless. 58.5% non-GAAP gross margin. $235 million non-GAAP operating expenses. $254 million operating profit. Other income $1.5 million. Tax $12 million. 670 million diluted shares. $0.33 to $0.39 non-GAAP EPS. $150 million free-cash flow. GAAP EPS about $0.09 less than non-GAAP.
Analyst Questions and Answers (summary):
Hard drive market dynamics? First quarter 2010 should continue to be helped by low cost of PCs. Our hard drive customers are optimistic.
Gross margin improvement and mix? We don't provide gross margin by end-market segments. Mobile and wireless end markets experienced very good growth, and your margin estimates for that segment may be off.
China Mobile processor market size? PXA920 is very specific, high volume, high performance for standards of China market. It is state-of-the art smart phone solution, but also cost effective enough for the mass market. Our aspiration is higher than any number anyone is throwing out yet.
Sustainability of gross margins? Semiconductor business gross margins should be on high end as prices go down, to offset other expenses. This is a fundamental shift. The numbers we have are fair numbers and we plan to maintain them as long as we can, and best-in-class semiconductor companies will need to achieve this range.
Are your customers in hard drives adding to inventories? We are on a consignment basis, so they do not need to build inventories of our chips. Full feature PCs, even laptops, are now under $500, which is building demand, especially in emerging economies.
Dividends? We do not believe we are out of the economic downturn, so it is too soon to talk about distribution of cash. Our bias is to have more cash than we need in order to not be at the mercy of banks.
China business going forward? We are optimistic about our work for China Mobile; we have been working with them for 2 years. PDS/CDMA 3G is the pride of China. We believe it will be the main technology in China going forward, so we expect a very strong second half of next year.
Visibility is much improved. Inventory is leaner. We have had some shortages and longer lead times, so customers are giving us more visibility.
O-phone success detail? PXA920 will be used by many OEM cell phone makers for the China market; not all of them will be O-phones. The main chip is the most highly developed ever, but we also have the chip set solutions (power, wi-fi, etc.) that go with this. Revenues will start to ramp in the second half of next year; not contributing yet.
Bluetooth Wi-Fi combo part growth? We are very happy with traction with this device is finally taking off. The ramp now is the first generation device, a second generation is in design now. Any device requiring Bluetooth and WiFi is a potential market.
Reviewed how integration of systems on a chip help everyone, including the OEMs and end customers, while lowering everyone's costs despite increasing Marvell's gross margin.
ARMADA initial end markets? Across the board. Chips range from low end to high end. The run on all the ARM software in the market. So the market is any consumer device from HDTV decoders to picture frames to Internet portals like netbooks to automotive display consoles.
For an overview of Marvell technology, see Marvell Under the Hood. For my past analyst conference summaries, see Marvell Analyst Conference Summaries.
Revenue for the quarter ending October 31, 2009 was $803.1 million, up 25% sequentially from $640.6 million and up 2% from $791.0 million year-earlier.
Net income of was $201.6 million, up 245% sequentially from $58.5 million and up 183% from $70.9 million.
EPS (earnings per share) were $0.31, up 244% sequentially from $0.09 and up 181% from $0.11 year-earlier.
Cash and equivalents ended at $1.46 billion. Cash flow from operations wa $203.5 million. $196 million free cash flow. Inventories rose to $239 million to deal with areas of tight supply. Long term liabilities are $174.3 million.
Non-GAAP, which excludes $34.4 million in stock-based compensation, $26.5 million amortization, $1.9 million restructuring, but adds back in the $32.6 million tax benefit: net income $231.8 million. EPS $0.35.
Guidance for fourth fiscal quarter 2010 was $802 to $850 million in revenues. Networking and storage sequential growth, with normal seasonal slowdown of wireless. 58.5% non-GAAP gross margin. $235 million non-GAAP operating expenses. $254 million operating profit. Other income $1.5 million. Tax $12 million. 670 million diluted shares. $0.33 to $0.39 non-GAAP EPS. $150 million free-cash flow. GAAP EPS about $0.09 less than non-GAAP.
Analyst Questions and Answers (summary):
Hard drive market dynamics? First quarter 2010 should continue to be helped by low cost of PCs. Our hard drive customers are optimistic.
Gross margin improvement and mix? We don't provide gross margin by end-market segments. Mobile and wireless end markets experienced very good growth, and your margin estimates for that segment may be off.
China Mobile processor market size? PXA920 is very specific, high volume, high performance for standards of China market. It is state-of-the art smart phone solution, but also cost effective enough for the mass market. Our aspiration is higher than any number anyone is throwing out yet.
Sustainability of gross margins? Semiconductor business gross margins should be on high end as prices go down, to offset other expenses. This is a fundamental shift. The numbers we have are fair numbers and we plan to maintain them as long as we can, and best-in-class semiconductor companies will need to achieve this range.
Are your customers in hard drives adding to inventories? We are on a consignment basis, so they do not need to build inventories of our chips. Full feature PCs, even laptops, are now under $500, which is building demand, especially in emerging economies.
Dividends? We do not believe we are out of the economic downturn, so it is too soon to talk about distribution of cash. Our bias is to have more cash than we need in order to not be at the mercy of banks.
China business going forward? We are optimistic about our work for China Mobile; we have been working with them for 2 years. PDS/CDMA 3G is the pride of China. We believe it will be the main technology in China going forward, so we expect a very strong second half of next year.
Visibility is much improved. Inventory is leaner. We have had some shortages and longer lead times, so customers are giving us more visibility.
O-phone success detail? PXA920 will be used by many OEM cell phone makers for the China market; not all of them will be O-phones. The main chip is the most highly developed ever, but we also have the chip set solutions (power, wi-fi, etc.) that go with this. Revenues will start to ramp in the second half of next year; not contributing yet.
Bluetooth Wi-Fi combo part growth? We are very happy with traction with this device is finally taking off. The ramp now is the first generation device, a second generation is in design now. Any device requiring Bluetooth and WiFi is a potential market.
Reviewed how integration of systems on a chip help everyone, including the OEMs and end customers, while lowering everyone's costs despite increasing Marvell's gross margin.
ARMADA initial end markets? Across the board. Chips range from low end to high end. The run on all the ARM software in the market. So the market is any consumer device from HDTV decoders to picture frames to Internet portals like netbooks to automotive display consoles.
Tuesday, May 19, 2009
AMD: The Dream Renewed
Lately there has been an uptick in the price of AMD stock following news that the European Union will fine rival Intel some $1.44 billion for illegal anti-competitive practices earlier this decade. This lends credence to the AMD v. Intel lawsuit in the U.S., which could result in billions of dollars of damages being awarded to AMD. AMD's market capitalization even after the recent run up stands at less than $3 billion, largely because it has been years now since it has shown a profit.
We probably are not at a the start of a new era, for reasons I will give shortly, but consider the possibility that AMD is going to emerge as a financially strong competitor to Intel in 2010. Intel would have to be prevented from using its substantial cash reserves to force AMD into another price war that would keep AMD from making significant profits. AMD would then be free to continue to introduce superior technology as it did earlier in this decade, only going forward it would be competing in a free market where computer manufacturers could incorporate AMD products into their designs without being threatened by Intel.
What happened earlier in the decade with AMD's technological innovations is instructive. AMD, which had mainly made Intel CPU clones until 2000, made three major design changes that rocked the computer world.
First, Intel had decided that the switch from 32 bit to 64 bit computing would be made by segmenting those two markets. If you wanted to do 64 bit computing the Intel way, you would have to switch to Itanium processors, and your old software would not work on those new processors. At the low end you would stay on the 32 bit road map. Intel ignored feedback from its customers that they wanted chips to run 64 bits on the old 32 bit instruction set, making them capable of easily running older software, and allowing for software makers to easily design 64 bit software. AMD listened to customers and introduced chips that could run both 64 bit and 32 bit software. A lot of people liked that.
Second, AMD introduced HyperTransport, which fixed a major bottleneck in Intel chips that prevented data from being moved from the CPU to memory, other CPUs, or other devices. Only this year, in 2009, did Intel introduce a similar feature in its processors.
Third, AMD's design took into account the problem of energy consumption and overheating of chips. Intel's plan was to make chips run ever faster, with no major changes in architecture, but fast meant hot. AMD changed the architecture to get just as much performance from its chips, but using less energy and running cooler.
The Opteron chip for servers incorporated all of these features, and for a couple of years steadily gained market share. Of course, AMD had almost no server market share before Opeteron. The same features were introduced in AMD Athlon chips for personal computers.
In 2004 I thought AMD was going to blow Intel out of the water. I thought the natural conservatism of the IT community would be overcome by the clear demonstrations of AMD's better technology. But in addition to AMD's need to build credibility and overcome the close relationships Intel had with manufacturers, it ran up against Intel's war strategy.
Internally, we now know, Intel admitted the AMD processors were better designed. Externally, Intel used three classic tactics: it used its massive ad budget to create the perception that its products were still superior; it lowered its prices so that AMD could not generate the profits necessary to maintain its process development efforts; and it used well-documented illegal and unethical tactics to keep manufacturing partners from using AMD chips in their designs.
Then, gradually, Intel followed the AMD roadmap. They started making greener chips that had the 32/64 architecture. Finally, they licensed AMD's hypertransport technology and built their own take on that into their chips. Given all that, with Intel's admittedly superior manufacturing capabilities (they can make smaller transistors than AMD, and so get more into similarly-sized chips), today it cannot be said that AMD has any kind of clear technology lead.
In retrospect, Intel used its market dominance to punish AMD for innovating. Prior to the described era of competition, Intel was quite happy to set extraordinarilly high prices for processors. AMD's clones were cheaper (and a year or two behind in design and process technology), but still profitable. If AMD had been content with 10% of the market, Intel would have kept it prices high, in turn guaranteeing AMD profits. It is almost universally acknowledged that Intel wanted to keep AMD alive and profitable, if not really competitive, simply to have plausable deniability to charges of running a monopoly.
Consumers were helped by AMD's technology innovations, but AMD stockholders lost out.
Hopefully the AMD v. Intel lawsuit will sort all that out. Billions of ill-got Intel profits should be rewarded to AMD.
Given the two corporate cultures, I suspect AMD has a roadmap that is in many ways superior to Intel's. To execute on the roadmap, however, they need money, and they need to know that Intel is not going to engage in ongoing anti-competitive practices.
AMD has at least one trick up its sleeve that should be played soon. It has a graphics division that is vastly superior to Intel's. Intel is pouring money into its graphics design division, hoping to catch up before it loses the lawsuit and AMD has the money it needs to pursue its vision of CPUs that do what clients want, rather than what Intel dishes out.
Disclaimer: I own some AMD stock.
See also my main AMD investor page at OpenIcon.com
We probably are not at a the start of a new era, for reasons I will give shortly, but consider the possibility that AMD is going to emerge as a financially strong competitor to Intel in 2010. Intel would have to be prevented from using its substantial cash reserves to force AMD into another price war that would keep AMD from making significant profits. AMD would then be free to continue to introduce superior technology as it did earlier in this decade, only going forward it would be competing in a free market where computer manufacturers could incorporate AMD products into their designs without being threatened by Intel.
What happened earlier in the decade with AMD's technological innovations is instructive. AMD, which had mainly made Intel CPU clones until 2000, made three major design changes that rocked the computer world.
First, Intel had decided that the switch from 32 bit to 64 bit computing would be made by segmenting those two markets. If you wanted to do 64 bit computing the Intel way, you would have to switch to Itanium processors, and your old software would not work on those new processors. At the low end you would stay on the 32 bit road map. Intel ignored feedback from its customers that they wanted chips to run 64 bits on the old 32 bit instruction set, making them capable of easily running older software, and allowing for software makers to easily design 64 bit software. AMD listened to customers and introduced chips that could run both 64 bit and 32 bit software. A lot of people liked that.
Second, AMD introduced HyperTransport, which fixed a major bottleneck in Intel chips that prevented data from being moved from the CPU to memory, other CPUs, or other devices. Only this year, in 2009, did Intel introduce a similar feature in its processors.
Third, AMD's design took into account the problem of energy consumption and overheating of chips. Intel's plan was to make chips run ever faster, with no major changes in architecture, but fast meant hot. AMD changed the architecture to get just as much performance from its chips, but using less energy and running cooler.
The Opteron chip for servers incorporated all of these features, and for a couple of years steadily gained market share. Of course, AMD had almost no server market share before Opeteron. The same features were introduced in AMD Athlon chips for personal computers.
In 2004 I thought AMD was going to blow Intel out of the water. I thought the natural conservatism of the IT community would be overcome by the clear demonstrations of AMD's better technology. But in addition to AMD's need to build credibility and overcome the close relationships Intel had with manufacturers, it ran up against Intel's war strategy.
Internally, we now know, Intel admitted the AMD processors were better designed. Externally, Intel used three classic tactics: it used its massive ad budget to create the perception that its products were still superior; it lowered its prices so that AMD could not generate the profits necessary to maintain its process development efforts; and it used well-documented illegal and unethical tactics to keep manufacturing partners from using AMD chips in their designs.
Then, gradually, Intel followed the AMD roadmap. They started making greener chips that had the 32/64 architecture. Finally, they licensed AMD's hypertransport technology and built their own take on that into their chips. Given all that, with Intel's admittedly superior manufacturing capabilities (they can make smaller transistors than AMD, and so get more into similarly-sized chips), today it cannot be said that AMD has any kind of clear technology lead.
In retrospect, Intel used its market dominance to punish AMD for innovating. Prior to the described era of competition, Intel was quite happy to set extraordinarilly high prices for processors. AMD's clones were cheaper (and a year or two behind in design and process technology), but still profitable. If AMD had been content with 10% of the market, Intel would have kept it prices high, in turn guaranteeing AMD profits. It is almost universally acknowledged that Intel wanted to keep AMD alive and profitable, if not really competitive, simply to have plausable deniability to charges of running a monopoly.
Consumers were helped by AMD's technology innovations, but AMD stockholders lost out.
Hopefully the AMD v. Intel lawsuit will sort all that out. Billions of ill-got Intel profits should be rewarded to AMD.
Given the two corporate cultures, I suspect AMD has a roadmap that is in many ways superior to Intel's. To execute on the roadmap, however, they need money, and they need to know that Intel is not going to engage in ongoing anti-competitive practices.
AMD has at least one trick up its sleeve that should be played soon. It has a graphics division that is vastly superior to Intel's. Intel is pouring money into its graphics design division, hoping to catch up before it loses the lawsuit and AMD has the money it needs to pursue its vision of CPUs that do what clients want, rather than what Intel dishes out.
Disclaimer: I own some AMD stock.
See also my main AMD investor page at OpenIcon.com
Wednesday, December 3, 2008
Can Marvell Smash the Atom?
Marvell Technology Group (MRVL) stock is way up today partly because investors had been overly pessimistic about its results for the October quarter (its fiscal third quarter of 2009). But the big news is that Marvel is going into the Netbook market. Which means competing with the Intel Atom processor. This is really cool. This is really exciting for investors, consumers, and gadget freaks.
Despite revenues that dropped to $791.0 million from $842.6 million in the 2nd quarter, Marvel kept its Net income high at $71 million and its free cash flow amazingly high at $246 million. For a in-depth summary of the results and what management said see my Marvell Analyst Conference Summary for December 2, 2008.
The Netbook market could be called the sub-notebook PC market. Netbooks don't have the full-powered Intel or AMD Turion processors or graphics capabilities of notebook computers, but they are cheaper. They are designed mainly to run a Web browser and do e-mail. I've seen a lot of false advertising recently, with one ad describing the Intel Atom processor in a netbook as "powerful."
But when you think about building a good Netbook from the ground up, any smart engineer would say, why Microsoft Windows for the operating system, and why Intel Atom for the processor. The only answer is that they are what people are used to. On the other hand consider a netbook not as a smaller PC, but as a larger smart phone. Suddenly there are many hardware and software choices, some of them found in devices like the Apple iPhone or the Blackberry Bold. And what you will find in many of these devices is Marvell semiconductor chips. And non-Microsoft operating systems like Linux.
Normally going up against Microsoft and Intel, even if you have better products, is not a very good business strategy. Intel in particular, in its competition with AMD, has shown a willingness to use heavy-handed tactics to maintain and extend its market share. Even its ability to subsidize advertisements for its products when people open catalogs or Web merchant sites insures that the playing field is not even. Should investors cheer Marvel tilting up against Intel?
The outcome is in doubt, so hedge your bets. But there is good reason to believe Marvell will at least carve out some good profitable market share, aside from their history of consistently entering new fields and turning the fields.
Marvell already has most of the intellectual property in place to build a single chip that can run the entire netbook. Netbook manufacturers will supply the display, case, and connectors; one chip shall rule them all. The cost will be far lower than Intel can compete with profitably. Intel will probably try to differentiate its products by saying they run Windows, but the reality is they don't really run Windows in the sense that a dual-core notebook processor runs Windows.
If you have not been following Marvell, you may not know what they already do. They specialize in combining digital and analog circuitry in a single chip. They got started by supplying chips that make hard drives capable of storing more data faster. They now dominate the drive chip industry. They branched out to a number of areas, including chips for printers. They also bought Intel's old XScale cell phone processor division, which I believe the Intel guys are going to be kicking themselves over in about October, 2009. Intel was losing money on the division, Marvell is making money.
Marvell also makes superfast chips for physical and wireless internet connections. They make video chips for DVD players and large screen TVs. Their Sheeva processor, combining technologies from ARM, XScale, and in house, runs super fast on super low amounts of power.
By building a netbook from the bottom up, based on a processor that is ultra-green because it was meant to run cell phones, incorporating all the necessary circuits on a single chip, Marvell will enable netbook manufacturers to sell their products for well under $300. Marvell says $200, then $100 is possible.
Will people mind not being able to run Windows? Some people will, but the Netbooks can't run the really cool Windows stuff, like games and Adobe design products. What Linux enables for netbooks is the ability to do email and Web browsing, plus low-overhead tasks designed for the netbook. The competitive advantage of open-source software running on Linux will really shine on a netbook.
With a Sheeva processor from Marvell running applications much faster than an Atom processor, and consuming far less power, it may be hard to keep the Win-tel team alive in this particular market. AMD's decision to stick to notebooks, where its graphics superiority over Intel gives it an advantage, may be just the right thing to do.
Of course, this is speculation about the future. Marvell is the David in this battle. But I have seen Marvell's slingshot, and I would not want to bet on the Goliath, Intel, in this market, even thought it dominates the field at the moment.
It should be noted that Marvell believes the netbooks based on the Marvell chip will open up the Internet to a new global market of between 1 and 2 billion people. Based on what I know about global income demographics, that sounds about right.
As always, keep diversified.
Despite revenues that dropped to $791.0 million from $842.6 million in the 2nd quarter, Marvel kept its Net income high at $71 million and its free cash flow amazingly high at $246 million. For a in-depth summary of the results and what management said see my Marvell Analyst Conference Summary for December 2, 2008.
The Netbook market could be called the sub-notebook PC market. Netbooks don't have the full-powered Intel or AMD Turion processors or graphics capabilities of notebook computers, but they are cheaper. They are designed mainly to run a Web browser and do e-mail. I've seen a lot of false advertising recently, with one ad describing the Intel Atom processor in a netbook as "powerful."
But when you think about building a good Netbook from the ground up, any smart engineer would say, why Microsoft Windows for the operating system, and why Intel Atom for the processor. The only answer is that they are what people are used to. On the other hand consider a netbook not as a smaller PC, but as a larger smart phone. Suddenly there are many hardware and software choices, some of them found in devices like the Apple iPhone or the Blackberry Bold. And what you will find in many of these devices is Marvell semiconductor chips. And non-Microsoft operating systems like Linux.
Normally going up against Microsoft and Intel, even if you have better products, is not a very good business strategy. Intel in particular, in its competition with AMD, has shown a willingness to use heavy-handed tactics to maintain and extend its market share. Even its ability to subsidize advertisements for its products when people open catalogs or Web merchant sites insures that the playing field is not even. Should investors cheer Marvel tilting up against Intel?
The outcome is in doubt, so hedge your bets. But there is good reason to believe Marvell will at least carve out some good profitable market share, aside from their history of consistently entering new fields and turning the fields.
Marvell already has most of the intellectual property in place to build a single chip that can run the entire netbook. Netbook manufacturers will supply the display, case, and connectors; one chip shall rule them all. The cost will be far lower than Intel can compete with profitably. Intel will probably try to differentiate its products by saying they run Windows, but the reality is they don't really run Windows in the sense that a dual-core notebook processor runs Windows.
If you have not been following Marvell, you may not know what they already do. They specialize in combining digital and analog circuitry in a single chip. They got started by supplying chips that make hard drives capable of storing more data faster. They now dominate the drive chip industry. They branched out to a number of areas, including chips for printers. They also bought Intel's old XScale cell phone processor division, which I believe the Intel guys are going to be kicking themselves over in about October, 2009. Intel was losing money on the division, Marvell is making money.
Marvell also makes superfast chips for physical and wireless internet connections. They make video chips for DVD players and large screen TVs. Their Sheeva processor, combining technologies from ARM, XScale, and in house, runs super fast on super low amounts of power.
By building a netbook from the bottom up, based on a processor that is ultra-green because it was meant to run cell phones, incorporating all the necessary circuits on a single chip, Marvell will enable netbook manufacturers to sell their products for well under $300. Marvell says $200, then $100 is possible.
Will people mind not being able to run Windows? Some people will, but the Netbooks can't run the really cool Windows stuff, like games and Adobe design products. What Linux enables for netbooks is the ability to do email and Web browsing, plus low-overhead tasks designed for the netbook. The competitive advantage of open-source software running on Linux will really shine on a netbook.
With a Sheeva processor from Marvell running applications much faster than an Atom processor, and consuming far less power, it may be hard to keep the Win-tel team alive in this particular market. AMD's decision to stick to notebooks, where its graphics superiority over Intel gives it an advantage, may be just the right thing to do.
Of course, this is speculation about the future. Marvell is the David in this battle. But I have seen Marvell's slingshot, and I would not want to bet on the Goliath, Intel, in this market, even thought it dominates the field at the moment.
It should be noted that Marvell believes the netbooks based on the Marvell chip will open up the Internet to a new global market of between 1 and 2 billion people. Based on what I know about global income demographics, that sounds about right.
As always, keep diversified.
Sunday, October 19, 2008
AMD Breaks New Microprocessor Ground
AMD is feisty. Despite the brutal monopoly tactics used by rival Intel (illegal kickbacks to customers; using the cash accumulated by earlier monopoly pricing to try to drive AMD out of the market; etc.), AMD is not only still in the game, it presents a growing strategic threat to Intel and a growing opportunity for eveyone else in the computer industry.
In the third quarter of 2008 AMD made progress on four major fronts. It showed a degree of creativity and flexibility that we have not seen from Intel since the 1980s. While Intel, which "owns" about 80% of the global microprocessor market, continues to have enormous advantages, it is AMD that is leading. Even if you just bought a PC with an Intel processor, its main advances over processors from 5 years ago - combined 32 and 64 bit capability, multiple processors on a single piece of silicon, and lower energy use - were all invented at AMD and then reluctantly introduced by Intel.
You can read some of this history in articles listed at my main AMD page for investors. I'm going to focus this blog entry on recent stategic developments.
One place AMD has consistently lagged Intel is process technology, which is the technology of creating semiconductor chips with ever smaller surface features. Each new generation allows more gates and hence capacity to be fit on the same size of silicon (or you can put your old design on a smaller piece of silicon, which costs less). It is very, very costly to develop each new generation, both in terms of R&D expense and then in creating the equipment that the new fab (semiconductor factories are called fabs) needs to make the improved chips. Intel made so much money from its microprocessor technology that it was able to keep well ahead of everyone else in the industry, often having as much as a two year lead time. For makers of chips requiring less transistors, this was not a big problem, unless they competed directly with Intel for a particular product.
AMD met this challenge by doing more with less; their processor designs were significantly better than Intels from about 2000 until 2006. But if AMD could be at the same level of process technology at the same time as Intel, it would be in a better position to press its design advantage. During the last decade AMD, working with IBM, has created very sophisticated fabs in Germany, and it has narrowed Intel's lead time. But it is still 6 months to a year or more behind Intel, and Intel has the money to drive the research and investment to keep that lead or even extend it. AMD is now shipping chips using 45 nm technology, but Intel started shipping theirs at the beginning of 2008.
In the past decade many major semiconductor players have emerged that don't have their own fabs. These fabless companies, like NVIDIA and Marvell, have done very well. But the independent foundries that produce chips for them have not been able to keep up with AMD in process technology, much less Intel. You might think that independent equipment makers like Applied Materials and KLA Tencor, would focus on getting ahead of Intel, but most chip makers don't have to put but a fraction of number of gates on a chip as AMD or Intel do, so the economic incentives are not there.
AMD's new stategy is to start allowing other companies to use its foundries when they need the advantage of cutting-edge chip manufacturing. As this happens research and development costs can be spread out over a larger number chip makers. With IBM, AMD and others working together it is possible that the AMD coalition could catch up with the Intel axis in process technology over the next few years.
To accomplish this strategy AMD brought in new investors, basically the nation of Abu Dhabi. AMD is contributing its fabs and some of its intellectual property to the Foundry Company, but Abu Dhabi will be the majority owners, in return for a multi-billion dollar cash infusion. In addition to continuing to expand the AMD plants in Dresden, Germany, AMD will break ground on a new plant in New York State. At a time when most new foundries are being built in places like Malasia and China, you might wonder why New York State. Well, what some people believe is the most sophisticated chip factory in the world, one of IBM's fabs, is in New York. These factories are mainly run by robots. There is no need for a lot of low-paid laborers doing hand work.
Except for the cash infusion, we won't see the results of this strategic turn until 2010 and beyond. But there are the three other fronts I spoke of: graphics, servers, and profits.
AMD aquired NVIDIA rival ATI for about $5 billion back in 2006, just in time to see ATI lose much of its share of the graphics chip market (at about the same time re-designed Intel microprocessor chips caught up with AMD's and Intel lowered prices to make all microprocessor sales unprofitable). I want to repeat what I've said many times, I think the NVIDIA team may be the smartest guys in the tech world. Still, they are AMD rivals in graphics. Recently ATI (now an AMD division) stole a march on NVIDIA with a new line of chips and graphics cards that became very popular very quickly with game enthusiasts this summer. All NVIDIA could do was lower the prices on their own chips while they rushed back to the drawing board (okay, these guys never leave the drawing board, they sleep on the drawing board, but you know what I mean).
NVIDIA still owns the graphics card market, but in Q3 AMDs graphics division revenue jumped to $385 million from $285 million in Q2, a 55% increase in 3 months. More important, AMD/ATI has two advantages over NVIDIA that might come into play in the next 2 years and allow them to eat further into NVIDIA market dominance. AMD leads NVIDIA in process technology, precisely because NVIDIA does not have its own fabs. And AMD can integrate its processor (CPU) development with its graphics development, which NVIDIA can't. This is also a three way race because Intel has long made low-end graphics chips and is trying to upgrade that division in response to the AMD threat. All this will be very good for consumers, who are already seeing inexpensive video cards that are targetted at gamers but that can easily handle high definition video and that can be used as super computers those of us who like to crunch numbers.
In server chips, so important to the Internet world, AMD is shipping its first 45 nm Opterons. Depending on what they are used for, they can be seen as better or worse than Intel's current server chips. AMD chips use less power and are better at math and sending information to and from memory. Intel chips are better at heating your building (actually, they are quite good, having finally incorporate much of the Opteron circa 2002 design improvements). The same advantage you see in Opteron server chips will soon become available in Phenom chips for desktop computers. AMD already has great notebook computer chips, the Puma series.
And for the final strategic advance, we have: profits. While still working towards GAAP and even non-GAAP net income, in Q3 2008 AMD showed operating profits. Much of the industry was concerned that if AMD continued to lose money it would be forced into bankrupcy, and Intel would go back to its high-prices and low performance everyone came to expect in the 1999s. By lowering costs, including by making the Dresden fabs highly efficient, and raising sales, AMD would have been back in the game even without the Abu Dhabi deal.
I own AMD stock and two computers containing AMD processors. I also own stock in Marvell. In the past I owned NVIDIA stock, but do not at present.
See also www.amd.com
In the third quarter of 2008 AMD made progress on four major fronts. It showed a degree of creativity and flexibility that we have not seen from Intel since the 1980s. While Intel, which "owns" about 80% of the global microprocessor market, continues to have enormous advantages, it is AMD that is leading. Even if you just bought a PC with an Intel processor, its main advances over processors from 5 years ago - combined 32 and 64 bit capability, multiple processors on a single piece of silicon, and lower energy use - were all invented at AMD and then reluctantly introduced by Intel.
You can read some of this history in articles listed at my main AMD page for investors. I'm going to focus this blog entry on recent stategic developments.
One place AMD has consistently lagged Intel is process technology, which is the technology of creating semiconductor chips with ever smaller surface features. Each new generation allows more gates and hence capacity to be fit on the same size of silicon (or you can put your old design on a smaller piece of silicon, which costs less). It is very, very costly to develop each new generation, both in terms of R&D expense and then in creating the equipment that the new fab (semiconductor factories are called fabs) needs to make the improved chips. Intel made so much money from its microprocessor technology that it was able to keep well ahead of everyone else in the industry, often having as much as a two year lead time. For makers of chips requiring less transistors, this was not a big problem, unless they competed directly with Intel for a particular product.
AMD met this challenge by doing more with less; their processor designs were significantly better than Intels from about 2000 until 2006. But if AMD could be at the same level of process technology at the same time as Intel, it would be in a better position to press its design advantage. During the last decade AMD, working with IBM, has created very sophisticated fabs in Germany, and it has narrowed Intel's lead time. But it is still 6 months to a year or more behind Intel, and Intel has the money to drive the research and investment to keep that lead or even extend it. AMD is now shipping chips using 45 nm technology, but Intel started shipping theirs at the beginning of 2008.
In the past decade many major semiconductor players have emerged that don't have their own fabs. These fabless companies, like NVIDIA and Marvell, have done very well. But the independent foundries that produce chips for them have not been able to keep up with AMD in process technology, much less Intel. You might think that independent equipment makers like Applied Materials and KLA Tencor, would focus on getting ahead of Intel, but most chip makers don't have to put but a fraction of number of gates on a chip as AMD or Intel do, so the economic incentives are not there.
AMD's new stategy is to start allowing other companies to use its foundries when they need the advantage of cutting-edge chip manufacturing. As this happens research and development costs can be spread out over a larger number chip makers. With IBM, AMD and others working together it is possible that the AMD coalition could catch up with the Intel axis in process technology over the next few years.
To accomplish this strategy AMD brought in new investors, basically the nation of Abu Dhabi. AMD is contributing its fabs and some of its intellectual property to the Foundry Company, but Abu Dhabi will be the majority owners, in return for a multi-billion dollar cash infusion. In addition to continuing to expand the AMD plants in Dresden, Germany, AMD will break ground on a new plant in New York State. At a time when most new foundries are being built in places like Malasia and China, you might wonder why New York State. Well, what some people believe is the most sophisticated chip factory in the world, one of IBM's fabs, is in New York. These factories are mainly run by robots. There is no need for a lot of low-paid laborers doing hand work.
Except for the cash infusion, we won't see the results of this strategic turn until 2010 and beyond. But there are the three other fronts I spoke of: graphics, servers, and profits.
AMD aquired NVIDIA rival ATI for about $5 billion back in 2006, just in time to see ATI lose much of its share of the graphics chip market (at about the same time re-designed Intel microprocessor chips caught up with AMD's and Intel lowered prices to make all microprocessor sales unprofitable). I want to repeat what I've said many times, I think the NVIDIA team may be the smartest guys in the tech world. Still, they are AMD rivals in graphics. Recently ATI (now an AMD division) stole a march on NVIDIA with a new line of chips and graphics cards that became very popular very quickly with game enthusiasts this summer. All NVIDIA could do was lower the prices on their own chips while they rushed back to the drawing board (okay, these guys never leave the drawing board, they sleep on the drawing board, but you know what I mean).
NVIDIA still owns the graphics card market, but in Q3 AMDs graphics division revenue jumped to $385 million from $285 million in Q2, a 55% increase in 3 months. More important, AMD/ATI has two advantages over NVIDIA that might come into play in the next 2 years and allow them to eat further into NVIDIA market dominance. AMD leads NVIDIA in process technology, precisely because NVIDIA does not have its own fabs. And AMD can integrate its processor (CPU) development with its graphics development, which NVIDIA can't. This is also a three way race because Intel has long made low-end graphics chips and is trying to upgrade that division in response to the AMD threat. All this will be very good for consumers, who are already seeing inexpensive video cards that are targetted at gamers but that can easily handle high definition video and that can be used as super computers those of us who like to crunch numbers.
In server chips, so important to the Internet world, AMD is shipping its first 45 nm Opterons. Depending on what they are used for, they can be seen as better or worse than Intel's current server chips. AMD chips use less power and are better at math and sending information to and from memory. Intel chips are better at heating your building (actually, they are quite good, having finally incorporate much of the Opteron circa 2002 design improvements). The same advantage you see in Opteron server chips will soon become available in Phenom chips for desktop computers. AMD already has great notebook computer chips, the Puma series.
And for the final strategic advance, we have: profits. While still working towards GAAP and even non-GAAP net income, in Q3 2008 AMD showed operating profits. Much of the industry was concerned that if AMD continued to lose money it would be forced into bankrupcy, and Intel would go back to its high-prices and low performance everyone came to expect in the 1999s. By lowering costs, including by making the Dresden fabs highly efficient, and raising sales, AMD would have been back in the game even without the Abu Dhabi deal.
I own AMD stock and two computers containing AMD processors. I also own stock in Marvell. In the past I owned NVIDIA stock, but do not at present.
See also www.amd.com
Sunday, January 20, 2008
AMD Beats Expectations
Wall Street's gleeful expectations of the demise of AMD, and return of monopoly profits at Intel, were shattered when AMD delivered its Q4 results on Thursday, January 17, 2008. While AMD is far from being out of the woods, its situation is much better than most analysts thought.
The headline numbers offered an excellent demonstration to paying attention to the difference between GAAP and non-GAAP numbers. Revenues under both systems were the same, $1,77 billion. That was up 8.5% from the previous quarter but flat from Q4 2006, so it mainly represents the seasonal nature of the personal computer business.
GAAP net income was negative $1.77 billion. That would normally mean a company spent twice as much money producing and selling its goods as it was able to sell the goods for.
But non-GAAP net income was negative $9 million. Losing $9 million in a quarter is not good, but it is a far cry from a $1.77 billion loss.
The difference has to do with AMD's acquisition of ATI in 2006 for over $5 billion. At the time that seemed more than ATI was really worth, but AMD thought it was worth it to obtain ATI's graphics chip and motherboard chipset (the chips that make the microprocessor of a computer work with other chips on the board that holds them all) capabilities. Unfortunately ATI's competitor NVIDIA came out with new product that kicked ATI's behind in 2007.
So for Q4 2007, under GAAP rules, AMD admitted they paid to much for ATI, writing off $1.6 for lost "goodwill." You can still look at it two ways. AMD admitted they lost $1.6 billion. Or they had already paid for ATI back in 2006, so this is what is called a non-cash charge.
It's not like the ATI acquisition was all folly. AMD actually has, at least for the present, a strategic advantage over rival Intel because of it. Intel makes processors and chipsets, but only low-end graphics chips. NVIDIA makes high-end (and low-end) graphics chips and chipsets. Only AMD can deliver all three to computer makers: advanced microprocessors, chipsets, and high-end graphics chips.
The other part of AMD's report that was a surprise to most of us was the "Barcelona" quad-core Opteron processor situation. Bacelona chips had been delayed in Q1, and an error was found in the chips, so AMD announced it would not be making general shipments until Q1 2008. Actually the error was easily fixed in the Linux operating system, so large data centers that had been waiting for the chips decided to buy them despite the bug. Nearly 400,000 were shipped. Of course the revenues from most of those won't show up until Q1 2008.
Because of the quad-core shipments ASPs (average sales prices) were up for processors, and number of units shipped were up as well. Graphics revenues were up, but not so much.
Intel, of course, has fairly decent chips out now, in many ways playing catch-up to AMD designs, but having an advantage of introducing 45nm (higher transistor density) technology before AMD. But AMD is sampling 45nm chips, so the race is hardly over. On the Intel side they are working to catch up with AMD and NVidia in graphics capabilities.
With demand for personal computers (mostly for business use) exploding in India, Russia, China, Saudi Arabia and other rapidly developing nations, there is room for both AMD and Intel to grow. Behind in technology, and having been forced to cease, or appear to cease, illegal marketing practices due to an AMD law suit, in 2006 Intel started a brutal pricing war to keep its market share. In 2007 Intel introduced better chips and relented on pricing issues, which allowed it to start raking in money again. AMD has benefitted from the easing of pricing pressures, but must regain a clear technology lead if it is to be free from that danger in the future.
AMD's stock price received a nice pop on Friday after the Q4 results announcement, but the stock price is way down from its 2005 price. AMD is a risky investment, but management believes AMD will turn profitable in Q3 2008. If that is true, the stock is significantly undervalued at today's price.
I own AMD stock.
See my notes on Thursday's AMD analyst conference
See my main AMD page, with links to more articles
http://www.amd.com/
My Intel main page
The headline numbers offered an excellent demonstration to paying attention to the difference between GAAP and non-GAAP numbers. Revenues under both systems were the same, $1,77 billion. That was up 8.5% from the previous quarter but flat from Q4 2006, so it mainly represents the seasonal nature of the personal computer business.
GAAP net income was negative $1.77 billion. That would normally mean a company spent twice as much money producing and selling its goods as it was able to sell the goods for.
But non-GAAP net income was negative $9 million. Losing $9 million in a quarter is not good, but it is a far cry from a $1.77 billion loss.
The difference has to do with AMD's acquisition of ATI in 2006 for over $5 billion. At the time that seemed more than ATI was really worth, but AMD thought it was worth it to obtain ATI's graphics chip and motherboard chipset (the chips that make the microprocessor of a computer work with other chips on the board that holds them all) capabilities. Unfortunately ATI's competitor NVIDIA came out with new product that kicked ATI's behind in 2007.
So for Q4 2007, under GAAP rules, AMD admitted they paid to much for ATI, writing off $1.6 for lost "goodwill." You can still look at it two ways. AMD admitted they lost $1.6 billion. Or they had already paid for ATI back in 2006, so this is what is called a non-cash charge.
It's not like the ATI acquisition was all folly. AMD actually has, at least for the present, a strategic advantage over rival Intel because of it. Intel makes processors and chipsets, but only low-end graphics chips. NVIDIA makes high-end (and low-end) graphics chips and chipsets. Only AMD can deliver all three to computer makers: advanced microprocessors, chipsets, and high-end graphics chips.
The other part of AMD's report that was a surprise to most of us was the "Barcelona" quad-core Opteron processor situation. Bacelona chips had been delayed in Q1, and an error was found in the chips, so AMD announced it would not be making general shipments until Q1 2008. Actually the error was easily fixed in the Linux operating system, so large data centers that had been waiting for the chips decided to buy them despite the bug. Nearly 400,000 were shipped. Of course the revenues from most of those won't show up until Q1 2008.
Because of the quad-core shipments ASPs (average sales prices) were up for processors, and number of units shipped were up as well. Graphics revenues were up, but not so much.
Intel, of course, has fairly decent chips out now, in many ways playing catch-up to AMD designs, but having an advantage of introducing 45nm (higher transistor density) technology before AMD. But AMD is sampling 45nm chips, so the race is hardly over. On the Intel side they are working to catch up with AMD and NVidia in graphics capabilities.
With demand for personal computers (mostly for business use) exploding in India, Russia, China, Saudi Arabia and other rapidly developing nations, there is room for both AMD and Intel to grow. Behind in technology, and having been forced to cease, or appear to cease, illegal marketing practices due to an AMD law suit, in 2006 Intel started a brutal pricing war to keep its market share. In 2007 Intel introduced better chips and relented on pricing issues, which allowed it to start raking in money again. AMD has benefitted from the easing of pricing pressures, but must regain a clear technology lead if it is to be free from that danger in the future.
AMD's stock price received a nice pop on Friday after the Q4 results announcement, but the stock price is way down from its 2005 price. AMD is a risky investment, but management believes AMD will turn profitable in Q3 2008. If that is true, the stock is significantly undervalued at today's price.
I own AMD stock.
See my notes on Thursday's AMD analyst conference
See my main AMD page, with links to more articles
http://www.amd.com/
My Intel main page
Wednesday, January 16, 2008
Intel Disappoints, But Stock is Undervalued
Sell-side analysts (those who work for Wall Street brokerage houses that make commissions by getting clients to buy and sell stocks) did not like Intel's Q4 results or forecast for 2008. Pricing by auction in the stock market made the price of Intel stock plunge today (by 12.25%) - no one wants to buy, if at the end of the day you can buy cheaper. In addition Intel stock was already cheap, like most stocks, because of the current liquidity squeeze.
In the Intel v. AMD tech war, I favor AMD, both because it is the traditional underdog and because it was innovating processor design in the opening years of this decade, which benefits everyone who uses personal computers. I think AMD stock is way cheap right now, but that does not blind me to the value of Intel stock.
If you want a lot of detail on Intel's (INTC) Q4 results and management's explanations, take a look at my analyst conference summary.
Here I'll focus on a couple of points. The first in Intel's guidance on Q1 2008 margins. Margins are the difference between revenues and expenses, so at a given level of revenues, higher margins are good. Intel expects margins to dip in Q1. The Wall Street geniuses acted like that was a big surprise and a reason to dump Intel stock.
But there are two main things accounting for the Q1 margin dip. First, demand for CPUs for microcomputers is seasonal, always peaking in Q4. Q1 revenues are expected to be lower; with many costs fixed, that in itself will lower margins.
Second, Intel sold its cell-phone processor division to Marvell (MRVL) last year. It made 2007 a trying year for Marvell because they paid cash for it. It was great for Intel because they got cash for a money-losing unit (Marvell expects it to become profitable in the very near future). Under the agreement Intel would continue manufacturing the processors until Marvell could arrange offshore manufacturing for them. That transition began in Q4 2007 and will be completed in Q1 2008 except for some legacy processors that Marvell did not think it worth tooling up to produce. Those legacy processors will still be sold by Intel to Marvell.
The margins were good on the Marvell processors, but now those revenues will go away. So the best guidance Intel can give is that Q1 revenues will be weaker than is the norm for the season.
At the same time, Intel said their inventories are thin. And with demand in India, China, and Russia charging ahead, I think they are being cautious in their predictions. Technology is still a growth area, and computers, even if they morph into cell phones, are the heart of modern technology.
According to the Intel page at NASDAQ, the company has a PE ratio of 16.86, which inverts to earnings on stock of 5.9%. With Intel expected to grow revenues 10% in 2008, and net income (profit) growing faster than revenues, that is a bargain price.
Along the same lines, I think that NVIDIA stock is a bargain today. I'll write about NVIDIA again after I hear their what they have to say at their analyst conference.
By way of disclaimer, I own AMD stock, but not NVIDIA or Intel stock.
Keep diverse!
See also www.intel.com
In the Intel v. AMD tech war, I favor AMD, both because it is the traditional underdog and because it was innovating processor design in the opening years of this decade, which benefits everyone who uses personal computers. I think AMD stock is way cheap right now, but that does not blind me to the value of Intel stock.
If you want a lot of detail on Intel's (INTC) Q4 results and management's explanations, take a look at my analyst conference summary.
Here I'll focus on a couple of points. The first in Intel's guidance on Q1 2008 margins. Margins are the difference between revenues and expenses, so at a given level of revenues, higher margins are good. Intel expects margins to dip in Q1. The Wall Street geniuses acted like that was a big surprise and a reason to dump Intel stock.
But there are two main things accounting for the Q1 margin dip. First, demand for CPUs for microcomputers is seasonal, always peaking in Q4. Q1 revenues are expected to be lower; with many costs fixed, that in itself will lower margins.
Second, Intel sold its cell-phone processor division to Marvell (MRVL) last year. It made 2007 a trying year for Marvell because they paid cash for it. It was great for Intel because they got cash for a money-losing unit (Marvell expects it to become profitable in the very near future). Under the agreement Intel would continue manufacturing the processors until Marvell could arrange offshore manufacturing for them. That transition began in Q4 2007 and will be completed in Q1 2008 except for some legacy processors that Marvell did not think it worth tooling up to produce. Those legacy processors will still be sold by Intel to Marvell.
The margins were good on the Marvell processors, but now those revenues will go away. So the best guidance Intel can give is that Q1 revenues will be weaker than is the norm for the season.
At the same time, Intel said their inventories are thin. And with demand in India, China, and Russia charging ahead, I think they are being cautious in their predictions. Technology is still a growth area, and computers, even if they morph into cell phones, are the heart of modern technology.
According to the Intel page at NASDAQ, the company has a PE ratio of 16.86, which inverts to earnings on stock of 5.9%. With Intel expected to grow revenues 10% in 2008, and net income (profit) growing faster than revenues, that is a bargain price.
Along the same lines, I think that NVIDIA stock is a bargain today. I'll write about NVIDIA again after I hear their what they have to say at their analyst conference.
By way of disclaimer, I own AMD stock, but not NVIDIA or Intel stock.
Keep diverse!
See also www.intel.com
Wednesday, November 21, 2007
AMD Valuation
Last year AMD bought ATI for $5.4 billion. Today AMD is valued by the market at $5.9 billion. What gives? What sort of valuation should be put on AMD stock?
AMD, of course, makes microprocessors, or CPU's, the cores of computers. It traditionally competed only in the PC space until it introduced its Opteron processor for servers in 2003, and usually had less than 10% of the market, with Intel having about 90%. From 2003 until 2005 AMD had a good run, gaining market share and hitting a stock price over $40 in January 2006. Then Intel struck back. By slashing its prices and promising a new generation of chips for later in 2006, Intel first cut into AMD's profit margins and then began to regain market share. The new chips introduced in 2006 had their faults but were overall on par with AMDs. Then came the ATI acquisition, which saddled AMD with a lot of debt. To add to this toxic brew, AMD's quad-core chips, code named Barcelona, were delayed in 2007. For more AMD background and history check out my AMD page.
Because of the necessity of competing on price and the poor sales of ATI chips after the acquisition (competitor NVIDIA introduced new graphics chips that put ATI behind), AMD has had a very bad year. The good news is that the stock is now astonishingly cheap, if you are willing to pick up on the risk. Last week a wealthy shiek bought some $600 million's worth, so you would not be alone in your gamble. [I own AMD stock and also owned ATI stock before the merger. I also once owned NVIDIA stock but foolishly sold it.]
Lets use the numbers from AMD's latest quarter, Q3 2007, as a proxy for its current condition [See also my AMD October 18, 2007 Analyst Conference Summary]. Revenues were $1.63 billion, up 18% from Q2 2007 and up 22% from year-earlier.
Which would seem to say that AMD is accelerating out of its 2006 slump, at least on the revenue side.
Q3 2007 net loss was $226 million, which tells you the core story of AMD's low stock price. While it was better than the net loss of $457 million in Q2, it was a reversal of a net income of $121 million in Q3 2006. Q3 2006 in itself was not a good quarter for profits.
The main reason I think AMD is underpriced is because in Q3 2007 it reached positive cash flow. That is, much of the net loss was for non-cash expenses, including ATI acquisition costs. AMD spent the money on ATI last year, but under generally accepted accounting principles (GAAP) some of that expense is written off over time.
Also, AMD shipped a record number of processors in Q3. Despite predictions by Intel fans that AMD would sink back into the obscurity from whence it came, and claims that AMD notebook chips sales would be down, AMD's processors for notebook computers had 68% better unit shipments than the year-earlier quarter.
After some real problems marketing graphics chips after the ATI acquisition, that segment seems to be getting on track with a 29% sequential increase in graphics revenue.
Intel has always led AMD in process technology (the ability to put more logic gates in the same area of a chip). Just a few years ago AMD was typically two years behind Intel. This month Intel introduced chips using 45nm technology, though they don't seem to be actually available in any quantity yet. AMD said it 45nm chips will ramp in Q2 2008. My guess is that means a May release, so AMD has closed that gap down to 7 months. But AMD has a lead in putting 4 processor cores on a single semiconductor chip, and in design architecture.
If AMD were a recent startup investors would probably consider it a tiger, given all these trends. Intel is a heavy competitor, of course, so heavy that many nations are looking into Intel's reputation for illegal anti-competitive practices and AMD had to file a lawsuit to force Intel to allow computer makers to by AMD chips without retribution.
While Intel is AMD's main danger, a secondary risk would be the possibility of a slowing of the expansion of the computer market. Given the booms in India, China, Russia and elsewhere, I'd prefer to bet on a strong global market even if the U.S. market weakens.
One place AMD shines is giving its customers (the computer makers) what they want, in contrast to Intel's take-it-or-leave-it approach.
Another downside concern is the slow pace of introduction of quad-core Opterons. If AMD does not get its act together on this soon, it could lose all the gains it made since 2002 in the relatively high profit margin AMD market.
On balance, I see AMD growing in 2008, with positive cash flow and progress probably positive GAAP net income by the second half. AMD's stock price probably won't move above $15 per share until this current run of market turmoil ends and AMD shows 2 consecutive quarters of profitability.
But with a current revenue annual run rate of $6.5 billion, and apparently accelerating, I think a rational market would put the market cap at no lower than $7 billion. Which works out to $12.65 per share.
And if indeed AMD continues to gain revenues as quickly as it has lately (possible with its new Phenom processor, quad-core Opteron, and Spider graphics system), it could go a lot higher a lot sooner than most analysts and investors think.
AMD believed it would have a long-term competitive advantage if it became the only company with high-end graphics and general microprocessor capability. It might still be proven right.
Strangely, while I've been writing this its AMD's stock price has risen to $11.05, from $10.55 or so when I started writing.
More data:
www.amd.com
competitors:
www.intel.com
www.nvidia.com
AMD, of course, makes microprocessors, or CPU's, the cores of computers. It traditionally competed only in the PC space until it introduced its Opteron processor for servers in 2003, and usually had less than 10% of the market, with Intel having about 90%. From 2003 until 2005 AMD had a good run, gaining market share and hitting a stock price over $40 in January 2006. Then Intel struck back. By slashing its prices and promising a new generation of chips for later in 2006, Intel first cut into AMD's profit margins and then began to regain market share. The new chips introduced in 2006 had their faults but were overall on par with AMDs. Then came the ATI acquisition, which saddled AMD with a lot of debt. To add to this toxic brew, AMD's quad-core chips, code named Barcelona, were delayed in 2007. For more AMD background and history check out my AMD page.
Because of the necessity of competing on price and the poor sales of ATI chips after the acquisition (competitor NVIDIA introduced new graphics chips that put ATI behind), AMD has had a very bad year. The good news is that the stock is now astonishingly cheap, if you are willing to pick up on the risk. Last week a wealthy shiek bought some $600 million's worth, so you would not be alone in your gamble. [I own AMD stock and also owned ATI stock before the merger. I also once owned NVIDIA stock but foolishly sold it.]
Lets use the numbers from AMD's latest quarter, Q3 2007, as a proxy for its current condition [See also my AMD October 18, 2007 Analyst Conference Summary]. Revenues were $1.63 billion, up 18% from Q2 2007 and up 22% from year-earlier.
Which would seem to say that AMD is accelerating out of its 2006 slump, at least on the revenue side.
Q3 2007 net loss was $226 million, which tells you the core story of AMD's low stock price. While it was better than the net loss of $457 million in Q2, it was a reversal of a net income of $121 million in Q3 2006. Q3 2006 in itself was not a good quarter for profits.
The main reason I think AMD is underpriced is because in Q3 2007 it reached positive cash flow. That is, much of the net loss was for non-cash expenses, including ATI acquisition costs. AMD spent the money on ATI last year, but under generally accepted accounting principles (GAAP) some of that expense is written off over time.
Also, AMD shipped a record number of processors in Q3. Despite predictions by Intel fans that AMD would sink back into the obscurity from whence it came, and claims that AMD notebook chips sales would be down, AMD's processors for notebook computers had 68% better unit shipments than the year-earlier quarter.
After some real problems marketing graphics chips after the ATI acquisition, that segment seems to be getting on track with a 29% sequential increase in graphics revenue.
Intel has always led AMD in process technology (the ability to put more logic gates in the same area of a chip). Just a few years ago AMD was typically two years behind Intel. This month Intel introduced chips using 45nm technology, though they don't seem to be actually available in any quantity yet. AMD said it 45nm chips will ramp in Q2 2008. My guess is that means a May release, so AMD has closed that gap down to 7 months. But AMD has a lead in putting 4 processor cores on a single semiconductor chip, and in design architecture.
If AMD were a recent startup investors would probably consider it a tiger, given all these trends. Intel is a heavy competitor, of course, so heavy that many nations are looking into Intel's reputation for illegal anti-competitive practices and AMD had to file a lawsuit to force Intel to allow computer makers to by AMD chips without retribution.
While Intel is AMD's main danger, a secondary risk would be the possibility of a slowing of the expansion of the computer market. Given the booms in India, China, Russia and elsewhere, I'd prefer to bet on a strong global market even if the U.S. market weakens.
One place AMD shines is giving its customers (the computer makers) what they want, in contrast to Intel's take-it-or-leave-it approach.
Another downside concern is the slow pace of introduction of quad-core Opterons. If AMD does not get its act together on this soon, it could lose all the gains it made since 2002 in the relatively high profit margin AMD market.
On balance, I see AMD growing in 2008, with positive cash flow and progress probably positive GAAP net income by the second half. AMD's stock price probably won't move above $15 per share until this current run of market turmoil ends and AMD shows 2 consecutive quarters of profitability.
But with a current revenue annual run rate of $6.5 billion, and apparently accelerating, I think a rational market would put the market cap at no lower than $7 billion. Which works out to $12.65 per share.
And if indeed AMD continues to gain revenues as quickly as it has lately (possible with its new Phenom processor, quad-core Opteron, and Spider graphics system), it could go a lot higher a lot sooner than most analysts and investors think.
AMD believed it would have a long-term competitive advantage if it became the only company with high-end graphics and general microprocessor capability. It might still be proven right.
Strangely, while I've been writing this its AMD's stock price has risen to $11.05, from $10.55 or so when I started writing.
More data:
www.amd.com
competitors:
www.intel.com
www.nvidia.com
Wednesday, September 12, 2007
AMD, Quad Core Opteron, and Korea
This has been an exciting week so far for those of us following the Processor Wars. Intel announced it is making more money than it thought it would. Korea announced (See Infoworld article) that it thinks Intel used illegal methods to make its dough, joining Japan and the European Union in that allegation. AMD released its genuine quad-core Opteron processors, to be distinguished from Intels dual-dual core Xeon processors. Preliminary reviews have already started emerging for the new AMD processors; they look amazing. Since this blog is primarily for investors, I'll be converting some tech-speak to a semblance of why this matters in reality.
First, as far as I know, all AMD executives and employees are alive and well, so the boys at Intel have been too busy trying to catch up with AMD advanced technology to watch the Sopranos. Their unethical business methods will doubtless be considered by Intel investors to be mere sharp business practices. Essentially what Intel is accused of by Japan, Europe, and Korea is limiting AMD to very small markets by illegally discouraging dual sourcing of processor chips. Intel says it never did this, and if it did it stopped doing it. And my understanding is that nothing Intel did, would, in itself, be illegal. You can price your products however you want. It is the context that matters: pricing schemes can become illegal when they are designed to create a monopoly. Intel's main defense is look, we lost market share lately, we can't be a monopoly. But they lost market share after two changes: AMD introduced 64 bit x86 processors when Intel tried to force its clients to switch to Itanium processors in order to get 64 bit, and Intel was informed by regulatory agencies that it was being investigated.
In 2006 Intel was on the ropes and responded by taking advantage of its capital position. It started a pricing war that benefited computer makers (Dell, HP, etc.) and consumers but that drove AMD to the wall. In the later half of 2006 Intel released a new processor design that showed some improvement on older designs. This happened while AMD was trying to absorb its acquisition of ATI, which simply put it in position to get its ass kicked by NVidia and Intel at the same time.
Today AMD's stock price is below its 2002 level, even though it is a much larger company now. 2007 revenues look to be roughly double those in 2002. Earnings are bad, in fact negative, because of the pricing war with Intel and the cost of the ATI acquisition.
But that is the past; the future depends on industry adoption of Barcelona technology, particularly the quad core Opteron processor for servers. Unlike when Opteron was introduced (no major players joined in the introduction), IBM, Dell, and HP all are ready with quad-core Opteron servers. These processor chips can also be plugged into AMD-based servers that have been selling in 2007 because they are pin-compatible with the dual-core Opterons. I doubt many companies will be pulling out dual-cores to put in quad-cores, but it means the motherboard designs were ready to go well in advance of chip availability. So it is off to the races.
Now we will enter the benchmark propaganda wars. Intel fan boys will claim that Barcelona sucks. AMD fan boys will say it is way superior. Both will show benchmarks to prove their point. How can that be? Well, there are two big issues (and a swarm of small ones) with benchmarks. One is optimization, the other is specialization, in this case floating point versus integer. For people who actually buy servers, who actually want the best bang for the buck, who are not locked into Intel, they are going to need to run tests on both platforms to see what works.
There is agreement that AMD has really good floating point capabilities. So that means scientific applications are going to lean to AMD. But there is a claim from the Intel camp that servers mostly just serve up data; Intel's floating point capacity will do just fine. Ten years ago I would have agreed with that, but things have changed. Visual is in. Visual requires floating point. Fewer and fewer servers are being devoted to just plain accounting or data serving.
To me the new AMD architecture looks superior for a couple of reasons, but I know that superior looking architecture does not always translate to real performance. First, the AMD memory controller is still on the server chip. Intel likes to run benchmarks that go to memory infrequently enough that its off-chip memory controllers don't appear to be a bottleneck (this is not new to Barcelona, but should become more of an issue with four cores needing to be fed memory). AMD's design will be a huge advantage in high end servers with as many as 8 chips, meaning 32 cores.
While both Intel and AMD have introduced technology to make virtualization easier, and both have some merit, I suspect AMD's architecture will work better in datacenters. If you are running a bunch of virtual machines on a multiprocessor, multicore server you also want to have multiple network connections (typically 10 Gigabit Ethernet connections), one for each virtual server. AMD's new design scales out nicely; Intel's current design, the Xeon 7300, does not.
Again, I have not personally tested the new AMD or latest Intel machines. I am analyzing what specialists are publishing.
I would say that AMD investors should take heart; Barcelona looks good. It will look even better as AMD ramps up processing speed (the first out the gate quad-cores have slower clock cycles than most of us expected). However, as long as Intel is willing to undercut AMD on pricing, you have to consider AMD a long-term investment, and a risky one at that. I own the stock; I want to see what its worth when AMD market share hits the 51% tipping point. That may never come; at best it is years away.
See also my AMD page
First, as far as I know, all AMD executives and employees are alive and well, so the boys at Intel have been too busy trying to catch up with AMD advanced technology to watch the Sopranos. Their unethical business methods will doubtless be considered by Intel investors to be mere sharp business practices. Essentially what Intel is accused of by Japan, Europe, and Korea is limiting AMD to very small markets by illegally discouraging dual sourcing of processor chips. Intel says it never did this, and if it did it stopped doing it. And my understanding is that nothing Intel did, would, in itself, be illegal. You can price your products however you want. It is the context that matters: pricing schemes can become illegal when they are designed to create a monopoly. Intel's main defense is look, we lost market share lately, we can't be a monopoly. But they lost market share after two changes: AMD introduced 64 bit x86 processors when Intel tried to force its clients to switch to Itanium processors in order to get 64 bit, and Intel was informed by regulatory agencies that it was being investigated.
In 2006 Intel was on the ropes and responded by taking advantage of its capital position. It started a pricing war that benefited computer makers (Dell, HP, etc.) and consumers but that drove AMD to the wall. In the later half of 2006 Intel released a new processor design that showed some improvement on older designs. This happened while AMD was trying to absorb its acquisition of ATI, which simply put it in position to get its ass kicked by NVidia and Intel at the same time.
Today AMD's stock price is below its 2002 level, even though it is a much larger company now. 2007 revenues look to be roughly double those in 2002. Earnings are bad, in fact negative, because of the pricing war with Intel and the cost of the ATI acquisition.
But that is the past; the future depends on industry adoption of Barcelona technology, particularly the quad core Opteron processor for servers. Unlike when Opteron was introduced (no major players joined in the introduction), IBM, Dell, and HP all are ready with quad-core Opteron servers. These processor chips can also be plugged into AMD-based servers that have been selling in 2007 because they are pin-compatible with the dual-core Opterons. I doubt many companies will be pulling out dual-cores to put in quad-cores, but it means the motherboard designs were ready to go well in advance of chip availability. So it is off to the races.
Now we will enter the benchmark propaganda wars. Intel fan boys will claim that Barcelona sucks. AMD fan boys will say it is way superior. Both will show benchmarks to prove their point. How can that be? Well, there are two big issues (and a swarm of small ones) with benchmarks. One is optimization, the other is specialization, in this case floating point versus integer. For people who actually buy servers, who actually want the best bang for the buck, who are not locked into Intel, they are going to need to run tests on both platforms to see what works.
There is agreement that AMD has really good floating point capabilities. So that means scientific applications are going to lean to AMD. But there is a claim from the Intel camp that servers mostly just serve up data; Intel's floating point capacity will do just fine. Ten years ago I would have agreed with that, but things have changed. Visual is in. Visual requires floating point. Fewer and fewer servers are being devoted to just plain accounting or data serving.
To me the new AMD architecture looks superior for a couple of reasons, but I know that superior looking architecture does not always translate to real performance. First, the AMD memory controller is still on the server chip. Intel likes to run benchmarks that go to memory infrequently enough that its off-chip memory controllers don't appear to be a bottleneck (this is not new to Barcelona, but should become more of an issue with four cores needing to be fed memory). AMD's design will be a huge advantage in high end servers with as many as 8 chips, meaning 32 cores.
While both Intel and AMD have introduced technology to make virtualization easier, and both have some merit, I suspect AMD's architecture will work better in datacenters. If you are running a bunch of virtual machines on a multiprocessor, multicore server you also want to have multiple network connections (typically 10 Gigabit Ethernet connections), one for each virtual server. AMD's new design scales out nicely; Intel's current design, the Xeon 7300, does not.
Again, I have not personally tested the new AMD or latest Intel machines. I am analyzing what specialists are publishing.
I would say that AMD investors should take heart; Barcelona looks good. It will look even better as AMD ramps up processing speed (the first out the gate quad-cores have slower clock cycles than most of us expected). However, as long as Intel is willing to undercut AMD on pricing, you have to consider AMD a long-term investment, and a risky one at that. I own the stock; I want to see what its worth when AMD market share hits the 51% tipping point. That may never come; at best it is years away.
See also my AMD page
Thursday, August 16, 2007
AMD and Notebook Computer Bottlenecks
I see no reason to doubt that there are now shortages of certain components that are making it impossible for electronics manufacturers, in particular notebook computer makers, to meet demand expectations as we go into the holiday sales season. NVIDIA (NVDA), the graphics chip maker, reported last week (See my NVIDIA Analyst Conference Summary) that their inventories were low and their production capacity was maxed out. Taiwan's Digitimes reported that talks with Acer and other manufacturers were facing shortages of display panels, graphics chips from NVIDIA and AMD, analog chips, batteries, optical drives and even motherboards and some types of capacitors.
Last year AMD acquired ATI, the only credible rival of NVIDIA. AMD has lost bales of money writing off ATI acquisition costs, and ATI was having trouble keeping up with NVIDIA long before it was bought. In the long run AMD believes integrating graphics processing and general purpose processing on a single chip will give in a competitive edge over rival Intel, but even if that is true, it is years away from fruition. Meanwhile AMD/ATI lost market share to Nvidia.
If shortages of other notebook components don't impact the notebook market substantially, this short term situation is to AMD's advantage, as it can probably sell all the graphics chips it can make in Q3 and at good prices. Of course if notebook demand is left unfullfilled AMD leaves not only the graphics chip potential revenues on the table, but its some of its Turion processor revenues as well. It also, through its acquisition of ATI, makes chip sets (the "glue" that interconnects processors with memory and other components). Again, if it can sell all it can make, that is great, but if not enough notebooks can be made, it loses out.
So probably AMDs Q3 will be an improvement over Q2, even above the normal seasonality of the computer market, but it depends on exactly what the component shortages are, and to what extent.
As I speculated this spring, undo caution with inventories at electonronics makers is now causing an upturn in demand for chips and other components that will be difficult to meet. That is good for chip makers, but it may drive up some costs for computer and device makers and it means another round of capital investment for those who have been running too lean. If we are truly entering a video era, as Cisco believes, then there is going to be a big boom in demand for every kind of semiconductor chip that provides the processing power or bandwidth needed for this new paradigm. That includes CPUs, graphics processors, and analog chips.
I own AMD and Marvell (MRVL) stock (an analog chip maker), but not Intel or Nvidia stock. You can access my summaries of analyst conferences for these and other technology stocks at www.openicon.com/confsums/listcos.html
Last year AMD acquired ATI, the only credible rival of NVIDIA. AMD has lost bales of money writing off ATI acquisition costs, and ATI was having trouble keeping up with NVIDIA long before it was bought. In the long run AMD believes integrating graphics processing and general purpose processing on a single chip will give in a competitive edge over rival Intel, but even if that is true, it is years away from fruition. Meanwhile AMD/ATI lost market share to Nvidia.
If shortages of other notebook components don't impact the notebook market substantially, this short term situation is to AMD's advantage, as it can probably sell all the graphics chips it can make in Q3 and at good prices. Of course if notebook demand is left unfullfilled AMD leaves not only the graphics chip potential revenues on the table, but its some of its Turion processor revenues as well. It also, through its acquisition of ATI, makes chip sets (the "glue" that interconnects processors with memory and other components). Again, if it can sell all it can make, that is great, but if not enough notebooks can be made, it loses out.
So probably AMDs Q3 will be an improvement over Q2, even above the normal seasonality of the computer market, but it depends on exactly what the component shortages are, and to what extent.
As I speculated this spring, undo caution with inventories at electonronics makers is now causing an upturn in demand for chips and other components that will be difficult to meet. That is good for chip makers, but it may drive up some costs for computer and device makers and it means another round of capital investment for those who have been running too lean. If we are truly entering a video era, as Cisco believes, then there is going to be a big boom in demand for every kind of semiconductor chip that provides the processing power or bandwidth needed for this new paradigm. That includes CPUs, graphics processors, and analog chips.
I own AMD and Marvell (MRVL) stock (an analog chip maker), but not Intel or Nvidia stock. You can access my summaries of analyst conferences for these and other technology stocks at www.openicon.com/confsums/listcos.html
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