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AMD Faces Tough Competition

New Process Technologies Needed

Even though the recent success allows AMD to make acquisitions and build fabs, the company is begin to facing the threat of Intel’s Core 2 micro-architecture, whereas Intel’s rapid transitions to newer process technologies may leave AMD significantly behind: if Sunnyvale, California-based maker of CPUs starts to volume production of its 65nm processors production in Q4 2006 - Q1 2007, it will be over a year behind Intel in terms of 65nm manufacturing process. Transition to 90nm process technology took AMD about eleven months from official first revenue shipments to official claim about the completion of migration to more advanced technology and about sixteen month since the 90nm production began.

A slide from a presentation by AMD

AMD is very optimistic about its 65nm ramp, yields as well as 90nm and 65nm product crossover in Q1 2007. Moreover, the company is confident that it would begin volume 45nm production of chips in mid-2008, about one and a half years after the first commercial 65nm chips. The past track record of AMD does not allow us to believe AMD without hesitations. First 65nm products will emerge 2.5 years after the first 90nm chips from AMD. Also 2.5 years passed between the introduction of AMD’s first 180nm processor and the company’s first 130nm chip. Development of 130nm silicon-on-insulator (first chips shipped in April, 2003) as well as 90nm SOI process technologies (first chips went to clients in July, 2004) went a bit faster, however. Still, if AMD is enough successful with its 45nm process technology, it will only be a couple of quarters behind Intel, not that significantly.

The world's second largest supplier of x86 chips has downplayed Intel's ability to launch new process technology ahead of its smaller rival, claiming that AMD still has performance crown. But now that Intel has a very promising Core micro-architecture, AMD needs new process technologies to pack more features into its CPUs, or just increase clock-speed potential while keeping the power consumption low.

Intel Core Micro-Architecture Approaches

According to Core 2 benchmark numbers on the Internet, the Core 2 Duo chips are generally faster compared to AMD Athlon 64 X2, whereas according to Intel Corp., its new Xeon 5100-series chips for dual-processor servers and workstations are considerably faster than AMD Opteron 200-series chips. AMD may retain leadership in multi-processor server market for several quarters from now, but that business is unlikely to bring really huge volume numbers. Potentially, this may mean that AMD would stop to increase market share. Nevertheless, analyst Nathan Brookwood of Insight 64 believes that AMD may continue to gain market share, even when Intel Corp.'s new micro-architecture is on the market.

The impact of Intel’s new Core micro-architecture based processors will have on AMD’s ability to gain market share is overestimated. Look how well the company did last year in the mobile segment, where it had no technology advantage (and a real deficit) vs. Intel,” Mr. Brookwood said.

Hector Ruiz, AMD's chief executive officer

Moreover, AMD’s current K8 micro-architecture resembles that of the K7 in terms of general principles. Given that the K8L will also be generally based on the K8 and K7, it is nearly fair to say that AMD will use the same core with serious tweaks for nearly a decade in 2008. This means that AMD needs some new blood from outside of the company to bring-in some new ideas.

Customers Demand Platforms

Additionally, the IT equipment becomes more and more complex and soon the industry will require competitive platforms for certain devices, not an ability to assemble many components from different developers and manufacturers and hoping they would work together. Intel is promoting computing platforms, Philips is preparing an ambitious amBX project – a platform for a high-tech living room. AMD should follow the same road too, it seems.

“In order to stay competitive, AMD needs to keep up with Intel’s technological advances, however AMD cannot match Intel’s R&D spend that is around 6 times as large as AMD’s R&D budget. To avoid lagging too far behind Intel, the best competitive response for AMD would be to seek out smaller companies that provide key technologies and buy them out,” said said Martin Kariithi, an analyst with Technology Business Research.

To sum up, AMD may find itself in the situation akin to 2H 2002 – 2H 2003, when its processors were lagging behind Intel in terms of performance. The situation may get even worse, as AMD sells nothing but CPUs: if the sales drop significantly, the company will have to spend its cash on survival, which makes no sense for the firm, if it can buy itself an additional source of revenue ahead of a potential core business crisis.

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