AMD Needs a Multi-Core Killer App

After it released its first dual core Opteron for servers on April 21, 2005 followed by the Athlon 64 X2 for desktops a month later, Intel released its first dual core, the Pentium Extreme Edition. Around the same time, AMD splashed full-page ads in newspapers calling upon the bigger rival to join a duel to decide whose dual core was better.

Intel declined but several agencies did the testing and ultimately gave AMD the thumbs up. In case of quad-core processors Intel is shipping them since November 2006, but AMD’s first quad-core Barcelona, unveiled only last month, is said to have a couple of features that Intel cannot match.

For one, Barcelona is a native quad-core. This means that it has 4 identical cores on a single piece of silicon, while Intel puts two dual-core chips side by side on a board, and connects them to form a quad core.

AMD says its design performs better. Intel plans to bring out its own native quad-core design in the H2/08, a good one year away.

The other unique feature of AMD’s Barcelona is that it has an on-chip memory controller. Experts say that this makes the processing faster than having the controller on a separate chip set, as Intel does it. Here too, Intel plans to put an on-chip memory controller on its devices starting in late 2008 or early 2009.

Superior technology is helping AMD slowly build on its market share. A study by Mercury Research shows that AMD’s market share stood at 22.9% for Q2/07 (76.3% for INTC) compared to 18.7% (80.5%) in Q1/07 and 21.6% (72.9%) in Q2/06.

For all that is apparently going well for it technically, AMD’s stock price doesn’t evoke cheer. It is in the midst of a long-term downtrend, and presently changes hands at the $12.80 level (52-week low $11.27) giving it a negative forward P/E of 5.73.

AMD’s Q2/07 results proved to be mixed. Revenue was $1.378 billion, up 12% sequentially and 13% y-o-y. However a net loss of $600 million translated to per-share net loss of $1.09 even as ROAE is markedly negative 49.74% against just –3.63% in the whole of 2006. Q2/07 gross margin (33.4%) improved from that of Q1/07 (28%), but was much lower than in Q2/06 (57%). AMD’s strategy of competing aggressively on price is certainly not one without consequences.

As for its future plans, at the CES 2007 AMD announced 8-core processing in H2/07, while a 16-core super-CPU codenamed Bulldozer is slated for H1/09 release.

AMD merged ATI Technologies on October 25, 2006 after acquiring it for $5.4 billion in July. The fruit of the AMD-ATI combination is the announcement of AMD Fusion, a next-generation microprocessor design that aims to combine general processor execution as well as 3D geometry processing and other functions of today’s GPUs (graphics processors) into a single package. Fusion is expected in 2009.

The likely tremor that Fusion may generate is already apparent from Intel’s speedy snapping up of Dublin-based Havoc, a gaming middleware company, for an all-cash $110 million deal yesterday.

One wonders why isn’t AMD zeroing on Tilera Corporation? Tilera’s 64-core TILE64, that has started shipping only last month, is a futuristic multi-core design combining less consumption of power and higher performance. Skeptics question whether the level of processing power that Tilera promises to deliver is necessary in networking (embedded processors).

It is, however, evident that AMD and Intel have decided that the high-end microprocessor battle will be fought on the multi-core battlefield, so having an advanced R&D capacity such as Tilera would presumably give AMD a huge leg up against Intel in the mainstream microprocessor world.

At any rate, while addressing the multi-core R&D issue may be feasible, and even beating Intel at this game may well be possible for AMD, the question of how it advances shareholder value remains a looming question.

One possibility that I see is for AMD to work with some key OS and application vendors to get to 16-, 32-, 64-core processors faster than Intel. In doing so, the key would be in porting their software to the advanced multi-core chips, optimizing them to be able to take true advantage of the processing power, and thus, creating compelling reason for consumers to want machines with high-end multi-core chips. As it stands, most of the software in the market cannot take advantage of multi-core chips, so why buy machines that boast to have them and pay the extra price?

In summary, AMD needs a killer app vendor partnership. Intel seems to have identified graphics middleware as one of their core software strategies. What is AMD’s killer-app alignment plan? Without understanding this, I just can’t get excited about AMD’s prospects as a company.

Also, are we about to see the transformation of hardcore chip companies into companies that also do software?