Requiem for AMD: Is AMD Dying? Can it Be Saved?

by Andy Patrizio

A decade ago, Advanced Micro Devices caught a lumbering and lazy Intel flatfooted. It pulled off three hat tricks that Intel initially dismissed as unnecessary: it moved the memory controller onto the CPU, eliminating the front side bus; it released the first 64-bit CPU; and it created dual core processors.

Ten years and a much smarter CEO later, Intel is doing all three of those steps better than AMD ever did and is in the process of crushing it without really trying. AMD is on its third CEO in five years, other C-level executives are defecting, and sales continue to fall, with only the GPU business keeping the company anywhere near the black.

The result is a company sliding into irrelevance. Its latest market share figures put the company at 16.1% total market share, down from 17.5% in Q1 and 18.8% in Q3 2011, according to Mercury Research. Particularly hard hit was the Opteron server chips business. It once ran as high as 26% in 2006, now it's down to 4.5%.

There are other signs that don't bode well for the company. People who attended the Intel Developer Forum in September said the company has taken the attitude that Qualcomm, not AMD, is its biggest rival. After another poor quarterly earnings report, an analyst with Bernstein Research wrote "Frankly, the most common adjective that comes up when we discuss the company with clients is, simply, 'un-investable'."

A few things conspired to do in AMD. First and foremost was Intel getting its act together. There's no denying that Paul Otellini's stewardship of the firm was vastly better than Craig Barrett's. He made the company competitive, introduced the 'tick-tock' refresh plan that has made Intel processors so successful, and for the first time in about 15 years, there are no anti-trust issues hanging over the company's head.

Then came AMD's foul-ups. In 2007, its planned major revamp of the product line, called Barcelona, was ridiculously late by more than a year, which is an entire cycle in the CPU business. That really started the decline in the server business.

The Opteron server line had gotten a major boost when Microsoft ported Windows Server 2003 to 64-bits and was the first company to migrate off 32-bit servers. Free of the 4GB memory limit, Microsoft consolidated 250 32-bit MSN physical servers down to 25 servers, while increasing its capacity at the same time. And because AMD was first to market with 64-bit server processors, Opteron benefitted from that.

Most of the issues they had in client and server in the last few years have been platform-related, where they haven't had motherboards ready to go in time for new CPUs, said Dean McCarron, president of Mercury Research. It was a factor for server upgrades when they had a big infrastructure upgrade and that was a factor in clients for a while this year.

"When you look at how AMD launches products, they usually launch with OEMs and the OEMs handle their own infrastructure. For the smaller white box vendors that's relying on retail oriented motherboards and those often weren't ready on time," he said.

AMD's survival has been in question several times before, notes Jim McGregor, president of Tirasis Research. But this time it's different in one big way. Whereas before, AMD's survival was almost a necessity because Intel would have been slapped as a monopoly, now there's the emergence of ARM has a major player. "The argument that they have to survive doesn't hold any more," said McGregor.

Mubadala Development Company PJSC, a strategic investment and development company owned by the government of Abu Dhabi, now owns the largest chunk of AMD shares after helping AMD spin off its fabrication facilities into GlobalFoundries, also owns a piece of AMD. Waleed Muhairi, COO of Mubadala, holds 20% of AMD's voting shares.

Would Mubadala invest more in the company? Doubtful when its stock falls below $2. So who will save the company? There are a number of potential American suitors, McGregor notes. Intel and Nvidia are not among them. The anti-trust concerns would be far too great.

Samsung is both a finished product vendor and ARM chip maker, yet its own phones use Qualcomm Snapdragon chips, so it has trouble competing with itself, he notes. Texas Instruments is out, since it's giving up on its ARM processors, called OMAP, in favor of its core competency in analog signaling.

Qualcomm is also a reach. "They said no, we want to be in mobile devices. Even at their analyst conf last year, they said that with all these new devices, there's a huge bottleneck in core [telcom] infrastructure, but they don't want to address it," said McGregor.

Long shots? Both Google and Microsoft are rumored to design chips. Google already builds its own data center servers and Microsoft is creeping further into the hardware business. Plus, the Xbox uses the AMD GPU.

Another possibility is that AMD goes by way of ARM and simply licenses intellectual property for other people to make their own chips. It sure worked for ARM. "The amount of IP at that company [AMD] is not insignificant," said McCarron.