AMD: Does the resurrection start with 'Shanghai'?

AMD: Does the resurrection start with 'Shanghai'?

Summary: AMD on Thursday launched its Shanghai processor family--the successor to the much maligned Barcelona. The goal: Close the gap on server chips with Intel.

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AMD on Thursday launched its Shanghai processor family--the successor to the much maligned Barcelona. The goal: Close the gap on server chips with Intel. The challenge: Convincing customers, shareholders and others in the peanut gallery that a turnaround at AMD is underway.

Later today, AMD will try out its messaging at its analyst meeting (Techmeme, statement). The challenges are the following:

  • Deliver a roadmap that's as easy to understand as Intel's "tick tock" approach;
  • Convince investors that the company can hang in a downturn;
  • And build credibility by providing more perspective on operational improvements.

Shanghai, which is basically the do-over for the quad-core Barcelona platform, goes a long way to alleviating some of those concerns. The big takeaway is that AMD's latest server chips provide a performance boost over Barcelona in the same thermal envelope--shorthand for saying that more power doesn't result in more heat. Shanghai won't match Intel gigahertz for gigahertz, but the company argues successfully that power management, virtualization integration and other perks may allow AMD to pull even with its larger rival. "We made a 400 Mhz jump in the same power band," says Kevin Knox, vice president of AMD's commercial business. "Shanghai pulls us closer to Intel and keeps us competitive for several quarters to come."

Also see: AMD unveils ‘Shanghai’; Aims to better compete with Intel

 

And that competition is a good thing for technology buyers. A strong AMD gives technology managers more leverage in their negotiations--assuming they aren't completely shelving infrastructure upgrades. Here's a look at AMD's roadmap (click to enlarge):

amdroadmap.png

Simply put, AMD's latest server chips are another step in the right direction for company. Among other recent moves:

  • AMD finally unveiled its long-awaited asset smart strategy. The move allows AMD to keep its hands in the chip manufacturing game without the balance sheet hit. If there's upside in its former manufacturing unit AMD participates. If not, AMD won't be swallowed alive. Since AMD is still heavily involved in the manufacturing spinoff it minimizes manufacturing risk as it delivers its roadmap.
  • AMD's graphic chip business is showing some momentum. Graphic chips--a key cog in AMD's business model--are selling well enough to allow the company to squeeze larger rival Nvidia before Intel enters the market.
  • AMD has a new leader. To say Hector Ruiz had lost Wall Street would be a minor understatement. Previous AMD analyst meetings had a familiar ring to them: Optimism--largely unwarranted--followed by poor execution. Ruiz would talk about AMD's asset smart strategy, but wouldn't deliver the goods. Under new CEO Dirk Meyer AMD gets a fresh start. The change was way overdue. If Meyer delivers the details Wall Street demands he can put AMD on better footing.

The problem? AMD is wrestling with an economic slowdown, fixing its balance sheet and is a no-show in the PC industry's fastest growing market--netbooks. And AMD is still losing money. In its third quarter, AMD reported a net loss of $67 million, or 11 cents a share, on revenue of $1.4 billion, up 8 percent from a year ago. While the outlook for AMD--like most technology companies--is murky at best at least units are up with flat average selling prices.

Concerns, however, remain. Morgan Stanley analyst Mark Lipacis notes that AMD has $5 billion in debt and only $1.3 billion in cash at the end of the third quarter. AMD's Asset Smart strategy--if approved by regulators--would fix that balance sheet problem and give the company about $4 billion in cash.

In other words, AMD is still a mixed bag, but there's enough happening to be mildly optimistic.

"It appears the company has remained on the road to profitability," says Wedbush Morgan Securities analyst Patrick Wang in a recent research note. "We recognized that Shanghai represents a game changer in the near-term and expect improvements in sales, margins and market share." That said, Wang keeps a "hold" rating on AMD pending consistent operating profits.

AMD's analyst meeting: What to expect

While Shanghai will occupy a good chunk of AMD's analyst day there is a laundry list of details Meyer will have to deliver.

UBS analyst Uche Orji wants the following from Meyer:

  • Gross margins topping 50 percent in 2009 even if revenue declines;
  • Operating expenses projected to fall more than 13 percent;
  • A breakdown of cash flow to show how AMD can preserve cash in a downturn;
  • And a roadmap that's believable.

"If AMD were to repeat its 2007 analyst day where it provided an unrealistic set of product road maps, we would expect limited support for the stock," said Orji. Meyer's job: Be upfront, be credible and don't sugar coat things--an annoying habit that belonged to Ruiz.

Analysts are also looking for more detail of AMD's Fusion strategy. Orji said that the case for the processor and graphics capability on a single die is obvious. The big question is this: How will AMD leverage Fusion into new markets?

Assuming the stars line up for AMD the big unknown is how long this resurrection will last. Intel has a strong roadmap and plans to tick tock its smaller rival with incremental core additions to chips. Pressure from Intel isn't going to go away. AMD, however, will cast its lot with the power savings argument and the growth of virtualization. The other unknown is whether AMD's partial spin-off of its manufacturing unit will lead to delays down the line.

AMD's Knox disputes the argument that the company's asset smart strategy could introduce risks. And he may be right. After all, AMD's asset smart manufacturing strategy resembles many outsourcing deals. AMD is unloading its manufacturing assets--and all the capital they gobble up--to another company. That company in turn absorbs all the people and plants. In many respects, AMD's asset smart strategy is a glorified outsourcing deal except there are fabs involved not data centers.

"I'd have more concern if we were dealing with a different foundry," says Knox. "We'll still manufacture out of Dresden and we know all the people. It's as smooth as a spin-off can be. Going forward this just isn't a big issue."

We'll be tuned into the AMD meeting and will blog live.

Topics: Processors, Banking, CXO, Enterprise Software, Hardware, Networking

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20 comments
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  • How times have changed...

    I remember when AMD was considered the cutting-edge thoroughbred to Intel's mass-produced ponies, at least among the tech-savvy geeks I hung out with in college.

    I didn't know AMD needed a resurrection. Seems to me they were doing okay; not great, but we are in a recession after all. AMD ship in lower-end HP and Compaq notebooks, and there doesn't seem to be a shortage of market for sub-$700 notebooks right now. I realize this isn't as lucrative as Apple or Dell, but it's a respectable standing nonetheless. Consider the aftermarket realm as well; AMD has a huge presence there.
    TonyF2013
    • Times have changed more then once.

      AMD played runner up to Intel for a long time. They had stability and compatibility issues for the longest. They dominated the market with cheap lowend chips for quite a while. Finally they started producing higher quality chips that really competed and often times surpassed Intel for quite a stretch. However here lately they have been falling behind in both markets. I should also mention from time to time they still have compatability issues. All in all AMD is a good chip builder and I doubt they are going away anytime soon.

      "I remember when AMD was considered the cutting-edge thoroughbred to Intel's mass-produced ponies, at least among the tech-savvy geeks I hung out with in college."

      No offense to them, but most tech-savvy geeks only liked AMD for the same reason they liked Linux. It wasn't tied to the Wintel empire.

      Not knocking either AMD or Linux, but back when I was in college, they were both still very much in their infancy and needed alot of work to compete in any way with the wintel setups. But even as rough and unstable as these machines were, a few of my classmates were convinced that AMD and Linux would put Microsoft out of business in a few years.

      Safe to say that hasn't happened yet. But I wish them all the luck.
      ShadowGIATL
      • Funny though..

        Intel seems to be the only vendor who is 100% supportive to Linux platform. ATI abosrbed by AMD is the least supportive in terms of their graphic cards. Correct me if I were wrong.
        yschoo1
        • The only hardware vendor, anyway

          There's a lot I don't like about Intel, but they do understand that their business is to sell microprocessors, regardless of the software that runs on them. They're also big enough that MS can do little or nothing to punish them (MS needs Intel much more than Intel needs MS).
          John L. Ries
          • MS needs Intel more..

            than Intel needs MS? Well maybe a bit more, but the two are very interdependent for their profit margins. They don't call it Wintel for nothing.
            deanders
          • True... To a degree...

            But... Intel also runs all them new shiny Macs and most popular distros of Linux.

            Ok... So Microsoft would have to completely cease operations and vanish overnight for Intel to get worried. But still... You gotta admit, Intel DOES have options.
            Wolfie2K3
          • To a very high degree

            Likewise, Windows runs on an awful lot of non-Intel machines, AMD CPUs mainly. At a guess, I would say probably more AMDs running Windows than Intels running Linux and OSX.

            So MS has options as well.
            deanders
          • Yes, but...

            ...x86-based UNIXes (especially Linux) help Intel to compete against RISC processors, and Intel is big enough that there is very little MS can do to punish them. About all MS has been able to do is to favor the AMD64 architecture over Itanium, which is where the industry was going anyway (and Intel did the smart thing by adopting AMD64 itself).
            John L. Ries
        • Hmmm.

          "Intel seems to be the only vendor who is 100% supportive to Linux platform. ATI abosrbed by AMD is the least supportive in terms of their graphic cards. Correct me if I were wrong."

          I'm not sure. I didn't use it that much back then. Linux had alot of trouble supporting anything including Intel in its infancy. Couldn't just get online and grab a patch because it rarely supported very many modems and dial-up was the only thing available other then the T1 at school.

          However now Linux supports most hardware to at least some extent or another. I don't see the ATI/AMD merger as a problem for Linux as much as I do for the graphics card industry. The idea of on-die graphics has it advantages in performance but it can cause a serious vendor lock-in that could force you to have to pick ATI/AMD or nVidia/Intel with no other options.

          I personally prefered ATI running on Intel up until the merger. Now I run nVidia on Intel. AMD has just never really appealed to me. Intel has always worked and I haven't had to worry about the cost. I grew up with Intel and will stick with them unless they or someone else gives me a solid reason to leave them.

          Don't get me wrong though... AMD makes a solid processor and price them well. Nothing wrong with AMD. Just not my preference.
          ShadowGIATL
        • OSS Comparison of chip producers

          Intel is very Linux friendly, but their graphics chips are not very good and the Linux drivers for them are awful, even though Intel wrote and open sourced the set themselves. OSS friendly, but still not very good.

          ATI (pre-AMD) provided specs at one point (I believe in 2001) for its chips, which spawned an open driver (radeon). They pulled out of that deal early, though, and just provided a binary driver which had a lot of issues on Linux. AMD has always been Linux-friendly, though, making sure that GCC, the OSS compiler, supported AMD64 before it was even manufactured. Since AMD purchased ATI, the specs for the graphics cards have been completely opened and the new driver (radeonhd) is moving forward quickly and should be on par with the ATI binary driver performance-wise by next year.

          Via seems to waffle on its OSS stance. It supplies parts, but not all of a driver. It doesn't update the driver when new parts come out. That seems to have changed recently, however, with the announcement that all hardware will have OSS drivers for the micro/nano-ITX boards it produces.
          daengbo
  • Keep on Trucking AMD !

    It's a shame - a few years ago AMD starting giving Intel a run for its money with their dual core chips, then it all went south. We need a competitor to Intel. Even if you don't use AMD chips, you should be rooting for them to keep going. If AMD goes under, who will provide the needed competition in the processor world? No one. We will be stuck with a complacent Intel controlling the processor market. Not good.
    jpr75_z
    • I agree

      There always needs to compitition to level the playing ground and keep everyone on their toes.

      AMD did this for a while but they have deffinately slipped a bit. However they are still doing a better job then what we see in the OS market. Would be nice to see and OS that would help drive down Windows costs and force them to tighten up their development department. So far they have all fallen short.
      ShadowGIATL
    • I support AMD!

      During my education, I wrote a paper comparing the two companies. AMD stood out to be the superior company with better customer relations and quality commitments. Since then, I have purchased only AMD processors and chip sets. They have worked flawlessly. I have also sold my friends and family on them and built computers for them with AMD processors.

      I hope AMD's move will strengthen their competitive advantage and market share. Good healthy competition is what Intel needs to keep customers on their priority list.

      Good Luck AMD, keep up the good work.
      rcbarr83
    • Agreed

      Competition is good in the microprocessor market. 6502 vs z80, 680x0 vs x86, Intel vs AMD, without competition the market would be very different. If AMD was to go under, then it would be the first time that there was no real rival for the mainstream microprocessor market since there became such a market. Not good, not good at all...
      TroyW
  • RE: AMD: Does the resurrection start with 'Shanghai'?

    I hope this is true and AMD can bounce back, I have regarded AMD as a better company than intel for years, unfortunately due to AMD not advertising, they simply don't have any regular consumer-rep. Hopefully this turns there company around after that billion dollar ATI buy.
    vanquished
  • Smoke and Mirrors...

    The question yet to be asnswered, can AMD offer a cometitive product (and actually deliver it) at a lower cost? Everything else is marketing smoke and mirrors.
    No_Ax_to_Grind
  • iNTEL i7

    How can you have an article like this with no reference or comparison to the Intel i7 series that is about to ship? Early reviews of the performance of this chip are very impressive. For $280 the performance in within 7% of the maximum dual Xeons of last year.

    How do the new AMDs compare to the i7 series?
    mswift1
    • Commercial vs Consumer

      Because it's an apples/oranges comparison. When AMD formally announces its new commercial line, then a comparison is appropriate.
      deanders
  • RE: AMD: Does the resurrection start with 'Shanghai'?

    the one thing I always liked about AMD(other than it's few years of better performance) was that the same motherboard was compatible across several renditions of chips. Intel inside was a train wreck trying to figure out what chipset worked with what chip. That's all changed the last few years with them playing catchup. If speed is your priority, Intel still has the lead, I hope AMD becomes competitive, it's no fun being the fan-boy of losing chip.
    REDPINXC
    • LOL

      At least your an honest fanboy. At least AMD has the huevos to try and compete with Intel, I give them that much. They did have a good few years and are still good chips. Almost always had the price advantage. Alas, I'm still an Intel fanboy. Say what you want about whatever OS, just don't take away my Intel. I guess we all have our favorites.
      ShadowGIATL