With AMD's launch of its latest greatest Opteron server chip--formerly codenamed Barcelona--one of the biggest questions is whether lightning can strike twice.
The first lightning strike came when AMD (all resources) launched the Athlon line and became a legitimate desktop player. Using that momentum AMD leapfrogged its larger rival on the server side, grabbed market share, found an energy consumption pitch and became quite the contender. For much of this decade, AMD has enjoyed a renaissance.
At first, few folks gave AMD much of a chance at the time. But AMD surged, Intel took its eye of the ball and customers basked in the glow--not to mention prices--of two real options for processors.
Now the debate is whether AMD's latest quad-core architecture can bloody Intel's nose again. Many of us--David Berlind cops to it and I was off too--were wrong about AMD's prospects a few years ago. We learned that you can't call an Intel victory too early. Another key lesson: It's not a zero sum game. AMD doesn't have to beat Intel to have a thriving business. Just keeping Intel honest can keep many customers happy.
But the arguments in Intel's favor are still there. Intel has a broad technology portfolio, scale and the financial heft to squeeze AMD's balance sheet with pricing pressure. Intel is clearly Goliath to AMD's David.
What remains to be seen is whether David could beat Goliath in a seven-game series.
I'm not going to claim to have the answers, but others are going to be making their forecasts. It's clear that AMD still has its doubters. Time will tell if the doubters are correct.
First up, Merrill Lynch analyst Srini Pajjuri. In a research note on Friday, he downgraded Intel to a neutral rating based on the theory that all of the good news about Intel is already baked into the stock price.
His commentary, however, about AMD was interesting.
"Delayed launch notwithstanding, Barcelona should help AMD gain some lost ground in servers. However, we are not expecting a repeat of 2005. Intel has a competitive server part and the current version of Barcelona is unlikely to create a meaningful performance gap with Intel."
Simply put, a tie isn't good enough for AMD.
UBS analyst Uche Orji has a similar take:
"With AMD having launched its quad-core Barcelona server processor, we have reassessed our view of AMD’s market position and valuation. While we learned that Barcelona is likely to reach speeds in the range of 2.6 GHz in 1Q08, falling short of our expectations of 3 GHz, the benchmark data AMD presented at the launch event showed that Barcelona’s performance will likely be competitive with Intel’s server chips, at least on certain benchmarks. This is in line with our view that AMD will be able to stabilize unit market share and grow average selling prices (ASPs), which in turn should help lift AMD to profitability by 4Q08. But other concerns remain. Holding us back from a more constructive stance on the stock is our ongoing view that AMD needs to implement a more substantial restructuring to lower expenses and reduce the overall complexity of its business. The longer AMD defers its primary focus to be on profitability rather than market share, the more uncertain is AMD’s future. On top of this are recent credit market uncertainty and management departures."
Orji's last point on the credit markets shouldn't be taken lightly. It's tough to get credit right now and AMD has $3.9 billion in net debt. Orji estimates that it may be tough for AMD to get more capital without significantly lowering expenses.
But if AMD executes that financial outlook changes.
Overall, AMD can't afford many missteps even after the launch of Barcelona. The consensus view seems to be that AMD has to be perfect. My plan is to follow the numbers on AMD when it comes to calling a winner in this battle. My hunch is that AMD has taken Intel's best punch, but future quarters will tell the tale.