AMD & ATI: The Acquisition from all Points of View
by Anand Lal Shimpi on August 1, 2006 10:26 PM EST- Posted in
- CPUs
Our Thoughts: Will AMD manufacture ATI GPUs?
One of the most intriguing aspects of this proposed acquisition is the potential for ATI to cease to be a fabless GPU manufacturer. In the past, fabless companies like ATI and NVIDIA have had to rely on foundries like TSMC or UMC in order to manufacture their chip designs. By relying on a 3rd party to manufacture all of their chips, ATI and NVIDIA avoid having to invest in multi-billion dollar fabs that require continued multi-billion dollar investments to stay up to date. As a point of reference, AMD's Fab 36 cost $2.5 billion dollars and that's before even fully being converted to 65nm.
The upside of being a fabless manufacturer is obviously that you leave manufacturing to those who are good at it; the downside is that you lose manufacturing as a competitive advantage. The other downside is that foundries like TSMC aren't as quick to transition to new process technologies as companies like AMD and Intel. While Intel has been shipping 65nm product for quite a while now, ATI and NVIDIA GPUs are still being built using 90nm transistors. If the buyout does go through, ATI could potentially gain a manufacturing advantage over NVIDIA since AMD has already invested in its own fab plants.
On the surface, the potential for ATI to have access to its own fab is tremendous; however, there are a number of limitations to success that are worth talking about. For starters, AMD isn't Intel, and AMD's manufacturing processes have always lagged behind Intel's, which is why AMD is still currently shipping 90nm CPUs while Intel is in the middle of its 90nm to 65nm transition. So the advantage that ATI would gain from having access to its own fab would not be as significant as if Intel were the buyer. AMD should still be slightly ahead of TSMC and UMC, but Intel is almost one year ahead of AMD right now on the process transitions.
The other problem is that AMD is significantly capacity constrained as is. AMD currently has two fabs of its own, Fab 30 and Fab 36, both in Dresden currently producing 90nm CPUs. Fab 30 is set up for production on 200mm wafers while Fab 36 uses 300mm. AMD just recently started shipping revenue generating parts through Chartered Semiconductor, a 3rd party fab that is manufacturing Athlon 64 CPUs for AMD in order to help relieve some of its capacity constraints. So with Fab 30, Fab 36 and Chartered all working to just meet demand for AMD's CPUs, it's not like AMD has a lot of extra capacity to use to manufacture ATI GPUs.
AMD's new fab in New York State will help deal with some of the capacity issues, but construction won't even begin until July 2007 at the earliest and we're looking at another 3 - 5 years before it's operational. Without tons of excess capacity, it doesn't seem like ATI will be able to benefit from AMD's manufacturing facilities in the production of GPUs. Chipsets are a different story as it will give AMD something to do with older fabs, as chipsets are no where near the size of modern day GPUs and are already produced on an n-1 manufacturing process (e.g. Intel's Core 2 processors are 65nm while Intel's P965 chipset is built on a 90nm process). GPUs could also be manufactured at older fab plants as newer ones are upgraded, though the sheer size of modern day GPUs makes this an uncertain option. More than likely, the only GPUs manufactured at AMD's plants would be those integrated into chipsets or found on-die/on-package with AMD CPUs, meaning that they'd be very low end, low margin parts.
AMD has already announced that at least for the next 1 - 2 years, there will be no changes in manufacturing with AMD or ATI, meaning that ATI will continue to produce GPUs and chipsets at TSMC and UMC, while AMD will continue to produce CPUs at Fab 30, Fab 36 and Chartered. After that period of time, we'd venture a guess that AMD would start bringing some manufacturing in house (e.g. chipsets) or start producing CPUs with integrated graphics (either on-die or on-package).
What AMD is doing with the proposed ATI acquisition is taking one step towards becoming more like Intel. Intel currently has four 200mm 130nm fabs that are producing chipsets (anything older than Intel's 965 chipset); those fabs would have been useless for CPU production so the fact that Intel can get some additional life out of them by using them for chipset production helps amortize their high construction costs. When the chipsets are ready to transition from 130nm to 90nm, these fabs can then be upgraded to 65nm to get ready for the next wave of chipsets they will be producing.
While ATI will give AMD something to do with older fabs, there's also the argument that AMD could have become a chipset manufacturer on its own without having to pay $5.4B for ATI. AMD has manufactured chipsets in the past, and one would think that it would be cheaper to hire engineers and construct your own chipset team than it would be to purchase ATI. Obviously there's additional value that ATI brings to the table above and beyond the chipset, so it may just be that the sum of all of ATI's advantages are what make the acquisition sensible to AMD.
Facebook
Twitter
RSS
61 Comments
View All Comments
Zebo - Wednesday, August 2, 2006 - link
No worries...AMD runs a tight, efficient company that is accustomed to survivingthrough very hard times. AMD survived for a long time making chips that were cheap and almost as powerful as Intel's best. If they have to fall back to that business model to survive, they will. I personally loved those days of $40-$80 chips. But that's not realistic considering where AMD has been, their name and market presence currently, products on the table.. AMD is a mainstream player now with good reputation and large OEM's building thier boxes with them. They aint going anywhere.
poohbear - Wednesday, August 2, 2006 - link
so if the deal goes through, will the ATI brand name disappear? will we see AMD graphics cards instead of ATI graphics cards?Sunrise089 - Wednesday, August 2, 2006 - link
IMHO there would be no reason to abandon the second most valuable GPU name. When Ford bought Aston Marton they didn't suddenly rename the products things like Ford DB7.erwos - Wednesday, August 2, 2006 - link
Let me toss out a few random thoughts. I'm more of an economist than a businessman, but I took enough banking and finance to know enough to hurt myself.Almost all huge corporate mergers are not huge successes. Indeed, most of them tend to be failures unless the businesses are _very_ similar (gold mining company A buys out gold mining company B). My favorite example is Novell buying out SuSE and Ximian - everyone's doing operating systems, yet the best you can say was that it wasn't a complete failure. Certainly, the promised benefits haven't really emerged. Another good example is AOL and Time Warner.
The bad news here is that ATI and AMD are in two different sections of the industry, and that for the proposed benefits of this merger to work, they're going to have to integrate very tightly. To make things worse, the benefits of integration aren't all that clear. GPU on a CPU? Who's been asking for that? It has certain implications for the embedded market (think Geode and system on a chip applications), but they hardly needed to buy a company the size of ATI to accomplish that particular goal. And it couldn't be to hand ATI the better fabs, either - as Anand pointed out, AMD isn't going to have any extra fab space in the medium-term outlook.
My prediction: ATI-AMD will spend the next 9 months after the merger at _vastly_ decreased efficiency. Intel and nVidia will both be able to exploit this and take definitive leads in technology, at least for a while. In the long-term, ATI-AMD's dedication to high-end GPUs will fade, because the former-AMD executives running the company have absolutely no experience in the field. I am pessimistic, because, unfortunately, that is the historical truth.
Personally, I think that if GPU on a CPU becomes the prevailing way to go, nVidia will just buy out VIA or Transmeta. And they'll probably have just the same problems as ATI and AMD will have, too... But there's no reason to toss those problems on yourself until you have to, and there was no really compelling reason for AMD to buy ATI at this moment in time.
Kim Leo - Wednesday, August 2, 2006 - link
what are you talking about? ok its fine to comparte other situation like this, but AMD didnt buy ATI just for the "intergrated graphics in CPU" idea and even though Hector Ruiz dosn't have too much experience in this sector but ATI's CEO who will still be there does, and i don't think that AMD won't listen to what he has to say about it. I think this will be great, AMD and ATI will both benefit from this, they both get technologies that can be used in their own productserwos - Wednesday, August 2, 2006 - link
There aren't two CEOs. There's one, and his name is Hector Ruiz. At best, ATI's CEO will get pushed into director of the graphics division. More to the point, AMD's the much bigger company, and it's more likely their corporate culture is going to dominate ATI's. ATI's CEO's opinion will matter, but it's not going to sway AMD like it did/does ATI.If the plan isn't to integrate GPUs on CPUs, what other benefit was there to acquiring ATI? What techologies is ATI going to give AMD, and vica versa?
-Erwos
Sunrise089 - Wednesday, August 2, 2006 - link
Couldn't the desire to purchase a healthy company with a high profit margin in a fast growing industry be a benefit? I think everyone is too focused on integration in the short term. AMD had $$$, $$$ is there to spend or invest, and if the bean-counters at AMD think the ROI for buying ATI is higher than investing in a new fab or whatever than they make that decision.JarredWalton - Wednesday, August 2, 2006 - link
The major benefit seems to be AMD getting a company with a reasonable chipset business, and they can work that to create better business platforms, thus helping to penetrate the lucrative business sector. Except, penetrating the business sector is extremely difficult, especially the corporate world. "Buy Intel and Dell" is the standard decision, and even if Dell isn't picked, almost all businesses buy Intel systems. They did this all through the "NetBurst failure", so why would they change now that Intel has a good chip again (Core 2)?yacoub - Wednesday, August 2, 2006 - link
So will we see a reference cooler design on future ATI cards that is less noisy than the silly thing on the X1800/X1900 series? ;Pjones377 - Wednesday, August 2, 2006 - link
In Q106 the marketshare breakdown for all x86 chipsets were as follows....Intel 57%
VIA 15%
ATI 12%
Nvidia 9%
SiS 6%
http://www.xbitlabs.com/news/chipsets/display/2006...">http://www.xbitlabs.com/news/chipsets/display/2006...
Different breakdown for Intel and AMD platforms. Basically Nvidia has almost no share in the Intel platform market while ATI sells in both.