AMD & ATI: The Acquisition from all Points of View
by Anand Lal Shimpi on August 1, 2006 10:26 PM EST- Posted in
- CPUs
ATI's Position
Obviously ATI is also very excited about the acquisition, but from ATI's perspective the motivations for and benefits of the acquisition are a bit different.
ATI's goal is to continue to grow at a rate of 20% per year, but maintaining that growth rate becomes increasingly more difficult as an independent GPU manufacturer. The AMD acquisition will give ATI the ability to compete in areas that it hasn't before, while also giving the company the stable footing it needs to maintaining aggressive growth.
From ATI's position, it's NVIDIA that is left out in the cold as Intel is surely not going to support NVIDIA enough to be a truly great partner. ATI will have AMD, and Intel is content being fairly self sufficient, so unless NVIDIA becomes a CPU manufacturer, its future is bleak according to ATI.
Preparing for the Inevitable Confrontation with Intel
From ATI's standpoint, it's only a matter of time before the GPU becomes general purpose enough that it could be designed and manufactured by a CPU maker. Taking the concern one step further, ATI's worried that in the coming years Intel will introduce its standalone GPU and really turn up the heat on the remaining independent GPU makers. By partnering with AMD, ATI believes that it would be better prepared for what it believes is the inevitable confrontation with Intel. From ATI's perspective, Intel is too strong in CPU design, manufacturing and marketing to compete against when the inevitable move into the GPU space occurs.
Competing with NVIDIA is Tough, this Makes it Easier
It's no surprise to anyone that competing with NVIDIA isn't easy; the easiest time ATI had competing with NVIDIA in recent history was back during the Radeon 9700 Pro days, but since then NVIDIA has really turned up the heat and currently enjoys greater desktop market share. Not only does it have greater desktop market share, but NVIDIA also enjoys greater profit margins per GPU sold thanks to smaller die sizes. By being acquired by AMD, ATI gets a bit of relief from the competition with NVIDIA, as well as some potential advantages. Those advantages include the potential to build and execute better AMD chipsets as well as gaining greater overall graphics market share by shipping more platforms with integrated graphics (either on CPU or on chipset). Intel is actually the world's largest graphics manufacturer, since the vast majority of Intel systems sold ship with some form of Intel integrated graphics; through this acquisition, AMD can use ATI to do the same, which should increase ATI's overall market share.
Making Better AMD Chipsets
ATI has struggled to design, manufacture and execute a chipset that could compete with NVIDIA's nForce line. To date, ATI has come close but not been able to close the deal and it has been trying for years. In theory, with better access to AMD engineers and designers, being able to leverage AMD's IP (e.g. CrossFire implemented over Hyper Transport) and eventually being able to use AMD's fabs, ATI could design a truly competitive platform for AMD processors. As long as the product is decent, AMD would also be able to significantly increase sales by simply offering attractive platform bundles similar to what Intel does today. Whether the approach is more similar to Centrino where AMD requires that you purchase only AMD silicon, or more like how Intel does business on the desktop side where AMD makes sure that only its chipsets are available at launch has yet to be seen.
The Manufacturing & Design Advantage
Currently both ATI and NVIDIA have to turn to third party manufacturers to produce both their chipsets and GPUs. If this acquisition were to go through, AMD could eventually begin manufacturing some chipsets or GPUs for ATI. By manufacturing components in house, ATI would be able to enjoy a cost advantage over competing NVIDIA products (especially if ATI is simply using leftover capacity at older fabs that are awaiting transition to smaller manufacturing processes). ATI could potentially begin to release GPUs using newer process technologies before the competition as well, reducing die size and increasing clock speeds at the same time.
Manufacturing aside, there's also this idea that companies like AMD and Intel are better at designing silicon because they work on a more granular level with the design. There's far more custom logic in Intel's Core 2 Duo than in NVIDIA's GeForce 7900 GTX; ATI would gain access to AMD's entire portfolio of custom logic and may be able to implement some of it in its upcoming GPUs, giving ATI a performance and efficiency advantage over NVIDIA.
It Makes Financial Sense
Of course the actual acquisition itself is very beneficial to ATI's investors, as the deal is mostly cash and thus little risk is assumed on behalf of ATI investors. ATI's stock has been doing quite well since the announcement, and why shouldn't it? The #2 x86 microprocessor maker wants to buy ATI.
What about Intel Chipsets?
Currently 60 - 70% of ATI's chipset revenues come from Intel platforms, but ATI expects that number to decline significantly over the coming months. While the current 6 month roadmap won't change, beyond that ATI is not counting on incredible support from Intel so ATI will begin focusing its efforts on AMD platforms exclusively at that point. If Intel wants ATI chipsets, ATI will supply them. And if you're wondering, CrossFire will continue to work on Intel chipsets.
Keep in mind that when we say 60-70% of ATI's chipset revenues come from Intel platforms, that doesn't actually mean ATI is selling a ton of chipsets. ATI accounts for slightly less than 10% of Intel platform chipsets sold recently, and about one fourth of AMD platform chipsets. However, even though they sell a decent number of chipsets, the quality of ATI chipsets has been considered something of a distant third place, with Intel and NVIDIA in the lead. ATI could lose all of their Intel chipset sales and still come out ahead if they can become the dominant chipset for AMD platforms.
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leexgx - Wednesday, August 2, 2006 - link
i have only seen integrated graphics on nvidia based chip setsMost on board vdeio is VIA/s3 or sis integrated graphics (intel chip sets been intel video)
Calin - Thursday, August 3, 2006 - link
ATI RS480, RS482 and RS485 are in this game too (chipsets with integrated video). They were plagued by southbridge problems - slow USB performance mainly, and lack of features (like SATA 2). Whether or not this was detrimental to them, I don't know.(you can find mainboards with ATI integrated chipsets from MSI and ECS)
JarredWalton - Wednesday, August 2, 2006 - link
I agree with that. I think NVIDIA's comments are far more bravado than actual truth. However, if they can convince investors and consumers that they's "won the GPU war", it may not matter.My big problem with the deal: I don't know what AMD is doing spending $5.4 billon on ATI. Not that ATI is bad, but that's almost two new fabs. That's a lot of talented engineers making a lot of money for several years at least. I think ATI would be insane to not take the offer, but I feel AMD is almost equally insane to make the offer in the first place.
Furen - Wednesday, August 2, 2006 - link
AMD is borrowing the money to buy a viable, self-sufficient company. Convincing banks to let you borrow money for two fabs that will help you out 3+ years down the line is not very easy, especially considering that most people seem to think that AMD's growth is slowing down. Heck, having two extra fabs in 3 years could mean that AMD will just have lots of extra capacity with no use for it. Also, $5.4B for ATI is dirt cheap. Well, maybe not dirt cheap but undervalued considering that its portfolio rivals or surpasses nVidia's in many ways.AnandThenMan - Wednesday, August 2, 2006 - link
It is a big gamble for AMD, no doubt. A make-or-break deal in fact. But I would hope that the top brass has carefully considered the costs and the future markets/profits/advantages. With any high stakes game, the rewards are spectacular, but the cost of failing can mean you're history.
I suppose having new fabs does you little good if you can't offer a platform to the Dell's and HP's out there. There is no doubt in my mind about one thing, AMD is aiming straight at Intel's integrated platform approach.
Calin - Wednesday, August 2, 2006 - link
AMD is trying to get in the game of long-term selling. The corporate computers initiative they had some years ago (or maybe a year ago) was a first step - "freeze" a computer configuration, which you can then offer for a long time (like 3 years). If a computer breaks, move its hard drive in a new computer in the same line, and have everything working with GUARANTEED no problems.AMD did good in taking over the enthusiast market by storm - but this market has NO loyality whatsoever - people will upgrade everything they need and everything they don't in order to get the next big thing. Having a guaranteed revenue of mostly guaranteed value beats that (having an non-guaranteed revenue of big or small value, like it happens now).
AMD is much more ready to go in the corporate market - selling desktop computers, not just servers as it did until now.
Also, take into account that if AMD is behind in the "next big thing" (whatever this might be), it really does not have the money to play catchup. Intel has both the money and the market inertia to continue to be a big player when everything else is against its products. So, AMD is puting its future on a bet that the next big thing will be core-integrated graphics. If this works, they would reap huge benefits - just like they were able to with the Athlon64 on desktops/Opteron on servers (and somewhat Turion on mobiles). Before the Opteron days, AMD was largely inexistant in server space (the Athlon MP started to make a buzz, but they had little market share).
Will the money have been better spent on two fabs? AMD and ATI are both using external partners for creating chips, and this is more expensive only in the long run. In the short run, paying more for chips beats paying 3 billions to have your fab ready in three years. I figure the use of external fabs will continue long time in the future, and just the top of the line products will be built on AMD's fabs.
darkdemyze - Wednesday, August 2, 2006 - link
You say AMD doesn't have the money to play catch-up, and this is true that the whole deal is "a bet." But how else is AMD supposed to catch up? With C2D being released? Intel is going to have a huge impact on the performance sector by the end of the year - about the same time this merger is projected to be completed. What I mean by this is Intel is now ahead of the curve on AMD with this new architecture and according to their "new architecture every 2 years" roadmap, and Intel intends to not let the performance crown slip again as they did with Pentium4.
So what is AMD to do to keep up? As you said, place a bet on "the next big thing" and hope for the best. I'm not discreditting AMD for K8L, or Torrenza for that matter. But I think at the very least Torrenza will be greatly effected by this endeavor. Personally I feel this is a very positive aquisition.
Calin - Thursday, August 3, 2006 - link
K8L is just a few months from launch, and it might get AMD to performance parity with Intel (or exceed Core 2 Duo, or be left behind). I am hoping for a draw or a win for AMD.What AMD needs is a cash cow (as Athlon64 was until now). Will the ATI acquisition bring this to table? It could very well be so, and there are enough niches and market slices where this strategy is a winner.
Unfortunately, this might (or might not) reduce the competition in high-end video cards arena...
Nelsieus - Wednesday, August 2, 2006 - link
I strongly disagree with you.This, thus far, has been the best summarization coverage I've read on this issue.
PeteRoy - Tuesday, August 1, 2006 - link
AMD did not have it's own chipset with integrated graphics, audio and lan which is why it never made it to the offices where the big money is.