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.
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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.