As we mentioned in our previous edition of The Cable Chronicles, Microsoft and CableLabs have come to an agreement to allow the installation and use of CableCARDs on unapproved and non-OEM systems, allowing for the wider proliferation of CableCARD equipped HTPCs beyond the handful of OEM systems that CableLabs had previously approved. With Windows 7 implementing a complete DRM scheme for TV tuners – the Protected Broadcast Driver Architecture – computers running Win7 would be the first to be able to take advantage of these relaxed restrictions.

The limitation at the time was that computers did not come CableCARD-capable out of the box. A Digital Cable Advisor tool was to be released by Microsoft, which would check a computer to make sure it meets all of MS’s and CableLab’s requirements, before going ahead and enabling CableCARD access. That tool was supposed to be released in time for Win7’s launch, but it ended up being AWOL at the time. As Microsoft was not going to publish the complete system requirements for using a CableCARD, this tool was the only way to find out the system requirements.

The tool was finally released this weekend, allowing us to get an idea of what the system requirements are.

The tool comes as a Windows Media Center Extra, and needs to be downloaded, installed, and used from within Windows Media Center. If you don’t regularly run MCE, then it probably won’t show up in the Extras Gallery, as MCE picks up on it when it regularly checks in for updates. To force MCE to check in, go to Settings -> General -> Automatic Download Options -> Download Now.

Once installed. It shows up in your Extras Gallery.

When activated, the tool will analyze the system to determine if it meets MS/CableLab’s requirements, reporting back whether the computer passes or fails the requirements, and if it fails, offers a short explanation why.

Digging through the tool’s support files, for most of the system requirements the tool appears to just be looking at the Windows Experience Index of the computer. The chart below lists the scores we’ve found, and the text attached to them if the computer fails

In spite of the attached text, the tool doesn’t appear to actually be looking for specific pieces of hardware. We ran this test on a single-core computer with 1.5GB of RAM, and it passed anyhow, as it met the WEI scores required. So our best guess is that only WEI scores matter here.

The second test tests the Content Protection (Read: DRM) capabilities of the hardware. It appears to be looking for the various MCE DRM components (PBDA and PlayReady), HDCP support, and DXVA acceleration of MPEG-2. We suspect the DXVA check is just a warning rather than a hard error, but we don’t have any appropriate hardware to test this.

From our testing, we believe the tool will fail if HDCP support is not present in the video card, regardless of if a digital connection is being used. The big question we have, and one we haven’t been able to find an answer to, is whether HDCP is required for digital connections (e.g. an older TV using HDMI), as we don’t have a monitor on-hand that doesn’t support HDCP.

The analog situation looks better. On a PC hooked up to a TV via Component, it passed the check and was allowed to enable CableCARD support.

However once a PC passes the test, the final screen leaves us scratching our heads as to whether the tool actually knows what it’s doing.

The screen is a list of recommended hardware:

• Sufficient disk space on your PC to record TV. For example, you’ll need about 160GB to record 20 hours of TV
• A minimum of 4GB of RAM
• A digital output connected to an HDCP-compliant display to receive HD-quality video.

We’re not sure where the disagreement lies. It could very well be that the tool isn’t checking for an HDCP-attached monitor and is just blindly approving everything so long as there’s HDCP support, or that it’s downscaling content going out an analog output (ala the Image Constraint Token on Blu-Ray), or it could be that this is an empty recommendation. This tool was supposed to clear up confusion about what’s required for CableCARD use, and it hasn’t really achieved that.

Finally, in the strangest occurrence, one of our systems was already authorized according to the tool. The Core i7 rig we use for benchmarking shows up as authorized, even on a fresh install of Windows 7. This is expected behavior for OEM systems (or rather, motherboards) that were previously approved by CableLabs, but we have no idea why this would be showing up on an Asus Rampage II Extreme.

Finally, along with the release of the advisor tool, the updated firmware for the ATI TV Wonder Digital Cable Tuner needed to go with these looser restrictions has finally been released. As this was originally intended as an OEM-only product, the only place we’ve seen it thus far is at Dell’s website, where they want $210 for a tuner. Since it’s a single-stream tuner, you’ll want 2 (or more) to watch & record multiple channels. Other vendors will have CableCARD tuners out, including multi-stream tuners, but not until next year. For the time being, CableCARD on Win7 comes with a high early adopter tax.

It’s not often we write about prices going up.

Last week there was a rumor going around that AMD intended to raise prices on the 5800 series. At the time we wrote this off as yet another highly-speculative rumor based on shaky evidence. Official price hikes are virtually unprecedented, after all.

Then things changed.

We’ve talked previously about TSMC – the foundry both NVIDIA and AMD GPUs are manufactured at – having yield issues with their 40nm process. This first surfaced with the Radeon 4770, which at the time of its introduction was being built while TSMC’s yields were below 40%, and this coupled with its popularity made for a significant shortage around its introduction. TSMC continued to improve their yields, and by the time of the Radeon 5000 series launch, AMD told us that they weren’t concerned with yields. As of this summer, TSMC was reporting yields of 60%.

On Friday the 30^th, Digitimes broke the word that TSMC’s yields were back down to 40%. This we believe is due to issues TSMC is having ramping up overall 40nm production, but regardless of the reason it represents a 33% drop in usable chips per 40nm wafer. When you’re AMD and you’re rolling out a top-to-bottom 40nm product line in a 6 month period, this is a problem.

The 5870 and 5850: Out Of Stock Everywhere

When the 5800 series launched, we knew supplies would initially be tight, but we had been expecting them to pick up. With these yield problems, that has not happened. Instead 5800 cards continue to be out of stock near-universally, even with the fact that most OEMs have yet to start using these cards. AMD’s current 5800 supplies are being exhausted just by Dell and self-builders.

Meanwhile NVIDIA started the end-of-life process for the GTX 200 series some time ago, with production of the GT200 GPU ramping down. So NVIDIA doesn’t need to play pricing games with AMD, as they’ve already planned on selling out anyhow.

With low supplies, no (single-GPU) performance competition, and no price competition, you have the perfect storm for a price hike.

All of a sudden that rumor about an AMD price hike became far more realistic. Checking around, virtually none of the 5800 series cards are listed at their MSRP. Although they’ve continued to be in low supply since launch, it’s only recently that there’s been a breakaway from the $379 and $259 MSRP of the 5870 and 5850 respectively.

After our latest round of price checks, we talked with AMD about the situation and asked them if there was any truth to the rumor of an official price hike. The news is not good: 5850 prices are officially going up. AMD is citing supply issues of components (including memory) amidst the heavy demand for the 5850, and ultimately deciding to pass the cost on to the consumer. Meanwhile there is no official price hike for the 5870, although it’s going to be affected by any increased component costs just as much as the 5850.

Bear in mind that the 5850 is also a special case. AMD can’t keep the 5870 in stock, never mind the 5850. For every fully-functional Cypress die they get, the only reasonable option is to build a 5870 out of it. The only things that should be going in to the 5850 are dice with a defective functional unit, making them ineligible for use in a 5870. Without an idea of how many harvestable dice TSMC is spitting out, we can’t get any real numbers, but the most reasonable assumption is that most of them are either fully-functional or unsalvageable, so we expect AMD and their vendors to be producing many more 5870s than they will 5850s. In other words, the 5850 shortage is going to be worse than the 5870 shortage.

The result of all of this is, is that regardless of the reason, there’s a price hike across the entire 5800 series – an official hike for the 5850, and an unofficial hike for the 5870. AMD has not established a new MSRP for the 5850, but their best guess is $20; ultimately it’s up to vendors (and retailers) to determine pricing. It’s hard to get an idea of what the price is going to be on a card that’s always out of stock, but an MSRP of $279 is probably too low. $300 (or more) is a more realistic target for the 5850. As for the 5870, it seems to be settling around $400.

Our best guess is that these new prices will continue through the rest of the year, even if supplies pick up as TSMC gets their yields back in order. Without any serious competition from NVIDIA, these cards can be priced anywhere between $300 and $500 based on performance alone, and no one has any incentive to keep prices down so long as 5800 series cards keep flying off of the shelves. It’s Economics 101 in action.

We can’t say we’re happy with any of this, but we can’t accuse AMD and their vendors of acting irrationally here. It’s a lousy situation for consumers, but that’s a shortage for you. When has there ever been a good shortage?

Finally, with these price hikes, our product recommendations are changing some. The 5870 is still the card to get if money is no object, but the 5850 is far more situational since it’s no longer the great bargain it once was. We can get 1GB 4890s for $170 right now, which have become downright cheap compared to our projected $300 for a 5850. Certainly the 5850 whips the 4890 by upwards of 40%, not to mention DX11 and Eyefinity, but at that level it’s commanding a 75% price premium. It’s a $300 card and performs accordingly, but don’t break the bank in order to get a 5850 at these prices.

If you want a cheap 5800 series card, then it looks like you’re out of luck until 2010.

The Biggest 5850/4890 Performance Gap

For those of you sticking with Vista, Microsoft has finally officially released DirectX 11 for Vista, after having spent the last couple of months in beta. This final release looks to be the same as the last beta released earlier this month.

The update is KB971512, which is being released as part of a larger Platform Update for Vista that includes a few other things that are being backported for Vista. Vista SP2 is the prerequisite, so if you aren’t already on SP2 you’ll need to update.

All of these updates should be available on Windows Update.

We ran a quick sanity check on our Vista install from our Win7 Performance Guide from earlier this week, and there are no surprises. Just like with DX10, DX11 titles (all 2 of them ) perform the same between the two OSes. In this case we’re using BattleForge, along with Unigine’s DX11 Heaven benchmark (it’s synthetic, but pickings are slim for DX11). We’ve also thrown in Crysis for good measure, although it's not a DX11 title.

Last week NVIDIA released their first set of end-user OpenCL drivers. Previously OpenCL drivers had only been available for developers on the NVIDIA side of things, and this continues to be the case on the AMD side of things. With NVIDIA’s driver release, the launch of AMD’s 5800 series, and some recent developments with OpenCL, this is a good time to recap the current state of OpenCL, and what has changed since our OpenCL introductory article from last year.

A CPU & GPU Framework

Although we commonly talk about OpenCL alongside GPUs, it’s technically a hardware agnostic parallel programming framework. Any device implementing OpenCL should be cable of running any OpenCL kernel, so long as the developers take in to account querying the host device ahead of time as to not spawn too many threads at once. And while GPUs (being the parallel beasts that they are) are the primary focus, OpenCL is also intended for use on CPUs and more exotic processors such as the Cell BE and DSPs.

What this means is that when it comes to discussing the use of OpenCL on computers, we have two things to focus on. Not only is there the use of OpenCL on the GPU, but there’s the use of OpenCL on CPUs. If Khronos has their way, then OpenCL will be a commonly used framework for CPUs both to take better advantage of multi-core CPUs (8 threaded i7 anyone?) and as a fallback mechanism for when OpenCL isn’t available on a GPU.

This also makes things tricky when it comes to who is responsible for what. AMD for example, in making both GPUs and CPUs, is writing drivers for both. They are currently sampling their CPU driver as part of their latest Stream SDK (even if it is a GPU programming SDK), and their entire CPU+GPU driver set has been submitted to the Khronos group for certification.

NVIDIA on the other hand is not a CPU manufacturer (Tegra aside), so they are only responsible for having a GPU OpenCL driver, which is what they have been giving to developers for months. They have submitted it to Khronos and it has been certified, and as we mentioned they have released it to the public as of last week. NVIDIA is not responsible for a CPU driver, and as such they are reliant on AMD and Intel for OpenCL CPU drivers. AMD likes to pick at NVIDIA for this, but ultimately it’s not going to matter once everyone finally gets up to speed.

Intel thus far is the laggard; they do not have an OpenCL implementation in any kind of public testing, for either CPUs or GPUs. For AMD GPU users this won’t be an issue, since AMD’s CPU driver will work on Intel CPUs as well. For NVIDIA GPU users with Intel CPUs, they'll be waiting on Intel for a CPU driver. Do note however that a CPU driver isn't required to use OpenCL on a GPU, and indeed we expect the first significant OpenCL applications to be intended to run solely on GPUs anyhow. So it's not a bad situation for NVIDIA, it's just one that needs to be solved sooner than later.

OpenCL ICD: Coming Soon

Unfortunately matters are made particularly complex by the fact that on Windows and Linux, writing an OpenCL program right now requires linking against a vendor-specific OpenCL driver. The code itself is still cross-platform/cross-device, but in terms of compiling and linking OpenCL has not been fully abstracted. It’s not yet at the point where it’s possible to write and run a single Windows/Linux program that will work with any OpenCL device. It would be the equivalent of requiring an OpenGL game (e.g. Quake) to have a different binary for each GPU vendor’s drivers.

The solution to this problem is that OpenCL needs an Installable Client Driver (ICD), just like OpenGL does. With an ICD developers can link against that, and it will handle the duties of passing things off to vendor-specific drivers. However an ICD isn’t ready yet, and in fact we don’t know when it will be ready. NVIDIA - who chairs the OpenCL working group - tells us that the WG is “driving to get an ICD implementation released as quickly as possible”, but with no timetable attached to that. The effort right now appears to be on getting more OpenCL 1.0 implementations certified (NV is certified, AMD is in progress), with an ICD to follow.

Meanwhile Apple, in the traditional Apple manner, has simply done a runaround on the whole issue. When it comes to drivers they shipped Snow Leopard with their own OpenCL CPU driver, and they have GPU drivers for both AMD and NVIDIA cards. Their OpenCL framework doesn’t have an ICD per-say, but it has features that allow developers to query for devices and use any they like. It effectively accomplishes the same thing, but it’s only of use when writing programs against Apple’s framework. But to Apple’s credit, as of this moment they currently have the only complete OpenCL platform, offering CPU+GPU development and execution with a full degree of abstraction.

What GPUs Will Support OpenCL

One final matter is what GPUs will support OpenCL. While OpenCL is based around the hardware aspects of DirectX10-class hardware, being DX10 compliant isn’t enough. Even among NVIDIA and AMD, there will be some DX10 hardware that won’t support OpenCL.

NVIDIA: Anything that runs CUDA will run OpenCL. In practice, this means anything in the 8-series or later that has 256MB or more of VRAM. NVIDIA has a full list here.

AMD: AMD will only be supporting OpenCL on the 4000 series and later. Presumably there was some feature in the OpenCL 1.0 specification that AMD didn’t implement until the 4000 series, which NVIDIA had since the launch of the 8-series. Given that AMD is giving Brook+ the heave-ho in favor of OpenCL, this will mean that there’s going to continue to be a limited selection of GPGPU applications that work on these cards as compared to the 4000 series and later.

End-User Drivers

Finally to wrap this up, we have the catalyst of this story: drivers. As we previously mentioned, NVIDIA released their OpenCL-enabled 190.89 drivers to the public last week, which we’re happy to see even if the applications themselves aren’t quite ready. This driver release was a special release outside of NVIDIA’s mainline driver releases however, and as such they’re already out of date. NVIDIA released their 191.07 WHQL-certified driver set yesterday, and these drivers don’t include OpenCL support. So while NVIDIA is shipping an OpenCL driver for both developers and end-users, it’s going to be a bit longer until it shows up in a regular release.

AMD meanwhile is still in a developer-only beta, which makes sense given that they’re still waiting on certification. The estimates we’ve heard is that the process takes a month, so with AMD having submitted their drivers early last month, they should be certified soon if everything went well.

From: An End To Unencrypted Digital Cable TV and the HTPC?

On a final note, the loss of ClearQAM access is likely going to be followed by the loss of some fraction of the HTPC market, where users will not find as much value in a device that can no longer watch or record live TV from their cable company. Because of this potential nosedive in the HTPC market, I would be very surprised if Microsoft stayed entirely mum on the issue. They've put a lot of effort into Windows Media Center as a TV viewing platform and HTPC suite over the years, and this drives a stake right through that given the low adoption of CableCARD systems.

For those of you with cable TV service, for some time now you've been witnessing the slow transition of cable TV from a pure analog service to a pure digital service. With cable systems finally at their limits for bandwidth, within the last year the cable companies have finally begun what has been dubbed the "analog reclamation" - removing analog channels from their service and replacing them with digital versions that require 1/6th (or less) the bandwidth. Because the reclamation involves removing analog versions of most for-cost channels (what's commonly called the Expanded Basic tier), the reclamation has been tied with the deployment of Digital Transport Adapters - low-cost cable boxes that are little more than a basic QAM tuner attached to an RF modulator. This has allowed cable companies to reclaim this space without deploying otherwise very expensive Set Top Boxes to every TV at an affected household.

A side effect of this has been that computer TV tuner users, such as HTPC owners who in the analog age were accustomed to getting access to the EB tier on their computers with a simple analog TV tuner, were able to access those same channels in their digital form using ClearQAM-capable tuners. This is because the FCC mandated that the security mechanism be separate from the STBs, which gave rise to the continually problematic CableCARD. In the name of cost, DTAs do not have the ability to use CableCARDs, and as such do not meet the separable security requirements. Ultimately this required cable operators to put the digital versions of their EB tiers in the clear if they wanted to use DTAs, and this is why ClearQAM tuners can exist in a useful manner.

That age, however short it was, looks to be coming to a close. DTAs may be little more than a basic QAM tuner, but that "little more" is that they support a very basic form of encryption - a 56bit DES-based cypher known as Privacy Mode - which would allow them to receive and decrypt lightly encrypted channels. The FCC separable security mandate has previously prevented Privacy Mode from being used, but we have known for some time that cable companies and device manufacturers were looking to get a waiver for DTAs. In effect they have been soliciting the FCC for permission to encrypt all EB tier channels with Privacy Mode, so that reception would be limited to DTAs and CableCARD devices.

The FCC has granted their request.

The ramifications are two-fold. For the cable companies, once they implement this Privacy Mode across the board they will no longer have to install and maintain expensive signal traps to keep customers on lower tiers such as Limited Basic from accessing additional channels. For computer/HTPC users, this is an end to being able to directly receive EB tier channels with any kind of commonly available digital tuner. Privacy Mode is not open for licensing, and CableLabs will not license CableCARD for any kind of open (read: not locked down to hell and back) tuner. This means ClearQAM tuners made by ATI, Hauppauge, SiliconDust, and others would no longer be useful for receiving EB tier channels.

For pure digital reception on computers/HTPCs, what would be left would be two things. One would be fully licensed systems that implement head-to-toe DRM, the only way that CableLabs will license CableCARD for computers. This is not cheap, and brings with it all the disadvantages of not building your own system. The other would be utilizing the Firewire output of some STBs, but such STBs can be hard to acquire and the FCC allows broadcasts to include a copy-never (5C) flag that disables this output.

The last option would be to take advantage of the analog hole left by the component video output of STBs, using devices such as Hauppauge's HD PVR that can redigitize the output of STBs for importing into a computer. The drawback of this is a loss of quality due to an analog generation being included in the process, and whatever pitfalls that come from using the STB such a device would be attached to. None of these options are as simple and cheap as things stand today with a ClearQAM tuner.

At this point there's no reason to believe that cable companies won't deploy Privacy Mode across their networks, so it's a matter of "when", not "if" this will happen. It goes without saying that if you're currently enjoying the use of a ClearQAM tuner to receive EB tier channels, you'll want to enjoy what time you have left, and look into other solutions for the long-haul. At this pace, it looks like cable TV and computers will soon be divorcing.

On a final note, the loss of ClearQAM access is likely going to be followed by the loss of some fraction of the HTPC market, where users will not find as much value in a device that can no longer watch or record live TV from their cable company. Because of this potential nosedive in the HTPC market, I would be very surprised if Microsoft stayed entirely mum on the issue. They've put a lot of effort into Windows Media Center as a TV viewing platform and HTPC suite over the years, and this drives a stake right through that given the low adoption of CableCARD systems. Microsoft has been diversifying their TV operations over the years by getting satellite companies on-board and making some investments in IPTV/Internet TV, but cable TV is too big to ignore if Microsoft wants to keep pushing WMC. What this may lead to is anyone's guess, but unless they're going to drop the emphasis on TV viewing with WMC something will need to happen to keep WMC relevant in the cable TV space.

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When I saw this come across my inbox a bit ago, I first thought this was a late-night prank being played on me. But as it turns out, it’s true: late this evening Google confirmed that they’re working on their own operating system for netbooks, tentatively titled Chrome OS.

Rather than rattle off the entire contents of their announcement, let’s hit the high points. Google's Chrome OS is an OS designed to do one thing and one thing only: run Google Chrome. It will be open source, it will run on ARM and x86, it’s Linux based, and it’s not going to launch until the second half of 2010. Taking a page out of Apple’s book, Google is announcing it now as a way to avoid another party spilling the beans before Google is ready.

The single most important thing to take from this announcement right now is just what Chrome OS will do. It won’t run an email client, it won’t run an office suite, and it won’t run games – it will only run Google Chrome. It’s Linux stripped to the bone, left with just enough to run Chrome, and nothing more.

Given this kind of a design, it should come as little surprise then that Chrome itself will be the platform through which additional applications will run. Google has been pushing the web application idea for years – indeed Chrome exists to further drive that goal – but previously this has always required accessing said web applications through a web browser running on a full-fledged OS. If nothing else it is somewhat redundant, not to mention the existence and use of native applications goes against Google’s grand unified vision for everything to be a web application.

Because Chrome will be available on Linux, Windows, and Mac OS X, developers will be able to create web applications targeting Chrome, and have it run on computers running any of the above operating systems, along with netbooks running Chrome OS. Along these lines, Google’s own web application suite finally left beta this week, where it’s entirely possible that this was intentional to coincide with the announcement of Chrome OS. Regardless, clearly Google’s application suite is going to be the center point of Chrome OS in order to flesh out the capabilities of Chrome OS-equipped netbooks to what’s expected of a modern computer.

The early announcement leaves plenty of time for more details to be refined and released, but this does raise a few core issues. First and foremost, will developers go with it? One of the most recent parallels to this is the original iPhone launch, where Apple pushed something very similar as the official way for developers to create applications for the iPhone, through creating web applications for Safari. It failed miserably, and a year later a real SDK was released for developers to create native applications. Chrome is better equipped than circa-2007 Safari for these matters (it has local storage capabilities, among other things) but the point still stands. Developers would be limited to AJAXy technologies, with no Adobe Flash to back them up. For the most part, developers would be looking at abilities below what Flash and Java are capable of, so not everyone would necessarily be happy about working with a limited toolkit.

The second issue is how consumers will respond. Chrome has been a tempered success as a browser, it’s bigger impact being to drive everyone else to improve their JavaScript performance. Just being Chrome won’t be enough for Chrome OS to succeed. Meanwhile Google’s web applications have been a smash hit – Gmail is the new standard for webmail interfaces, and other services like Google Docs have been picking up in usage. Google would be relying on their web applications to move consumers (and OEMs) to Chrome OS. But let’s also cut to the chase – this is the computer terminal/thin-client reborn, and history is littered with the carcasses of terminals and terminal-like computers that have died to full-fledged computers when consumers/users rejected going back to terminals. A complete thin-client system may be a gutsy move in modern times, but it's still a significant risk that is not in any way guaranteed to win over users.

And last but not least, we have Microsoft. The web browser replacing the OS has been Microsoft’s worst nightmare for well over a decade now. Much of their late-90’s anti-trust trial focused on how they attempted to drive Netscape out of business for fear of this exact situation arising. Microsoft won’t sit by idle, they will undoubtedly make a big move against Chrome OS, and they will try to not get dragged back in to court in the process. Whether that means just more cheap copies of Windows for netbooks or something more remains to be seen.

Quickly, it should also be noted that this is a separate effort from Google’s existing OS, Android. Android is similar in that it’s a Linux-based OS, but Android is targeted towards phones (even if it can be run on a netbook) and can run additional applications through Java. Chrome OS would be for more powerful devices, and as announced would not be able to run any applications other than AJAXy web applications through Chrome. Along these lines, it should be noted that Chrome OS is going to use a brand new windowing system. It's a bit of a generic statement, but we suspect that Google is going to keep the Linux standard of the X11 windowing system, but write their own window manager and GUI framework. If that is the case, then we won’t be seeing the usual suspects of KDE(Qt) or GNOME(GTK) here. This would also mean that even if Chrome OS could be manipulated in to running other programs, it would not have the ability to run the vast majority of Linux GUI applications without significant modification, as most applications use one of those two frameworks.

As always, we’ll have more on Chrome OS as it develops.

There are some records you just don't want to set - the EU record for a single fine is one of them.

In our previous business articles we've discussed Intel's legal situation in the European Union. In 2001 AMD went to the EU to file complaints about Intel over anti-competitive actions. This perked the interest of the EU and set into motion a long and slow chain of events, leading up to antitrust charges being filed in 2007 for Intel's actions in the 2002-2007 time frame. In terms of technology, what was being considered were Intel's actions during the late Athlon XP era and most of the Athlon64 era.

After quite some time, the investigation has wrapped up and the European Commission has made it's ruling: Intel has been found guilty of violating EU antitrust laws, and has been fined €1.06bil ($1.45bil) for past actions and ordered to stop any ongoing anti-competitive practices. This gives Intel the unsavory position of the single largest fine in the history of the EU, surpassing Microsoft’s previously lofty fine of nearly €500mil in 2004.

The European Commission has a complete press release up on the charges, but they specifically boil down to two things: Intel was giving OEMs rebates if and only if they sold few-to-no AMD processors, and Intel was paying retailers not to carry computers with AMD processors. The report doesn’t list the specific OEMs, but we know it was NEC, Lenovo (and for some of the time, IBM), HP, Dell, and Acer. The retailer was Media Markt.

Intel has already said that they are going to appeal the fine, and that it “ignores the reality of a highly competitive microprocessor market.” Notably, they aren’t appealing the facts, but rather the conclusion (that it was harmful to consumers) and the fine. It’s likely that any appeal will take just as long as the initial examination, so it’s unlikely that this will be over before 2011, if not later.

As Intel does not talk about their pricing and marketing strategies publicly, there’s no way to know if the order to cease ongoing activities will have any effect. If Intel is still offering any EU OEMs rebates, then they would need to immediately stop. Since the immediate impact of the rebates to OEMs would have been to depress computer prices slightly (at least some of the rebate money would likely have been passed to consumers in pricing due to heavy competition) we’re not ready to throw out the idea that this may drive computer prices in the EU a bit higher if Intel has been continuing to offer rebates.

Meanwhile the fine, while the EU’s largest, is not abnormally large given Intel’s size and that the fine is only computed against Intel’s EU sales. Their net profit for their terrible Q1’09 was $630mil, so while it’s a stiff fine, it’s not one that Intel would be unable to pay off (although it certainly will turn some heads in the process). The fine goes directly to the EU, so AMD will not immediately benefit from this beyond the cessation of any ongoing illegal activities.

It should also be noted that Intel has been facing an investigation in the United States since 2008. While EU decisions are non-binding, this may be an indication of how that investigation will turn out. We’ll undoubtedly have more on that investigation in the coming months as it continues to move along.

NVIDIA 182.06

NVIDIA 163.75

ATI Catalyst 9.2

Now that we have the quarterly numbers in for both Intel (who reported Tuesday) and AMD (who reported Thursday) we’re going to take a quick stroll through the numbers to see what’s up.

AMD

The AMD/Foundry Co. spilt has not been finalized yet, so the foundries are and will continue to stay on AMD’s books through the end of the year. Furthermore any of immediate investments and sales from the transaction are in the 4th quarter, since the plan was announced over a week after AMD’s 3rd quarter ended. So this 3rd quarter marks the last quarter where AMD is entirely whole, while the company’s books will begin to be shaken up in the 4th when Mubadala’s latest investment is counted. Finally, the Foundry Co. spin-off appears to be set in stone to complete in early 2009, AMD has ceased mentioning “late 2008” when discussing it.

Getting down to the numbers, as predicted for some time by AMD this quarter has been another loss. But it’s a loss that was anything but expected. For the quarter AMD lost a paltry $67 million on revenues of $1.78 billion, completely blowing away their own predictions and what analysts were expecting, losing nearly $100 million less than expected. Compared to their loss last quarter of $1.19 billion and their Q3 loss last year of $400 million, AMD may have as well broken even for the quarter. In fact if you switch to the numbers from their non-Generally Accepted Accounting Principles accounting, then they did indeed make a profit of $80mil for the quarter. The quarter also marks the end of AMD’s operating losses, they posted an operating income of $131 million this quarter.

AMD’s better than expected results can be attributed to 3 major sources. The first is their server CPU operations, for which Q3 was the first quarter where the TLB-fixed Barcelona shipped in volume for the entire quarter; in effect it was the first normal quarter for the CPU business in quite some time. The second source is a one-time license fee the company received for its 130nm SOI technology, which added $191 million to the bottom line. Finally, AMD’s graphics division turned a profit for the first time since they were purchased, posting a profit of $47 million on $385 million in revenue.

Looking at the segmented information, AMD’s CPU division hasn’t changed much in the last quarter. Intel continues to dictate CPU pricing, keeping AMD’s ASP for CPUs flat compared to both last quarter and last year. Due in part to the aforementioned TLB fix, the total number of CPUs sold was higher than last quarter, but compared to last year it’s still down – AMD’s CPU business is doing better than expected, but it’s still not doing well. Meanwhile everything is up with GPU sales; prices and units shipped are up compared to last quarter and last year. The Radeon 4000-series has been the smash hit AMD has been looking for from its graphics division, with Q3 marking the first full quarter for the high-end products of that generation. It needs to be kept in mind just how lop-sided AMD’s GPU and CPU business are in terms of revenue, so doing well here isn’t enough, but all-told the business is at a comfortable position. We’ll have more to discuss next month, once NVIDIA posts its Q3 numbers.

Finally, there are the Q4 projections. AMD is being a bit more vague than usual, perhaps because even they aren’t entirely sure how things will turn out (and as we’ll see, Intel is the same way). They’re expecting Q4 revenue to hold flat with Q3’s (minus the license fee revenue), which puts them around $1.58 billion. It seems unlikely that they’ll turn a profit in Q4 as a result, but it is not something AMD is explicitly outlining. AMD has now posted losses for the past 8 quarters, so there’s a lot of interest in finally snapping that streak with a strong Q4 performance. If not Q4, then Q1’09 with the completion of the foundry spin-off will certainly push the company in the black at long last.

Intel

It seems that as long as AMD doesn’t do too well, Intel can do quite well. Intel posted another big quarter, with $2 billion in profits on $10.2 billion in revenue, for a 12% rise in profit and 1% rise in revenue respectively. Interestingly however, the company missed analyst estimates on revenue, where they were expected to bring in $10.25 billion. Intel has been especially proud of their gross margin for the quarter, which was an unexpectedly high 59% (for the sake of comparison, AMD Is 51%). All things considered, the market seems happy as long as Intel’s gross margins stay this high, even if they miss estimates elsewhere.

Looking at the revenue breakdown, processor shipments are up but the ASP was down. Intel attributes this to the Atom, which is now fully shipping and dragging down the ASP of the rest of the CPU business since the Atom is significantly cheaper than Intel’s traditional CPUs. We don’t have a complete breakdown of the Atom versus everything else, but we do know that Intel sold around $200 million in Atom processors and chipsets in the 3rd quarter, and if you remove the Atom from Intel’s CPU sales the ASP of everything else held steady. It’s a bit of a riddle to see Intel’s ASP hold steady when they get to dictate the terms of the market, but it is high-end product launches that tend to drive up the ASP, of which Q3 had little. Furthermore cheap laptops are still driving down the ASP, to which the Atom isn’t helping. Nehalem in Q4 should help drive the ASP back up, but it won’t solve the long-term problem posed by cheap laptops and the Atom.

Finally, we have the future. Intel’s Q4 predictions are unusually reserved, as a result of the recent credit crunch and associated problems. The resolution of these problems is going to have a significant impact on the CPU business for both Intel and AMD, which makes predicting revenues nearly impossible (unless you’re Miss Cleo). Intel’s official predictions are for between $10.1 and $10.9 billion in revenue for Q4, a very weak number for what’s usually a very strong quarter. Intel has a strong product portfolio, but getting customers to buy is a whole other matter. Perhaps as an omen of things to come, sales were down in North America by 8.7%, the only region in which they fell.

If you recall my past blog post on Windows Home Server, we were discussing a critical file corruption bug in the operating system that Microsoft had finally identified. The Drive Extender technology for handling the WHS storage pool had a particularly nasty and hard to fix race condition that resulted in data corruption in certain situations when the service was migrating data from one drive to another. Due to the nature of the bug and Microsoft’s desire to pack the fix with Power Pack 1, the delivery of the fix was not expected for 3 months, which at the time would have made the delivery date June.

June came and went, the Power Pack was nowhere to be found. Microsoft did release a public beta of the Power Pack in June, but this is hardly the same. As any professional server administrator can tell you, you don’t test new patches on your production servers.

Finally, as July comes to a close, Microsoft has released the shipping version of Power Pack 1. Now if you haven’t quite picked up on the tone of this blog post yet, I am not particularly happy with the situation. I’m quite happy that the issue has been fixed, I am also happy that Microsoft has deployed the rest of the Power Pack 1 features, but I am not happy with how long it has taken.

When we get right down to it, the corruption issue was first acknowledged 7 months ago back on December 21st of 2007. And while we acknowledge that the issue is a particularly complex one that took Microsoft months just to completely identify, does this change the fact that the problem has taken an extraordinarily long time to correct? No, it does not.

In what other industry and with what other product is it acceptable for a common data corruption issue to persist in a server for this long? In what other situation is it appropriate to continue selling faulty software and devices utilizing that software after the faulty condition has been found? Unless you are enough of a computer enthusiast to read sites like AnandTech, there’s a good chance you would not have even known about the issue.

While WHS is a home product and I certainly don’t expect the same kind of rapid response from Microsoft for it as I would Windows Server products, WHS is still a server, one that until this week had a major malfunction. Call it vitriol or call it common sense, but a bug fix for an issue of this kind of importance should not take this long. This is certainly the worst support I have ever seen for a Microsoft operating system that I can recall; I cannot recall a bug like this having ever gone unfixed for this long before.

Microsoft should be ashamed of themselves (at least as much as a large multi-national corporation can be) on the matter. While I hesitate to blame the WHS development team directly because not everything is in their hands, it’s certainly appropriate to blame Microsoft as a whole. Would committing more resources to WHS have resulted in a bug fix coming sooner? Potentially. Pulling the sales of WHS devices (particularly 2+ drive servers) should definitely have happened however, along with pulling the OEM copies of the software itself. The single greatest problem is that a bug like this existed, but the second greatest problem was that WHS continued to be sold, and this is something that could have immediately been resolved.

So here we are, 7 months after the bug was first acknowledged and just a year after WHS first shipped. At this point the data corruption issue is fixed and it’s once again safe to use a WHS with multiple drives, and knock-on-wood there are no further corruption problems in the OS. But I find myself reflecting on what I said back in March, “It also undermines a great deal of confidence in Microsoft that will take some time to recover.” I have a troubling lack of confidence in Microsoft’s ability to support Windows Home Server, and I can’t bring myself to once again recommend Windows Home Server at this time. I still have hope for the next version of WHS, but I think that Microsoft has blown it for WHS v1, it’s a v1 product that should be avoided. This is a shame for HP in particular, as Microsoft’s premiere US partner for WHS in the United States they have gone above and beyond everyone else (even Microsoft) to improve the WHS experience and to produce some really good servers, and ultimately it’s what Microsoft has or has not done that makes it all a moot point.

With that said, not everything is a bad thing today. Besides fixing the data corruption bug, Power Pack 1 adds a number of features and fixes that resolve our earlier issues with WHS when we first previewed it. The long-awaited connector package for Vista x64 is here, allowing computers running that OS to be backed up, and you can now back up the server itself to an external disk. Furthermore network I/O has been significantly improved in some cases so that WHS isn’t nearly as pokey as it once was (although we’d still like Vista’s file I/O prioritization) and the Drive Extender service behavior has changed so that it no longer engages in file balancing as much. Even lesser features such as the ActiveX control for the web access portion has been beefed up to better handle uploading large files and multiple files. Even without the data corruption fix, Power Pack 1 is a big update for WHS that everyone with a WHS box will likely enjoy.

As we promised last week, we have the Q2’08 fiscal numbers for AMD which came out yesterday. And for the sake of completeness we also have Intel, whose numbers came out earlier this week. We’ll start with AMD.

AMD:

So much for only losing $200 million this quarter. At face value, AMD lost $1.19 billion this quarter, on revenue of $1.35 billion. The biggest loss (and biggest change) since last week was that for the second time AMD has taken a write-down on ATI, this time to the tune of $876 million. In the present-term this is a correction of the value of ATI within AMD’s books, but it’s also ongoing proof that AMD paid too much for ATI. The bit of good news here is that write-offs are not the same thing as actually losing money (even though they are calculated against net income), so AMD isn’t $1.19 billion poorer (not that they could afford to be). Real (operating) losses are around $275 million before factoring in AMD’s one-time sale of old 200mm manufacturing equipment, after which operating losses drop to $143 million, a far more minor hit against what cash AMD still has. Furthermore this means losses are reduced compared to Q2 of last year, a positive sign for the company.

As for a breakdown on what came from where, computing solutions (CPU, chipset, etc) was $1.1 billion, while graphics (GPU) was another $248 million. CPU sales compared to last quarter are down as is traditional for this time of year, however the average selling price is also down, which is a bit troubling. AMD’s inability to capture high-priced (read: high-profit) sales is continuing to hurt the company.  GPU sales were not a smash hit either, in spite of the fact that RV770 started shipping last quarter. The Radeon HD4850 was not available until late in the quarter, and the HD4870 effectively missed the quarter entirely, so AMD’s top product was only a $200 part. This means that the average selling price for GPUs was only flat compared to last quarter. With a full quarter of HD4000 sales coming up (including the lucrative HD4870 X2) we’d count on this improving.

AMD has stated that they are hoping to return to profitability in the second half of this year, although we wouldn’t hedge and significant bets on it. AMD’s own predictions for Q3 are to lose around $180 million, so a return to profitability would not be until the 4^th quarter. This is timed with the launch of their 45nm parts, or in other words the company is counting on Shanghai and its related parts to hit the right balance of revenue and cost to make the company profitable again. This quarter marked the 7^th consecutive loss for AMD, and the next quarter will make for 2 whole years of losses with loss number 8. There’s a lot of speculation on if AMD will need to sell some further assets (equipment, a business division, etc) to make it there, but we’ll see.

Finally in a bit of unexpected news, CEO Hector Ruiz was given the boot. Hector has been fairly unpopular with the press, the public, and investors, so this is good news for the company for at least today. Hector has been blamed for much of AMD’s recent woes since he has been its overseer throughout the entire decline of the company, although he has probably taken on more blame than he deserves. The enigmatic Jerry Sanders is a hard act to follow no matter the situation.

Hector’s replacement is Dirk Meyer, AMD’s current president and COO. Dirk is seen as more of a technical man and less of a business man than Hector, which may be what the company needs right now. He’s credited with the success of AMD’s earlier Athlon processors, and interestingly has been with AMD several years longer than Hector has. The change in CEOs likely won’t affect anything in the short-term, but it remains to be seen just how differently Dirk will run things in the long-term; there’s the potential for some big changes. In the mean time he’s going to have to face the tough job of keeping AMD from losing any more money.

Intel:

Meanwhile, Intel has had a fantastic second quarter. Revenue was $9.5 billion with a net income of $1.6 billion. This makes for a record 2^nd quarter in revenue for the company, along with a surprising 25% jump in profit. This is very much a case of Intel doing well when AMD is suffering, not only are they capturing a larger share of the market, but AMD isn’t able to drive down the prices on their consumer products positioned above the Q6600, or roughly $250. The only thing Intel continues to face stiff competition with is the 4P+ server space, where AMD is still hanging in with the Opteron and its HyperTransport bus.

Besides the above, this quarter makes for a fairly dull earnings report. Intel’s biggest problem is that their own low-end parts are eating in to the sales of their high-end parts. The average selling price for Intel’s processors is down slightly, which Intel credits to very strong sales of cheap laptops. They are not very clear on if “cheap laptops” are the new generation bottom-bin products like the eeePC, or just growth in the traditional cheap laptop market.

Finally, the European Union has no problem raining on what’s otherwise Intel’s parade at the moment. It’s looking increasingly likely that Intel will be found guilty of antitrust charges that were started early this decade from AMD. The EU is adding to its list of charges a claim that Intel paid a EU retailer (through rebates) to not carry AMD products, and a claim that Intel paid a manufacturer to delay launching a line of computers using AMD CPUs. Intel of course is not happy about the latest charges, and there is some continuing concern from outsiders that the entire situation is being unfairly influenced due to AMD’s fabs being located within Germany. It is anyone’s guess when the EU will wrap this case up though; it has gone on for 8 years now with no indication that it’s coming to an end.