The Platform

Acquiring ATI amounts to a quick (but expensive) way of filling in the gaps in AMD's current business.  AMD has already proved that it can compete technologically with Intel, and is currently working on fixing the problems with being able to compete in terms of manufacturing ability as well.  By acquiring ATI, AMD will have the talented workforce necessary to produce its own chipsets/motherboards with integrated graphics and engineer some very unique hybrid CPU/GPU platforms using Torrenza.

There are other ways AMD could have gone about attaining the same goal, for example by building its own workforce and IP rather than spending the $5.4 billion dollars necessary to acquire ATI's, but the acquisition approach is arguably quicker and allows AMD to focus on reaping the benefits sooner, not to mention that it leaves AMD better prepared for the future if GPUs do grow closer to the CPU. 

Intel has created the perfect example of how to be a successful microprocessor manufacturer, and its platform focus is one key element of that example.  The ATI acquisition, in many ways, is about following Intel's example and improving wherever AMD can. 

Can't We All Just Get Along?

The one element of this acquisition that you don't read about in press releases, is what it takes to actually make it happen.  It's not always easy to get a bunch of people from varying backgrounds and with various interests to work well together, it's even more difficult to take two well established and fully operational companies and expect to combine the workforces into one.  While direction for the combined company will come from both AMD and ATI senior management, making that translate into a well oiled machine that can not only innovate but execute great products is quite difficult. 

Having each company operate entirely independently makes no sense, since we've already discussed that it's what these two can do together that makes this acquisition so interesting.  AMD and ATI have to work as one company, but getting from where both companies are today to the point where they are one single harmonious entity (or at least as much as Intel) is going to be a very long and difficult process. 

One fundamental hurdle is that neither AMD nor ATI have particularly strong marketing, at least compared to their competitors.  Both Intel and NVIDIA have arguably done a much better job at marketing their products, building brands and gaining mind share.  We are concerned about the marketing direction that the new AMD would take, especially considering that in many ways ATI has the stronger PR/marketing focus.  At least from our dealings with the two companies, ATI gives more importance to its PR/marketing teams than AMD does, which is cause for concern since it is AMD buying ATI and not the other way around.  Only time will tell if AMD will assimilate ATI into its way of thinking, or if both companies will be able to use this acquisition as an opportunity to learn from one another.  We all know what the sensible choice would be, but getting thousands of people to agree on the same thing tends to complicate things. 

The one perspective that is easiest to support right now is Intel's "let's wait and see what happens" view.  Even with all this talk about the potential merger, the benefits, the pitfalls, etc. the reality is that right now all we have is a proposed merger.  It's certainly big news to even have such an acquisition out in the open, but until the final ink is dry many people remain skeptical.  It really wouldn't be too shocking to see the whole merger evaporate and for ATI and AMD to just continue on their present, independent paths -- certainly no more surprising than the initial announcement.

Our Thoughts: The GPU Side
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  • Zebo - Wednesday, August 2, 2006 - link

    No worries...AMD runs a tight, efficient company that is accustomed to surviving
    through 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.
    Reply
  • 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? Reply
  • 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. Reply
  • 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.
    Reply
  • 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 products Reply
  • erwos - 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
    Reply
  • 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. Reply
  • 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)? Reply
  • 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? ;P Reply
  • jones377 - 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.
    Reply

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