AMD’s Position

Given that AMD is the one ponying up $5.4 billion dollars for the acquisition of ATI, there had better be some incredibly good reasons motivating the investment, especially considering that AMD isn't sitting on a ton of cash at the moment.  AMD is obviously extremely bullish on the move, but still vague on most details as to what it plans on doing with ATI assuming the deal goes through.  The majority of AMD's statements publicly have been reassuring the market that its intention isn't to become another Intel, that it will continue to value its partners (even those that compete with ATI)  and still treat them better than Intel would. 

Completing the Platform & Growing x86 Market Share

While AMD has always publicly stated that it prefers to work with its partners, rather than against them like Intel does, this move is all about becoming more like Intel.  From the platform standpoint, AMD would essentially be expanding its staff to include more engineers, team leaders and product managers that could develop chipsets with and without integrated graphics for AMD processors.  Each AMD CPU sold helps sell a great deal of non-AMD silicon (e.g. NVIDIA GPU, NVIDIA North Bridge, NVIDIA South Bridge), and by acquiring ATI AMD would be able to offer a complete platform that could keep all of those sales in-house.  From a customer standpoint, it’s a lot easier to sell a complete package to a customer than it is to sell an individual component.  Intel proved the strength of the platform with Centrino and AMD is merely following in the giant’s footsteps. 

Going along with completing the platform, being able to provide a complete AMD solution of CPU, motherboard and chipset with integrated graphics could in theory increase AMD’s desktop and mobile market share.  According to AMD, each percentage point of x86 market share is worth about $300M in revenues.  At current profit margins of around 60%, if the acquisition can help increase AMD’s market share by enough percentage points it’s a no-brainer.  AMD is convinced that with a complete platform, it could take even more market share away from Intel particularly in the commerical desktop and consumer/commerical mobile markets. 

Step 2 in Becoming Intel: Find Something to do with Older Fabs

Slowly but surely, AMD has been following in Intel’s footsteps, aiming to improve wherever possible.  We saw the first hints of this trend with the grand opening of Fab 36 in Dresden, and the more recent commitment to build a fab in New York.  AMD wants to get its manufacturing business in shape, which is necessary in order to really go after Intel. 

A secondary part of that requirement is that you need to have something to manufacture at older fabs before you upgrade them to help extend the value of your investment.  By acquiring ATI, chipsets and even some GPUs can be manufactured at older fabs before they need to be transitioned to newer technologies (e.g. making chipsets at Fab 30 on 90nm while CPUs are made at Fab 36 at 65nm). 

Once the New York fab is operational, AMD could have two state of the art fabs running the smallest manufacturing processes, with one lagging behind to handle chipset and GPU production.  The lagging fab would change between all three fabs, as they would each be on a staggered upgrade timeline - much like how Intel manages to keep its fabs full.  For example, Intel's Fab 11X in New Mexico is a 90nm 300mm fab that used to make Intel's flagship Pentium 4/D processors, but now it's being transitioned to make chipsets alongside older 90nm CPUs while newer 65nm CPUs are being made at newly upgraded fabs. 

Presently, AMD has no plans to change the way ATI GPUs and chipsets are manufactured.  ATI's business model of using TSMC/UMC for manufacturing will not change for at least the next 1 - 2 years, after which AMD will simply do what makes sense.

What if GPUs and CPUs Become One

If GPUs do eventually become one with CPUs as some are predicting, then the ATI acquisition would be a great source of IP for AMD.  For Intel, getting access to IP from companies like ATI isn’t too difficult, because Intel has a fairly extensive IP portfolio that other companies need access to in order to survive (e.g. Intel Bus license).  The two companies would simply strike out a cross licensing agreement, and suddenly Intel gets what it wants while the partner gets to help Intel sell more CPUs.

AMD doesn’t quite have the strength of Intel in that department, but by acquiring ATI it would be fairly well prepared for merging CPUs and GPUs.  The process doesn't have to be that extreme, however.  Remember AMD's Torrenza announcement back at its June 2006 analyst day?  Part of the strategy included putting various types of "accelerators" either in a Hyper Transport slot or on-package with an AMD CPU, not necessarily on-die.


Conveniently, the "accelerator" blocks are all colored red in AMD's diagram, but you can see many areas that ATI's IP could be used here.  AMD could put ATI's Avivo engine in the chipsets for HTPC or CE applications, you could find an ATI GPU in a HTX slot or integrated on the CPU package.

We're moving to quad-core CPUs next year, and there is definitely some debate about how useful that will truly be for the home computer user.  Beyond quad cores, what do CPU manufacturers do to continue to sell product?  Ramping up clock speeds is becoming more difficult, and while two cores definitely shows some promise, and four cores can be useful, it's really difficult to imagine a computing environment at this point where the typical user needs four or more CPU cores.  Long-term, throwing more cores on could give way to putting a GPU into the core, and given the nearly infinitely parallel nature of graphics it becomes a bit easier to make use of additional transistors.  Remember that ATI and NVIDIA both have flagship products with over 300M transistors, while AMD is currently using about half that for the 2x512K X2 chips.  Core 2 4M is close to 300M transistors, but a large number of those are devoted to cache, and doubling cache quickly has diminishing returns.

A Great Way of Penetrating the CE Market

Intel had a huge showing at this year’s Consumer Electronics Show (CES) in Vegas, making very clear its intentions to be a significant force in the CE market moving forward.  AMD unfortunately has very little recognition or penetration in the CE market, but buying ATI would change all of that.  Aside from the fact that ATI is in Microsoft’s Xbox 360, an item that Microsoft wants to be entrenched in the Digital Home, ATI silicon is also used in many digital televisions as well as cell phones.  By acquiring ATI, AMD would be able to gain entry into the extremely lucrative CE market. 

If the world of convergence devices truly do take off, AMD's acquisition of ATI would pay off as it would give AMD the starting exposure necessary to make even further moves into the CE market. 

Index ATI's Position
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  • HopJokey - Wednesday, August 2, 2006 - link


    The food in Intel's cafeteria is actually quite good :)

    I beg to differ. It gets old after a while:(
  • Regs - Tuesday, August 1, 2006 - link

    The distant future looks good. Though we yet to see any more green slides about new core technologies from AMD. It almost seems AMD will be making baby-steps for the next 5 or so years to try to compete with the performance Intel is now currently offering.

    For stock holders - lets just hope AMD can pull something off to gain revenue from other markets with the help of Dell and ATi. Their growing capital and recent acquisition need some definite profits to pay it off.
  • AnandThenMan - Tuesday, August 1, 2006 - link

    I think it's fair to say the article has a very strong pro Intel and NVIDIA slant. For starters, it needs to be pointed out that ATI is actually the #2 graphic maker, not NVIDIA. Saying that NVIDIA is #1 in the desktop space is only part of the market, so why state it that way? Trying to make NVIDIA look good of course...

    And this:

    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.

    This statement is just dumb. Unless the planet is destroyed by an asteroid, the deal is pretty much done. It is HIGHLY unlikely that the deal will not happen.
  • defter - Wednesday, August 2, 2006 - link

    The desktop market is very important market since most of the profits are made in the high-end desktop market.

    For example ATI has much bigger overall marketshare than NVidia (27.6% vs 20.3%) and has lot of presense in other markets (consumer electronics, handhelds). Still, NVidia has bigger revenue, meaning that ASP of NVidia chips is much higher.

    If you look at profits, the difference is even bigger, during the last quarter, NVidia made three times as much profit as ATI. Thus high-end desktop market is definitely very important.

    Here are some GPU market share numbers for Q2:">
  • PrinceGaz - Wednesday, August 2, 2006 - link


    The desktop market is very important market since most of the profits are made in the high-end desktop market.

    Most of the profits are not made in the high-end desktop market, in fact the very high end probably struggles just to break even due to the relatively tiny number of units shipped compared to development costs. Most of the money in discrete graphics is actually made in the low-end discrete graphics segment, cards like the 7300 and the X1300.
  • defter - Wednesday, August 2, 2006 - link

    This is like saying: "most of the revenue is made on $100 CPUs instead of FX/Opteron parts..."

    The revenue can be higher on the low end of the market. But GPUs like 7300/X1300 are selling at $20 or less, profit margins for those can't very high. High-end chips like 7900/X1900 are selling for about $100 and the margins are much higher. (Compare the die size between 7900 and 7300, the difference isn't THAT big).
  • JarredWalton - Wednesday, August 2, 2006 - link

    Hey, I'm a skeptic and you can blame me for the comment. Still, until the deal is well and truly done we have a proposed merger. Government interference, cold feet, whatever other setback you want... these things can and do happen. Do I think the deal *won't* happen? Nope - no more than I think the deal *will* happen. If you had asked me three months ago when I first heard the rumors, I think I would have been about 90% sure it wouldn't happen, so obviously I'm less skeptical now than before.

    As for NVIDIA and Intel slant, the NVIDIA perspective is their view. That doesn't mean it's correct, any more than the ATI, AMD, or Intel perspectives. However, ATI is #2 for the same reason Intel is #1: integrated graphics, specifically on laptops, and again we're talking about the underpowered, mediocre kind that will choke on Vista's Glass GUI. Wipe out all of the low-end GPUs, and NVIDIA has a clear lead in the market. Not in performance, necessarily, but in mindset and brand recognition? Definitely. We are an enthusiast website, and so we're looking at the stuff that moves the market forward, not just what suffices to run office apps.
  • AnandThenMan - Wednesday, August 2, 2006 - link


    Intel is #1: integrated graphics, specifically on laptops, and again we're talking about the underpowered, mediocre kind that will choke on Vista's Glass GUI. Wipe out all of the low-end GPUs, and NVIDIA has a clear lead in the market.

    Being #1 in one market is not good enough anymore. NVIDIA NEEDS to be in the integrated graphics sector, the ultra thin mobile sector, the console market, the HD devices market etc. etc. This is where ATI is much more diverse than NVIDIA.

    The article is about the implications of AMD/ATI and how it affects Intel, NVIDIA, and the whole industry. I understand what you are saying about the discreet enthusiest market, and naturally this is the most interesting and desirable segment we all like to talk about. But the merger is about much more than that. IMO, NVIDIA has to re-invent itself to be capable of taking on AMD/ATI. NVIDIA has come out and bragged about how they are not the "last man standing" but this is marketing spin at best. NVIDIA is on the record years ago as saying they want to "be where ever there is a pixel" but honestly, AMD/ATI is far better positioned to deliver this than NVIDIA IMO.
  • defter - Wednesday, August 2, 2006 - link


    NVIDIA NEEDS to be in the integrated graphics sector, the ultra thin mobile sector

    Care to elaborate? NVidia is doing fine financially, why it NEEDS to be strongly present on those sectors?


    the console market

    NVidia has been in the console market since 2001.
  • Calin - Wednesday, August 2, 2006 - link

    NVidia IS in the integrated graphics sector - if you are referring to the "enthusiast" integrated graphic sector

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