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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  • leexgx - Wednesday, August 2, 2006 - link

    i have only seen integrated graphics on nvidia based chip sets
    Most 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


    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.

    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


    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.

    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.

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