Struggling to rebound from a US$574 million loss in fourth quarter earnings it reported Tuesday, Advanced Micro Devices (AMD) has pinned its hopes for recovery in 2007 to its planned "Barcelona" quad-core Opteron server chip.
Intel Corp.'s competing "Clovertown" quad-core Xeon chip has been adopted mainly for high-end research server platforms since it launched in November, hobbled in part by a lack of multi-threaded software needed to take full advantage of the new chip technology. But AMD hopes to sell its Barcelona chip to users ranging from managers of high performance computing centers to small and medium-sized businesses (SMBs).
AMD expects a bounce in revenue when it launches the processor by the middle of 2007 since many customers have delayed buying new systems until it comes out. The company hopes Barcelona will allow AMD to finally break into the low-end server segment, including one-chip and two-chip computers and tower PCs as well as rack mounted servers.
"We're not yet in the SMB segment; it represents for us a great volume opportunity since we have so little market share now," said Kevin Knox, vice president of AMD's commercial business, on Wednesday.
AMD's share of the market for servers, blades and workstations has grown from just 2.8 percent in 2003 -- the year it launched the Opteron chip -- to 6 percent in 2004, 12.2 percent in 2005 and 27 percent in 2006, the company claims. The only problem with that growth is that AMD has so few customers in the single-processor server segment. Its only products in that market include IBM's System x3105 and Sun Microsystems's Sun Fire X2100.
AMD will also try to squeeze extra profits from denser chips as it transitions from 90-nanometer chip design to 65 nm, and from more efficient manufacturing as it changes from 200mm to 300mm silicon wafers. In the long term, the company also expects a return on its investment in making chips with even smaller, 45-nm features, and on capitalizing on its 2006 acquisition of ATI to release a combined CPU (central processing unit) and graphics processor called "Fusion" by 2009.
In the meantime, AMD's success with Barcelona will be the quickest measure of its prospects. As the PC industry continues to see a change in customer demand from desktop to notebook PCs, AMD reported strong sales of its mobile processors and its top-end desktop chips. But sales of its workhorse Opteron server chip stayed flat, while revenues sank under the pressure of a price war with Intel.
"Volume has not been the issue; we had a bigger challenge with ASPs," Knox said in reference to average selling prices. "You get into these things when you have products that are very close to equal performance. That is where you get squeezed on the price side, because it's your only leverage left."
Barcelona could change all that, since the new chip will perform so much better than Intel's dual-core and quad-core Xeon offerings that AMD won't need to slash prices to boost market share, AMD claims.
"From a sales perspective, we had a pretty good quarter," Knox said. "Obviously ASPs were an issue, but you saw the same thing last week when Intel reported their earnings. Originally we had a big performance gap with Opteron. Woodcrest certainly narrowed that gap, but Barcelona will return us to a position where we have that big a gap again, if not bigger."
However, analysts warn that the market may not be ready for quad-core processors, regardless of the vendor.
"We're concerned about this whole rush to multiple-core processors, as if the technology could be the savior of AMD or anyone else. We're concerned quad-core computing is coming up too fast," said John Enck, an analyst with Gartner. "It's basically an arms race between Intel and AMD, so we're at the point where there's more technology being offered, so they can keep up with each other, than we can actually use."
The increasing popularity of virtualization is one sign of this glut of processing power, as many enterprises try to find extra work to justify expensive servers that are often running at just 15 percent or 25 percent utilization, Enck said.
Still, AMD sees fertile ground in the entry-level server market, and continues to pour its resources into planting seeds there. Barcelona will mark AMD's first quad-core product and its first made with a 65-nm manufacturing process. But it will gain the greatest advantage from improvements to its processor core architecture, enabling vastly better virtualization abilities and an increase from 64-bit to 128-bit computing, all without growing above the current Opteron's 68-watt and 95-watt thermal envelopes.
"They have this big engine but they can't get data to it fast enough," Knox said about Intel's chips. "This is going to be the biggest enhancement to the x86 architecture since we released Opteron. It will take the power-per-watt equation to levels people have never seen before."