Wednesday, September 13, 2006

Could 2007 be a Repeat of 2002 for AMD? Part I.

The 2002 AMD revenue crash is often talked about but often does not seem to be clearly understood. Information about AMD's and Intel's finances is required as well as familiarity with the history of the markets and technology. I've seen a number of articles and posts on this subject lately but most seem to lack a thorough perspective on the actions and causes of the event. A typical example of this topic is this entry Deja vu 2002 all over again.

The general view is that AMD did well when their K7 outperformed the Intel PIII. However, Intel fought back with the original Williamette P4 and then fulled back into the lead with the Northwood P4 in 2002 whereaupon AMD's revenues crashed. This is typically compared to events today where it is said that AMD began doing well when K8 outperformed P4. However, Intel now has Core 2 Duo (Conroe for the desktop version) which outperforms K8. Therefore, another revenue crash from AMD is expected. However, I'm going to try to show that the original event was not as simple as that and that it is unrelated to today's events.

It is a bit too simple to talk about a single drop in revenue for AMD in early 2002. The actual picture was that the entire market turned down. The market actually dropped in 2001, stayed down in 2002, began to recover in 2003, and was finally back up to 2000 levels in 2004. The revenues for both Intel and AMD were down during these three years as is easily seen from the revenues for both companies (the amounts are in Millions).

2000 - $ 4,644
2001 - $ 3,892
2002 - $ 2,697
2003 - $ 3,519

2004 - $ 5,000

2000 - $ 33,726
2001 - $ 26,539
2002 - $ 26,764
2003 - $ 30,141

2004 - $ 34,209

We don't see the often described pattern that AMD's revenues were up until 2002 when they lost share and that Intel's revenues increased in 2002 as they took share back from AMD. Both companies had declines that lasted three years (although 2002 was the worst year for AMD). This can also be seen in a quarterly comparison graph. Because Intel's revenues are so much larger than AMD's, I had to exagerate the AMD graph 4X so that the detail could be seen. AMD's real revenues are much smaller.

It can be seen that the two revenue graphs are fairly similar.The biggest differences are in Q1 01 when Intel was falling while AMD rose and in Q3 02 where Intel was rising as AMD fell. In particular it can be seen that in Q3 01 AMD's graph was heading down and would have reached the point at Q2 02 except that there is a bump in between. This bump is an example of a temporary interference. But the overall trend is clear. Intel shows a trough from Q1 01 to about Q3 03. AMD is similar except that its trough starts one quarter later and ends one quarter later and has a more noticeable bump in Q4 01 and Q1 02. Intel has the same bump but not quite as large. A 4th quarter bump is not unusual but apparently AMD got some boost because Intel didn't increase the speed on the Tualatin version of PIII and Williamette was having some difficulties. In contrast, AMD falls more sharply in Q2 02 and Q3 02 because Intel had successfully released Northwood and AMD was having difficulties with the 130nm transition for the Thoroughbred version of K7.

However, in spite of the bumps and dips the drop in revenue by both companies was actually quite similar. We can more easily ignore the small bumps and dips if we take averages over several quarters. We take a four quarter average of both AMD and Intel before the drop to see how much revenue was typical and then take a ten quarter average after the drop to cover the span of the trough.

Intel average revenue per quarter before decline $ 6,825
Intel average revenue per quarter after decline $ 5,536
Drop 19%

AMD average revenue per quarter before decline $ 600
AMD average revenue per quarter after decline $ 483
Drop 20%

So, we can see that AMD didn't really crash more than Intel overall. However, AMD had big rise followed by a sharp fall which made for a relatively greater fal (and hence a crash). However, the bump just before the crash should be seen as temporary caused by Intel's production problems. And, the following drop was also temporary caused by AMD's production problems. Usually this is treated as though AMD gained a lot of marketshare from Intel and then lost it. The actual change in revenue share was fairly small. AMD had 9.3% average before Intel's drop and then 8.2% average after its own. This is not large shift. However, during this time, AMD was much less profitable than Intel so even this small loss was felt. During the lowest point in Q3 02, AMD's revenue share was only 5.5% however this had recovered to 8.8% just two quarters later. AMD would probably have been doing fairly well at this point but the next quarter saw reduced yields as AMD began the SOI process for K8. This can be seen as a dip in graph for Q2 03. However, after this dip AMD's revenues began rising as did its marketshare as the yields for SOI improved.

Genuine transfers of markeshare don't happen within one quarter. The market tends to be somewhat elastic over one or two quarters. When AMD twice gained over 12% markeshare in 2001 the market snapped back within two quarters. And, when AMD dropped sharply in Q3 02, the market again snapped back within two quarters. Real shifts in marketshare take longer to develop and last for much longer. So, we've seen that the crash in 2002 was a bit different from the way it is usually described. In part II, we'll look at the current market and see if nevertheless AMD could expect a large drop soon.


Pop Catalin Sever said...

Man you realy are something you know!!!
Excelent article and analysis!!! I can't believe something this detailed and informed comes from a frelance blogger. This is way more better than any article from may higly rated magazines out there like TH or Anand from.

Nice job! again! Keep up the good work.

Anonymous said...

I think that is an excellent analysis. Congratulations.

Anonymous said...

Your assumption on 65nm availability this month is incorrect. AMD re-canted their statement:

And Charlie re-affirms early Dec is more logical here:
(A more balanced point of view.)

Anonymous said...

Could you shorten that?:)

Scientia from AMDZone said...

After reading your comment I decided to look at the article. I copied it into a word processor and got a bit of a shock. It ran 8 pages; single spaced; 6,400 words.

I cut the size down to 4,000 words and broke it into two parts. It should be easier to read now.

Scientia from AMDZone said...

Your assumption on 65nm availability this month is incorrect. AMD re-canted their statement:

Yes, I realized that I wasn't clear about what I was saying so rewrote that part. AMD's official release date is December which could move up as early as October if things go well. They prefer to have some padding in their estimates.

And Charlie re-affirms early Dec is more logical here:

The problem with Charlie's article is that he says that it takes 12 weeks for a chip to run through production. Charlie is wrong by a factor of 2. You can actually get two full production runs in a 13 week quarter. This BTW matches the earlier statement by Intel when they said that they would have more chips available in 7 weeks.
(A more balanced point of view.)

Yes, I've posted comments there a number of times. He is welcome to post challenges to my articles here.

Anonymous said...

Scientia - just to clarify. The comments on the AMD 65nm launch dates were from me. For some reason I couldn't log in w/ my blog id so I left the URL as an identifier. BTW - come down and read my article on "The Apple effect".


Scientia from AMDZone said...

Scientia - just to clarify. The comments on the AMD 65nm launch dates were from me. For some reason I couldn't log in w/ my blog id so I left the URL as an identifier.

I've found that generally this blog server ignores the first word verification (I'm considering turning this off) and this gets more complicated if you have to log in first. I always preview and then post from the preview.

BTW - come down and read my article on "The Apple effect".

I read it and commented. I know you like Apple but I just don't think they have the clout you think they do. Apple has been by far the most prominent company placing itself in movies but has never pulled out of its niche market. As I said before, I think the smartest thing Apple could do would be to form a tight alliance with Sun. Sun has very little desktop presence while Apple has very little server presence. I suppose that would be a bit odd if Apple dropped IBM and then hooked up with AMD but I think the thing that really prevents this is the help from several hundred programmers that Intel provided.

Apple is still thinking short-sighted as they have in the past. This doesn't suggest a breakout anytime soon.

Scientia from AMDZone said...

I'm going to try this without word verification but might have to turn it back on if I start getting automated comment spam.