2007 -- A Year Of Promise

Tomorrow will be a new year. A lot of people will be looking for the Q4 06 results and making predictions for Intel and AMD in 2007. However, given what I've heard in the last couple of months it will be difficult to sort the wheat from the chafe. I'd like to look at where things are now and where they are going.

Reality has been a bit at odds with appearances in 2006. All of the fanfare has been from Intel. Revision F from AMD was a minor announcement as was 4x4. In contrast, Intel started the ad campaign blaring back in Q2 long before Core 2 Duo was actually available. And, it hasn't stopped. We have seen review after review of Woodcrest and Conroe and Kentsfield and Clovertown. Each review has been so hopeful and practically giddy with all of the incredible speed of C2D over K8 as well as lower power draw. Add to that, all of Intel's production capacity and AMD's capacity limitations and many Intel proponents were ready for announcements that Intel had taken back significant share from AMD. Except, it didn't happen.

The fourth quarter of 2005 was the best quarter that Intel has ever had in terms of processor sales. Yet, this didn't stop AMD from taking 4% volume share from Intel. I was a bit cautious about this in the first quarter of 2006 because I thought the gain could have been temporary and the volume share could have switched back. However, AMD not only held onto its 4% but managed to add another 1.5% giving it a total gain of 5.5% by Q3. Intel has gained none of this back nor has Intel gained any microprocessor revenue share. I'm guessing that some are waiting for the Q4 reports to see if Intel has gained anything. However, with AMD's capacity constraints Intel could have temporary gains if the market volume surges more than AMD can match. This wouldn't be a real gain because the % share would fall back again in Q1 07 when the volume drops. The best time to see volume share will be the second quarter when volume is lowest. Sales at that point should reflect a true preference in hardware for the market unless the total revenue falls. With falling revenue, share increases by AMD may not be accurate which is why I wasn't sure about AMD's volume share increases until Q3 of 2006. However, if the market stays up then Q2 should be accurate.

That Intel has not gained share is simply not believable to some. They point out that C2D is better and therefore Intel should gain. The problem with this idea is several things. First of all, Intel started producing C2D in mid year and then has ramped to 25% of production by today. This puts C2D at only 6.25% of production in Q3 and 18.75% of production in Q4. So, C2D accounted for only 12.5% of Intel's production for 2006. This has simply not been enough to have much effect on share. AMD will leave 2006 with the best year it has ever had with twice the processor revenue that it had 2 years ago. In contrast, Intel will leave 2006 with about the same processor revenue as 2 years ago. I think anyone with common sense can see that AMD has done much better than Intel in 2006.

Seemingly to fix what some must perceive as a devine right by Intel to take back share, some have invented paper gains for Intel by including the X86 sales from VIA with the volume figures. With one of their processors being end of life, VIA dumped these on the market. If we include these processors in the numbers then this lowers Intel's Q2 share even further which then makes the Q3 numbers appear to be increasing because the VIA share is gone again. However, these are only paper gains and don't reflect any actual increase by Intel. If we look at the share between AMD and Intel only then Intel has lost more share since Q4 05 and there has been no gain for Intel in Q3. Those who stoically ignore such attempts or perhaps who find the small paper gains to be insufficient then turn to early 2007 with great hope for share gains by Intel. The basic argument is that Intel is still ahead with C2D and with its higher percentage of production they argue that Intel should be able to gain. However, AMD is not actually that far behind. The latest reviews that I've seen suggest that K8 is about 10% slower per clock than Intel. However, since K8's are priced lower per clock than Intel this makes the AMD processors about the same except for FX-62 which is more expensive.

That AMD's processors are priced about the same as Intel's for the same power has again caused a lot of consternation from Intel fans. Some have even insisted that AMD should price its X2's below the lowest priced C2D, the E4200 but this has not happened. I still see the arguments popping up, groundless though they may be. It seems that some just cannot understand that the fact that E6700 is faster than FX-62 doesn't mean that all C2D's are faster than all X2's. The AMD X2's priced similarly to E6300, E6400, and E6600 have similar peformance for most tasks. And, there is the neverending misuse of benchmarks to prop up smoke and mirrors arguments about C2D. For example, it is understandable that video conversion benchmarks keep all of the data in memory to test the processor. However, this does not mean that users will see the same speed when the data is pulled off the harddrive under actual use. This is true of common user applications which spend most of their time waiting on the user. There are similar problems with tests that don't use all of the cores, benchmarks that show big gains because of cache, and benchmarks that are based mostly on the graphics processor. For example, a benchmark might be very speedy due to cache when it is the only thing running but this doesn't reflect a real computing environment at all where that same process would have to make do which much less cache.

Perhaps because of the lack of gains by Intel there has been a flurry of negative rumors about AMD lately. This includes ideas that AMD is behind in 65nm, is having problems with 65nm, and won't deliver K8L on the desktop until Q4 07. AMD has said that 65nm production is at 25% at the end of 2006. It is impossible that AMD could be at this level without having shipped something like 8 million processors. Some of these would have to have been delivered early enough to be out before year's end yet rumors persist that AMD has delivered no 65nm chips. The second idea comes from the fact that the 65nm chips are not half the size of the 90nm chips. This has led to some rather wild speculation that AMD has added new undocumented sections to the die or that AMD is having problems with 65nm. Actually, neither of these are true. Although 65nm is capable of producing die features that are half the area of 90nm you can't simply shrink 90nm transistors like you would a photograph. If you just shrink the 90nm transistors then at some size they will stop working properly. The first production with 65nm is only a partial shrink because this is the first round of 65nm transistors. These will get tweaked better for the 65nm process in revision H (K8L) and will be able to be reduced more. The 65nm dies that AMD produces at the end of 2007 should be shrunk more than what is being produced now. Again, this is not unusual as AMD did the same thing with 90nm.

As to the idea that AMD won't deliver K8L on the desktop until Q4 07, AMD has contracts with one supercomputer that will be running by end of Q2 07 so K8L production has to start in Q2. Desktop versions of K8L will come out in Q3. Apparently, the fact that the intitial supply of K8L is tight because of preordering has led some to believe that production won't start until Q3. Then apparently the logical assumption is to push back the desktop production to Q4. People have likewise pushed Intel's production of 45nm up from Q4 to Q3. This would then have 45nm being released from Intel before AMD has any desktop K8L's. However, not even Intel is saying this. Real production of 45nm by Intel in Q3 07 is unlikely.

And, what would rumors be without speculation of a point to point bus for Intel? Supposedly, Intel will release a point to point bus (CSI) in Q3 07. Actually there is no indication of this at all. The earliest that it looks like Intel could release CSI is early 2009. It looks like people are getting CSI confused with Intel's quad FSB chipset which will finally allow Woodcrest to be 4-way. The confusion seems to come because Intel insists on calling this a high speed bus rather than a Front Side Bus. Other than the name change it looks and works exactly the same as the current Intel FSB's that connect the processors to the northbridge. A true use of CSI would require an onboard memory controller like AMD has plus a new socket since you cannot run a memory controller on the current socket 775/771. There are other cards to fall yet. For example, AMD is releasing a faster Athlon 64 which should match E6700. This could be offset by a faster 3.2Ghz Conroe but only if Intel slides its prices down one notch. I'm sure Intel will do this eventually but perhaps not in Q1 07. There have been rumors that Intel will have 3.5Ghz chips by end of 2007 but then again the rumors insisted vehemently that Intel was going to have a 3.2Ghz Conroe at launch and this hasn't happened yet.

So, 2007 becomes a race. Intel will ramp C2D up from 25% while AMD continues to ramp 65nm on FAB36. Then once the new bump and test facility is completed AMD will begin taking FAB 30 down for conversion to 45nm. The best situation for Intel would be that the market expands rapidly which would allow Intel to grow faster than AMD since AMD will be capacity limited through most of 2007. With normal expansion, Intel is likely to continue to slowly lose share to AMD. This may seem unfair however AMD has cultivated better relationships with customers than Intel has in the past. By the time Intel has demonstrated any change AMD will have K8L. Further, Intel's gains have mostly been on the desktop which is the least profitable area. AMD has gained in mobile which is more profitable, has produced fewer low end Semprons, and is still holding onto the top 4-way server market. Intel won't be able to move into 4-way until Q3 07 at the earliest when it finally has a chipset with 4 FSB's. Further gains by Intel on the desktop will most likely be offset by gains from AMD in both mobile and corporate areas. I would expect AMD to end 2007 with a gain of about 2.4% in volume share.

The problem for Intel today is that this isn't like 2002 when Intel was able to grab back large amounts of share. Intel now has to deal with an AMD that has a credible name in servers, a growing presence in corporate, total system solutions from the ATI purchase, a growing presence in mobile, and both reduced costs and increased capacity with a second 300mm FAB. The situation would be completely different today if AMD still had only FAB 30 and if this were the case all my money would on Intel. However, with FAB 36 coming up in capacity and AMD's uncanny ability to do rennovation without taking a FAB completely offlline I just can't see anyway for Intel to take advantage. If the market expands quickly then AMD would gain less volume share but revenue would be better for both AMD and Intel. I'm still expecting Intel to have to do more divestment and probably another reorganization in 2008. Overall, however, 2007 should see Intel's and AMD's product lines and graphics support move much closer. By end of 2007 Intel should have something to compete in 4-way but it will have increased competition in 2-way and the desktop. 2008 will then bring new mobile competition from AMD as well as increased server and graphic competition. Intel will have to be on its toes in 2008 to stay competitive and 45nm by itself won't be enough. Looking further ahead Intel proponents are quick to point to CSI but Intel will then be facing an AMD with two functional 300mm FABs, tightly integrated graphics, and a modular core for easier upgrades so 2009 will still be highly competitive. Worse still for Intel, with 30% of the cpu market for AMD, Intel's monopoly will be broken. So, appearances in 2007 should be better for AMD and Intel should be able to climb back up to the 2005 processor revenues but mainly the advances by both Intel and AMD will be good for consumers.