AMD Q1 2007 Outlook

AMD's Q1 2007 results were certainly disappointing. This has caused the rumors about bankruptcy for AMD to start popping up like mushrooms. Beyond bankruptcy there is the question of AMD's Q1 sales and after that there is the question of outlook for the rest of 2007 and into 2008. Time to dig in.

The simplest way to handle the question of bankruptcy is to look at AMD's history and assume that AMD can survive whatever it has already survived. The most definitive ratio is the stockholders' equity to assets ratio. This essentially tells what percentage of the company is not in debt. AMD's ratio in Q4 06 was 44% but it has now dropped to 41%. In spite of the better than $600 Million loss in Q1 this really isn't too bad since AMD's lowest percentage was 35% back in 2003. This suggests that AMD could lose another $1.4 Billion to hit 35% and still survive (since it did in 2003). Therefore, bankruptcy does not seem to be an immediate problem.

Figuring out AMD's processor position is a bit tougher since they've now started combining processor, embedded, and chipset revenues. However, by any measure it is way down from Q4 06 (about 30% lower). As far as I can tell the dropoff is way above the usual seasonal decline, but the only other comparison is Intel. So, we have two possibilities. The first possibility is that Intel's numbers are indicative of the quarterly demand and demand for AMD has fallen sharply. The second possibility is that general demand has fallen sharply but Intel was bouyed by pent-up demand. It doesn't seem reasonable though to assume that general demand has fallen off as sharply as AMD's numbers so there must be another reason.

However, no other reason is obvious. AMD is now 100% 65nm on FAB36 and is producing more than half of its volume as 65nm. This is very confusing because AMD's inventory has not increased enough to swallow 30% of the production yet it is difficult to imagine that they've cut production that drastically after being maxed out just one quarter ago. The only other explanation I've seen is that AMD has unreported income due to payments next quarter from government sales. While Net 60 or 90 terms are not unusual, one would nevertheless think that if AMD had large revenues due next quarter that they would have mentioned this. Since AMD didn't mention this, I have to discount this line of reasoning. The only other possibility I can think of is that AMD's cpu sales fell off because of delays in delivering chipsets. About the only bright spot in this is that almost every possible reason for the sharp drop in both volume and revenue will get better in the next two quarters.

To see where AMD really stands it is necessary to dispense with the typical shell game that plagues most attempts to characterize AMD. For example, people compare AMD with nVidia for discreet graphics and then compare AMD with Intel for processors. People often dodge back and forth comparing AMD with either Intel or nVidia for integrated graphics and chipsets using whichever seems a tougher competitor. The truth is that Intel doesn't yet make discreet graphics and nVidia doesn't make processors. AMD is currently the only company that makes processors, chipsets, and discreet graphics yet I can't recall a single editorial or analysis that mentions this fact. And, the double standards for Intel and AMD are still very much alive. For example, I've seen comment after comment about AMD's R600 delay yet no mention of Intel's 965 chipset being two months late or the proper drivers being a full year late. Sadly for Intel, it looks like the finished drivers may arrive just in time to discourage upgrade to Intel's newer chipsets for Nehalem. I've now seen people proclaiming that R600 is a total failure when it has already been suggested in the trades that AMD's R600 orders will max out the capacity at foundry giant TSMC.

Without doubt though, the good news for AMD is mini-DTX. Again, the trades have suggested that mini-DTX will shove aside all other contenders to become the dominant small form factor standard on the desktop. Having compared AMD mini-DTX boards with Intel's latest, underpowered mini-ITX offerings, it is difficult for me to argue with this assessment. While Intel will offer cheap, Celeron class solutions on mini-ITX, AMD's only slightly larger mini-DTX boards will deliver real desktop power with double the cores, double the memory bandwidth and memory capacity. AMD can do this while delivering both PCI and PCI-e while Intel is only able to deliver PCI. There is little doubt that Intel is guilty of a major oversight in low cost desktop architecture but it still isn't clear what Intel can do to dig itself out. Mini-ITX is low cost but underpowered while pico-BTX has enough power but can't begin to compete in cost. This leaves AMD mini-DTX with no competitor and Intel with no sandbags to plug the gap in levee.

Likewise, Intel's Geneseo has now shown itself to be not at all a competitor for AMD's Torrenza as was first claimed. First, while Torrenza products are already available, users will have to wait until 2009 to get any Geneseo products. And, these delayed Geneseo products will be little more than upgrades to existing PCI-e products. There is no doubt that this will hurt Intel both in terms of high powered servers and HPC. HPC accelerators benefit from Torrenza's cache coherency which is missing on Geneseo while high powered servers benefit from the much greater bandwidth of HTX for things like networking cards. In simple terms, while Torrenza is designed for maximum power with lowest latency and greatest bandwidth, Geneseo is designed for low cost and overlap with existing PCI-e. This is quite a handicap because Torrenza too is designed to leverage existing HyperTransport technology to minimize development costs. But since PCI-e was already far behind HyperTransport Intel's boost with Geneseo does nothing to close the gap with Torrenza. Essentially, Geneneseo is roughly competitive with HyperTransport 1.0 as AMD moves on to the considerably more powerful HyperTransport 3.0. Consequently, an HTX powered network will run rings around a Geneseo powered network. So, in spite of the new Nehalem architecture we see Intel giving ground in high end X86 server architecture and once again optimizing for low end single and dual socket systems. One certainly has to question Intel's direction given a renewed X86 attack from AMD with K10 and a very aggressive attack from IBM with much faster Power speeds.

So, while Geneseo's delay brings into question when an actual CSI implementation will be ready, we also have to wonder about mobile. Intel took most of the mobile share by delivering the specialized Pentium M processor with a good mobile chipset and wireless capability in the Centrino platform. However, the current situation is ironic indeed. While Intel had a separate architecture for mobile, AMD used the same K8 architecture for mobile, desktop, and server. Now, Intel is using the single C2D architecture for everything while AMD is splitting off a separate mobile architecture. Assuming that AMD can deliver a quality mobile chipset by mid 2008, Intel could find itself facing a much tougher mobile competitor with both a specialized mobile cpu and chipset. A reversal in battery life with AMD notebooks outlasting Intel notebooks could be a serious blow to Intel's mobile share. We will have to see if C2D will truly be able to cover all bases with just a chipset change or whether Intel will have to scramble to try to differentiate the mobile architecture once again.

We can also see that the battle for fair benchmark testing is still raging. Most people don't seem to be aware that with the dominance of the Intel Compiler that benchmark code is often poor quality on AMD processors. This poor quality code gives Intel processors an artificial boost in testing. Yet, there has been no call to have testing code compiled on the PGI compiler even when this code gives a boost to Intel as well.

Looking at this graph we can see that Core 2 Duo runs only 95% of its normal Intel Compiler speed when running PGI Opteron optimized code, however, it runs about 109% of its normal speed when using the PGI Unified Binary. One would think that getting a 9% boost in speed would be enough to make testers want to switch to PGI.
However, here we can see the main problem. While Intel Xeon only falls off slightly while running good Opteron code, Opterons take a much bigger hit while trying to chew through the poorly optimized Xeon code generated by the Intel Compiler. So, anyone who wishes to give Intel an advantage would not want to trade Intel's current artificial 19% advantage for a genuine 9% advantage. There doesn't seem to be any valid reason to continue to use the Intel Compiler to compile benchmarks unless the reason is indeed to tip the scales in Intel's favor. PGI code is 9% faster for Intel than Intel Compiler generated code and fully 19% faster for AMD than Intel Compiler generated code. It's time to stop the sham and make PGI the standard comparison compiler for all benchmark code. There is no doubt that Intel would oppose this since it would be losing not only its current artificial advantage but revenue from its compiler sales as well. However, one does wonder what would happen if all the popular review sites grew backbones and insisted on PGI benchmark code. Until this happens I'm not sure how we will ever know how Intel and AMD processors actually compare.

In conclusion, AMD's current position is terrible. There is no doubt that it would be better if 65nm had been released sooner or the new chipset had been out sooner or K10 had been out sooner. So, AMD is just going to have to bite the bullet until Q3 when things should improve. The chipset and graphic sales should be up by then and AMD should be fully anchored on the desktop with mini-DTX and DTX. These two should prevent any further erosion of the desktop although Intel will still control the top range. Barcelona should begin to take back at least the top end server sales (which are now going to Clovertown) and re-establish AMD's server chip ASP's. However, it will take until Q4 for AMD to be able to start hitting back at the upper desktop range and to re-establish its desktop ASP's. It doesn't look like AMD will drown before Q4 but it won't be much fun getting there. I've also seen suggestions from the Intel hopeful that Penryn will prevent an AMD comeback. I'm sorry but suggestions that Penryn is 30% faster are not exactly accurate. Penryn can be 30% faster than Clovertown in some circumstances because Clovertown bogs down badly with four cores. Penryn however is not 30% faster than Conroe (possibly 10%). And, in spite of Penryn's improvements, native quad is still more efficient than MCM at managing bus access. Unless Penryn gets a substantial boost in clock speed (which is possible) AMD will take back the lead on both desktop and server. Recent tests certainly seem to suggest that AMD will bump its K10 clocks by 100Mhz. However, other demonstrations suggest that AMD could hit 2.97Ghz in Q4 while Intel could pull 3.33Ghz Penryn into Q4. So, it looks like the actual leader in Q4 is going to depend on deliverable clock speed and that is a huge question at the moment since AMD has only admitted to 2.5Ghz while Intel has only admitted to 3.0Ghz.

AMD's position does seem fairly good going into 2008 since it still insists that 45nm is on track and will be ready six months after Intel's. Meanwhile, Intel has severely downgraded expectations of Geneseo while also announcing that desktop versions of Nehalem will not use an IMC. However, even with an IMC, Nehalem is not going to be able to match K10's DC 2.0 connectivity. There is also little doubt that until Nehalem does arrive, Intel is going to get hit hard in power consumption with its monstrous quad FSB northbridge for 4-way. Even with Penryn's lower power consumption Intel is going to have a tough time matching AMD. This is doubly true with Intel still using FBDIMM. I think it is safe to say that Intel is going to lose some of its server position in late 2007 and into 2008 and presumbably is then going to start pushing Nehalem with its IMC advantages. Likewise, Intel is going to lose some of its current desktop position and it remains to be seen what they will do about mini-DTX. Intel may have to create a new small form standard to compete. My guess is that Intel will fair best in the upper desktop and lower server ranges. AMD may have a tough time taking back single socket and dual socket server share although having a real quad core to compete will certainly help. I would say that AMD's strongest position comes from the ability of quad K10 to be a drop-in replacement for dual core on socket F and AM2. So, AMD could potentially improve its volume and revenue position substantially by end of 2008. However, Intel could block this if it can deliver much greater clock speeds with Penryn or possibly if it can get Nehalem hardware out sooner than 2009.