Can AMD Keep Its Hot Streak Going?

For most of its history, Advanced Micro Devices Inc. was dismissed as little more than an x86 clone chipmaker, producing processors that mimic the features and capabilities of those from industry leader Intel. But in the past two years, AMD at times has shown up its much larger rival by introducing innovative microprocessors that forced Intel into the unfamiliar position of reacting to competition.

"AMD is the most competitive it has ever been," says Dean McCarron, an analyst with Mercury Research. "Today AMD and Intel are competing in every major segment--desktops, notebooks, and servers--and with a broad spectrum of products and performance values within those segments. There hasn't been a time in history when that existed between those two companies."

Intel remains the dominant force in the chip business, but AMD's new technology has produced market-share gains. The company has big ambitions that it will accomplish by focusing on nuts-and-bolts execution, Hector Ruiz, chairman, chief executive, and president of AMD, said in an interview with InformationWeek last week. "In two years, we've gone from zero to about 8% of the market," he said. "There's no reason why we shouldn't aspire to be a third of the market in the next two or three years."

It won't be easy. Intel will probably spend more money on capital investments this year than the total revenue that AMD brought in last year. "When you're in that position, there's only one thing to do," Ruiz said. "Stay close to your customers and end users, understand what they need and want, and then just out innovate the hell out of it. Innovation is at the center of our ability to succeed. We cannot win by just aping the competition, which we are not going to do." (For more of the Ruiz interview, see Q&A: AMD's Ruiz Says 'Our Opportunity For Growth Is Phenomenal'.)

AMD led the way in transforming the x86 processor market from chips that handle 32-bit chunks of data to chips that handle 64 bits of data at a time. It broke new ground again in April when it became the first provider of dual-core x86 processors for the server market.Those two achievements have paid off. AMD increased its share of the overall x86 market from about 14% a year ago to 17% in the first quarter of 2005, and grew its share of the x86 server market from 6% a year ago to 7.4%, according to Mercury Research.

It also won more orders from important customers. A year ago, three of the four top-tier computer makers--Hewlett-Packard, IBM, and Sun Microsystems--only used AMD's Opteron chips in one or two systems. By the time AMD celebrated the second anniversary of its Opteron chip in April, those vendors were offering a range of servers, blade servers, and workstations that use up to four Opteron chips.AMD plans to keep pushing innovation. Later this week, it will reveal more details on its embedded virtualization technology, called Pacifica. Later this month, it will unveil the availability of its first dual-core processors for the desktop PC market.

Customers have responded, but with some caution. Vincent Phillips, chief executive of CyberTrader Inc., a subsidiary of electronic trading and brokerage company Charles Schwab Corp., first tested crucial applications used to facilitate the trading and transfer of market data to its customers on Opteron-based severs from HP before installing several four-processor machines. "Some of our applications are very memory intensive, and we've been very pleased with how fast and efficient these systems operate," Phillips says.

Another fan is Akiko Ashley, principal and executive producer at Luminetik Animation Studios, which operated as a "work-for-hire" animation studio for five years. The studio recently focused on producing its own animation content and began work on a short feature for release this summer. Ashley wanted to add processing capabilities and began using IntelliStation workstations from IBM. The Opteron-based systems completed 3-D rendering two to 14 times faster than systems using Intel's Xeon chip, she says. "With Opteron, we only needed a tenth of the machines. Even if someone gave me 150 free workstations, when it comes down to rendering, it could end up costing me money because of the time associated with working on slower equipment," Ashley says.

It's experiences like those of Luminetik that will enable AMD to grow its share of the market, says Marty Seyer, corporate VP and general manager of AMD's microprocessor business unit. "We want to be able to provide half the world's [processor] needs," he says. "That's a statement of direction, not a prediction."To achieve those goals, AMD would have to significantly expand its manufacturing capabilities. But for the foreseeable future, Seyer says, the company has enough capacity in place.

AMD's processor production is completed at its Fab 30 plant in Dresden, Germany, where it runs a 90-nanometer manufacturing process on 200-millimeter wafers. Also in Dresden, AMD in March completed its first test wafers at its new Fab 36 plant, which is expected to begin volume production next year using a 65-nanometer manufacturing process on 300-millimeters wafers. AMD also provided its production technology and processes to Taiwan Semiconductor Manufacturing Co., so it can provide AMD with additional capacity if needed.

"If you look at the technologies we've been bringing to the x86 market, they're really not new to the processor industry," Seyer says. "But I think what we've been able to do that's fundamentally different from our competition is look at the high end of the processor market, make a determination of what technology can make a difference in the volume space, and migrate those technologies with the least amount of disruption."