AMD Hopes Quad-Core Server Chip Is Answer to Woes

Struggling to rebound from a $574 million loss in fourth-quarter earnings that it reported earlier this week, Advanced Micro Devices is pinning its hopes for recovery in 2007 to its planned "Barcelona" quad-core Opteron server chip.

Since it launched in November, Intel's competing "Clovertown" quad-core Xeon chip has been adopted mainly for high-end research server platforms; Clovertown has been hobbled in part by a lack of multithreaded software capable of taking 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-size businesses (SMBs).

Revenue Increase Hopes

AMD expects a bounce in revenue when Barcelona launches the processor by the middle of 2007, since many customers have delayed buying new systems until the chip comes out. The company hopes that Barcelona will, at long last, enable AMD to break into the low-end server segment, which includes one-chip and two-chip computers and tower PCs, and 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 are IBM's System x3105 and Sun Microsystems' Sun Fire X2100.

AMD will also try to gain extra profits by marketing denser chips as it switches its chip design from 90-nanometer to 65nm, and by developing more-efficient manufacturing methods as it changes from 200-millimeter to 300mm silicon wafers. In the long term, the company expects a return on its investment in making chips with even smaller (45nm) features, and on capitalizing on its 2006 acquisition of ATI to release a combined CPU and graphics processor called "Fusion" by 2009.

Barcelona will be AMD's first quad-core product and its first made with a 65nm manufacturing process. Its greatest advantages will come from improvements to the chip's processor core architecture that vastly enhance its virtualization abilities and from an increase from 64-bit to 128-bit computing, all without growing above the current Opteron's 68-watt and 95-watt thermal envelopes.

More Servers?

In the meantime, the degree of success AMD has with Barcelona will be the quickest measure of its prospects. As customer demand continues to shift from desktop to notebook PCs, AMD has reported strong sales of its mobile processors and its top-end desktop chips. But sales of its workhorse Opteron server chip have remained flat, while revenues have sunk 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 outperform Intel's dual-core and quad-core Xeon offerings by so much 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."

Analysts warn, however, 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.