AMD Claims First “Swift” Fusion Processor Due in Second Half 2009

Advanced Micro Devices was once again unsure when exactly it is capable of releasing its highly-anticipated code-named Fusion processor during its meeting with financial analysts on Thursday. Based on the current indications made by the world’s second largest x86 chipmaker, the products, which combine general purpose as well as graphics cores, will be delayed to the second half of 2009.

The concept chip that combines general purpose as well as graphics computing capabilities, which is usually named Fusion, is now called Accelerated Processing Unit (APU), according to a presentation of Mario Rivas, executive vice president of computing solutions group at AMD.
“I am happy to announce the birth of a new category, the Accelerated Processing Units. The ‘new AMD’ now has access to excellent IP on CPUs, excellent IP on graphics processing units and second to none chipsets. The integration of all these parts and our uniqueness – customer centric innovation – create the APU,” said Mr. Rivas.

The first APU, that is “on track to market in 2H 2009” is code-named Swift and features two or three general purpose x86 cores based on AMD’s new-generation micro-architecture (the same that is used in Phenom processors), graphics core based on “existing high-end discrete” design (possibly, ATI Radeon HD 3800), DDR3 memory controller as well as PCI Express bus controller. The chip will be made using 45nm process technology.

“The first APU platform is code-named Swift. It gives you the choice of technologies for high-confidence volume production ramp. We want to re-use as much [IP] as possible to accelerate our quality [qualification] and time to market. So, we have an AMD Stars CPU core, the graphics core that is based on the present high-end discrete GPU core and leverages the North Bridge that is presently found in Griffin, the CPU of the Puma platform. It will be our second 45nm generation product, so the maturity of the [production technology] will be proven. It is done on the current SOI design rules, which is the process that we know how to build on very well,” Mr. Rivas explained.

Initially the company indicated that Fusion processors “are expected in late 2008/early 2009”, and the company anticipated to use them within all of the chipmaker’s “priority computing categories”, including laptops, desktops, workstations and servers, as well as in “consumer electronics and solutions tailored for the unique needs of emerging markets”. A little later the company said that the first-generation of Fusion chips will be aimed at laptops and that production will start in early 2009. This time AMD claims that the actual chips will reach the market only in the second half of 2009, which may mean that the product will only be launched commercially in Q4 2009. Still, the company said that it is minimizing all the risks hopes to really deliver the product on time.

“By optimizing the choice of IP blocks we have less risks and faster time to market in the second half of 2009,” claimed , executive vice president of computing solutions group at AMD.

AMD: Survival and the Future

Since its acquisition of ATI, AMD has developed into a platform vendor. In addition to CPUs, the company also offers chipsets and graphics processors. Phenom, the company's first quad-core CPU for the desktop segment, was finally released after many delays only recently.

AMD is also a company fighting to survive. Indeed, the situation is so dire that the German state of Saxony, where AMD's Fab 36 is located, as well as the German government, felt the company needed financial support and contributed over $384 million to the firm's coffers.

Meanwhile, AMD's main rival Intel finds itself in a completely different situation. For years now, Intel has been subsidizing the PC market with so-called advertising-costs subsidies, and it's not only the large retail chains that benefit from this support. In addition to the server space, AMD is now also concentrating on the mass market. The downside is that margins are the lowest in this segment. If AMD floundered, the consequences for the market would be dire. Effectively, there would be no competition without AMD, leaving us with a monopoly in the form of Intel, with everyone from OEMs to end users at the mercy of one company's pricing politics.

Toms's: Mister Polster, thanks to its acquisition of ATI last year, AMD is now in a position similar to that of your competition. Shouldn't this fact allow your company to gain new customers, since you can now act as a single source for a computer's central components? After all, AMD also now produces chipsets and graphics processors in addition to CPUs. The word "platform" comes to mind.

J. Polster: We are positioned even better than the competition. Compared to AMD's previous company structure, we now possess our own platform, which comprises the chipset and the graphics solution as well as the processor. To my knowledge, the competition does not offer graphics chips.

Toms's: In your opinion, will AMD be able to survive without support on a national and a European level?

J. Polster: Yes, of course. No company can survive on financial benefits alone. We make very large investments that have to pay off over time. Within the entire IT sector, processor and chip makers are the ones that bear the largest risks.

Toms's: Is life for you as a CEO becoming more uncomfortable right now?
J. Polster: Well, I've been with AMD for quite a while. And since you asked, it has never exactly been cozy. In our business, you pull no punches, and quarter is not given.

Toms's: Will AMD be able to retain its independence?

J. Polster: I assume you're referring to the 8% investment by Mubdala Development? This is a clear case of an investor that is expecting a certain return on its investment. To us, it's more a sign of confidence that the company acquired shares. Also, this transaction does not constitute a majority investment or even a take-over, meaning it didn't have to be reviewed by the U.S. Committee on Foreign Investment.

Toms's: Were you surprised by the performance figures of the new Phenom processor?

J. Polster: No. I was surprised by its mainstream performance. We offer a strong and solid platform, which we have been able to realize as a result of our acquisition of ATI. I will admit that we're currently not quite at the top in the high-end market.

Toms's: What does the new strategy for desktop CPUs look like? Will AMD be concentrating on the lower- and-middle price segment, in effect ceding the high-end market to the competition?

J. Polster: We are concentrating on markets where we can achieve large volumes. And that happens to be the mass market, where we can cater to the individual segments. We never intended to start any kind of x-core war.

Toms's: In several online stores, the less expensive AMD Phenom is outselling comparable CPUs the competition offers. Would you say the Phenom is enjoying a good reception in the market?

J. Polster: Yes, Phenom is very well received. We are continuing our strategy of being a little more affordable than the competition. With the Phenom CPU, we are offering products at a very attractive price.

Toms's: Why did AMD drop the original X4 (and X3) designators from the Phenom product name at the last minute?

J. Polster: You see, we never intended to start any kind of x-core war that could have been reduced to a certain naming convention. You know, like "who has the most cores." From the perspective of the buyers and the users, processor designations are playing less and less of a role. After all, nowadays most people don't even know what kind of a processor belongs to a certain designation.

Toms's: Why are the new CPUs shipping at such comparatively low clock speeds?

J. Polster: As I said before, that is directly related to the market segments we are addressing. The mainstream segment is where the bulk of the quad-core CPUs are sold. There, we are ideally positioned with the Phenom models currently in the market. Of course we will still be releasing versions of the Phenom running at higher clock speeds.

AMD Projects Impairment Charge Due to Weak Graphics, Multimedia Business Performance.

Just one day ahead of its meeting with financial analysts Advanced Micro Devices said that the value it paid for graphics and multimedia chip designer ATI Technologies last year was too high and the actual revenues the company gets and will be able to obtain from its graphics and multimedia businesses are below expectations.

AMD: ATI Is Guilty of Everything

According to a statement with the U.S. Security and Exchange Commission (SEC), AMD concluded that the current carrying value of its goodwill which it had recorded as a result of its October 2006 acquisition of ATI Technologies was impaired. The write down will allow AMD to easily explain financial analysts why its current market capitalization ($4.97 billion at press time) is below the price of ATI it paid last year as well as poor financial results and losses with problems that allegedly existed at ATI before the merge.

“The acquisition took place at the moment, when ATI was not really leading in terms of technology… It is not like we acquired ATI and we lost market share. It was just a consequence of [ATI’s execution]: Nvidia had better graphics than ATI back then and that is why AMD lost market share. We also should consider [hardware] cycles of OEMs: if you are missing their cycles, you are out for a while. You have to be [ready] with the right [product] part at the right moment to get a cycle. When you are in, you are going to stay in for a long time. So, the main reason behind the share loss is missing OEM cycles. But we are regaining them now,” recently said Vincenzo Pistillo, director of consumer business development in EMEA region for AMD.

“This conclusion was reached based on the results of an updated long-term financial outlook for the businesses of the former ATI Technologies as part of AMD’s strategic planning cycle conducted annually during the company’s fourth quarter and based on the preliminary findings of the company’s annual goodwill impairment testing that commenced in the beginning of October 2007,” a statement concerning the write-down reads.

AMD’s Graphics Product Group Performs Below Expectations

Formally speaking, ATI Radeon X1900-series graphics cards were considerably more advanced than Nvidia’s GeForce 7900-series offerings at the time when AMD acquired the Canada-based graphics chip developer. But ATI, which at the time was already AMD’s graphics product group, could not launch its DirectX 10-supporting high-end offering last November and then was also late with mainstream DX10 graphics products.

But market share declines emerged not because ATI could not offer a competitor to Nvidia’s GeForce 8800 GTX, which still retails for $549 and higher. Just after AMD and ATI announced the transaction, partners of Intel and ATI annuled orders onto ATI Radeon Xpress-branded chipsets for Intel processors, which dramatically lowered ATI’s market share from 27.6% to 20.3%, according to Jon Peddie Research (JPR) data. However, already in Q4 2006 the market share of AMD’s graphics product group rebound to 23%, only to gradually decline to 19.1% in Q3 2007.

Clearly, the loss of Intel-compatible chipset sales as well as overall graphics adapter market share rather negatively affected sales of graphics products at AMD. If back in Q3 FY2006* ATI earned $325 million on its desktop and mobile discrete graphics products, then in Q3 FY2007* graphics product group of AMD only reported $252 million in revenue (only a bit higher than $228.3 million that ATI used to earn on desktop standalone products only).

It should be noted that the third calendar quarter is usually the strongest quarter in terms of volume during the year and AMD publicly stated that despite of the new product launch it does not expect graphics revenue increase in Q4 FY2007. If similar calendar periods are compared, then the picture would be even worse for AMD, as in Q2 FY2007 (which ends on June 30) its graphics product group earned $195 million, down 40% from ATI’s discrete graphics revenue in Q3 FY2006.

Consumer Electronics Sales of Former ATI Dip FurtherGraphics product group of AMD evidently experienced a number of issues with transitioning to DirectX 10 architecture and its relatively weak business performance, perhaps, could be explained with technology-related issues. But is it only the division of former ATI, which performance leaves much to be desired? It seems that not really.

AMD's third quarter consumer electronics (CE) segment revenue was $97 million. Under consumer electronics AMD understands sales of chips for handhelds, TV-sets, royalties from video game console manufacturers and, quite possibly, nonrecurring engineering (NRE) works that the company’s specialists may do in one of those segments.

ATI earned $150 million ($145 million without NRE) back in its Q3 FY2006 on handheld/DTV processors, NRE and royalties. It should be noted that back in Spring ’06 there was no massively successful Nintendo Wii game console on the market. Microsoft Xbox 360 also hardly brought a lot to ATI due to weak seasonality for game consoles as manufacturers start to ramp up production of game systems for holiday season in Summer.

Even if AMD got $20 million in royalties for Wii and Xbox 360 (which is a huge underestimation) in a seasonally strong quarter that ends on the 30th of September, it means that actual sales of CE products declined nearly two times since ATI’s days, from $135 million in seasonally weak quarter to $77 million in seasonally strong quarter.

Microprocessor Sales Down, Chipset Revenues ShadyDue to the fact that central processing units (CPUs) from Intel Corp. have performance advantage over CPUs by AMD, sales of microprocessors seem to be considerably down compared to the previous year.

Back in Q3 FY2006 the world’s second largest maker of x86 chips earned $1.33 billion on its computing products (CPUs only at the time), whereas in Q3 FY2007 it reported computing solutions group revenue of $1.283 billion (which now includes sales of both CPUs and chipsets).
ATI earned nearly $170 million on mobile and desktop core-logic sets for AMD and Intel processors in Q3 FY2006, but since the lion’s share of those earnings most likely came from Intel-compatible chipsets, this number can hardly be compared to anything now. Unlike CPUs, chipsets cost about $25 - $30 in average in the best-case scenario and given the current position of AMD processors on the market, AMD probably had to concentrate on lower-end solutions.
Anyway, after the acquisition by AMD the former ATI cannot sell any significant amount of chipsets compatible with Intel processors. Therefore, its maximum chipset market share will be equal to AMD’s processors, whereas its realistic market share may be even lower, as there are still Nvidia, SiS and Via on the market.

AMD to Write Down ATI Acquisition

While it is evident that business of former ATI has been harmed considerably in the most recent seventeen months, AMD insists that the explanation of dramatic revenue decline is ATI’s issues with execution that were left unnoticed by AMD during the acquisition process going on for nearly a year: starting from December ’05 and closing in October ‘06. It is interesting to note that without former ATI earnings of AMD in the most recent quarter could be as low as $1.2 billion (thanks to later-than-expected quad-core chip launch in September), instead of $1.632 billion.

Currently the chipmaker has no idea how much they overpaid for ATI Technologies. But the acknowledgement of the fact that ATI’s business may bring less revenue than expected a while ago may pursue a number of different goals, including the one to focus analysts' and investors' attention on certain aspects of AMD’s business instead of attracting it to AMD’s business in general.

“The company expects that the impairment charge will be material, but the company has determined that, as of the time of this filing, it is unable in good faith to make a determination of an estimate of the amount or range of amounts of the impairment charge. […] In any event within 4 business days after it makes a determination of such an estimate or range of estimates,” the statement by AMD reads.

*In this news-story we compare data between AMD’s Q3 of fiscal 2007 (which ended on September 30, 2007) and ATI’s Q3 of fiscal 2007 (which ended May 31, 2006).