Acquisition rumors put spotlight on evolving microprocessor market
Recently, rumours were swirling that Dell might be preparing to acquire AMD Corporation. Although we do not feel such a deal is likely, it did get us thinking about the evolving role of “industry-standard” microprocessors, and whether that may be the driving force behind the rumour.
Currently, there are two major high-volume microprocessor manufacturers, AMD and Intel. In the past, processors destined for servers and PCs dominated the industry and grabbed all of the headlines.
But today, the microprocessor market is rapidly changing and both companies are trying to evolve to meet the needs of future markets. In this blog, we examine where we feel the microprocessor market is going and what role AMD and Intel will likely play in that new market.
Intel has extremely deep R&D resources and it has been executing its strategy flawlessly over the past three to four years. Its “tick-tock” model for processor innovation ensures that new technology comes to the market every year, with refinements developed in two-year cycles.
In the first year, the “tick” phase delivers new process technology for increasing the transistor density, followed by the “tock” phase in the second year, which involves an entirely new processor microarchitecture.
At the forefront of Intel’s processor technology focus is the Xeon family of server and workstation processors and the Core family of laptop and PC processors. Intel leverages that technology to produce its Atom processor for smartphones, tablets, netbooks, and other handheld devices, as well as a separate line of embedded processors.
Rounding out the product line are boards, chipsets, adapters, SSDs, controllers, and other devices that support Intel’s processor businesses. With its deep pockets, outstanding R&D, and tight leadership under Paul Otellini, Intel is a very difficult company for AMD to beat.
AMD also has excellent R&D, and at one time it was a leader in pushing the innovation envelope for processors. It forced Intel to abandon its exclusive focus on clock rate as a way to achieve overall performance, and helped to shift the focus of the entire industry towards multi-core, multi-threaded strategies for achieving throughput.
AMD’s HyperTransport design, through which multiple processors can be seamlessly linked together, led the industry, and forced Intel to eventually develop QuickPath. HyperTransport gave AMD’s Opteron processor a leg up on scale-out computing for a number of years. AMD was also the first company to incorporate the memory controller onto the chip, giving it a strong performance lead over Intel until just recently.
AMD’s DirectConnect Architecture allows the memories of each processor to be linked together to create a NUMA distributed shared memory architecture. Intel has since come out with its own version of DirectConnect. In addition to its server, desktop, and laptop processors, AMD rounds out its product line with graphics products it acquired through the ATI purchase in 2006, embedded processors, and a host of support software.
So where is the industry going now, and what part might Intel and AMD play? This is an area of great interest to IDEAS and it is something that we follow closely. Without revealing any confidential future plans, here are what we feel are the driving forces that are shaping the future of microprocessors:
1. The end of Moore’s Law – Moore’s Law states that the number of transistors that can be inexpensively placed on an integrated circuit doubles every two years or less. This has been the driving force behind the industry for over 40 years. But the straight-forward scaling that enabled Moore’s Law may be coming to an end soon. It is going to take very deep R&D pockets for companies to move to breakthrough, innovative processor technology. Intel and IBM appear to be the only companies who have the resources to solve this problem.
2. Web-connected devices – This is an area that is exploding and will continue to drive extremely high volumes in the microprocessor industry well into the future. Some are predicting that the chip demand from handheld devices, smart TVs, and other devices will outstrip the volume for servers, laptops, and PCs by many orders of magnitude in coming years. The low energy-consumption ARM design currently holds the industry lead. Nonetheless, Intel’s Atom and CE processors, and AMD’s wide range of embedded processors, platforms, and chipsets will undoubtedly grab a significant share of the market.
3. Integrating features into the CPU – There is a major trend to integrate everything from graphics to memory controllers into the processor. As the manufacturing process shrinks, there is more ‘real estate’ on the chip to bring more features into the chip. AMD has been driving this trend in the past, and we expect both Intel and IBM to focus heavily on this for the future as well.
4. Low-power processors – Data centre heating and cooling has come to the forefront as a major issue for data centres. Although both Intel and IBM have come out with new low-power processors, we feel AMD is the real driving force behind this trend. 5. Low-cost processors – This is all about building high volumes of processors and both vendors excel in this space, although Intel may have a slight edge with its higher volumes.
6. New markets – Cloud computing is expected to consume huge quantities of processors over the coming years. Both Intel and AMD are in good shape to profit from this trend.
To summarise, we do not feel Dell will benefit from buying AMD at this time. Although purchasing AMD would give Dell a high level of control over future processor features, it would likely chase away many of AMD’s existing hardware OEMs like HP, IBM, Oracle, Lenovo, Toshiba, and Fujitsu. No company wants to rely on a competitor for key components like processors. The only way such a purchase would work for Dell is if the market becomes capacity constrained or Dell wants to do something very innovative. IDEAS feels Intel can handle any volumes that come its way, and Dell could simply go to Intel, AMD, or even IBM to develop a new processor.
By Jim Burton
Jim Burton, Vice President and Senior Analyst, and specialises in entry- and blade-server research and examines platform strengths, weaknesses, and pricing, determining which systems are best suited for specific deployments.
Ideas International Limited (IDEAS, IDE:ASX) is an analyst company that provides enterprise IT research, insight, analysis, and tools to both the buy and sell sides of the industry, counting as clients many large technology vendors and major blue-chip global IT users. More information at www.ideasinternational.com