The Holy Trinity for AMD
Peter is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As the line blurs between various types of personal computers, so too will the line between the various components that make them up. The success of the iPad and the MacBook Air from Apple (NASDAQ: AAPL) is pushing everyone in the processor space to greater integration of CPU and GPU functionality in a smaller die size.
For AMD (NYSE: AMD) the road has been a rocky one, but their first quarter earnings report shows signs that new CEO Rory Read and his management team have turned the corner as they attempt to differentiate themselves from Intel (NASDAQ: INTC). After decades of trying to compete directly with Intel and failing, Read has finally admitted that doing so is folly. I agree with him. With the release of their Trinity APUs, the light at the end of the long tunnel for AMD that began with Llano looks a little brighter.
The tunnel supports could easily still collapse on them.
AMD was operationally profitable in Q1 2012; $0.13 per share excluding charges associated with divesting themselves of their stake with GlobalFoundries. In the near term, all bottlenecks associated with 32nm production are gone and they can adequately fill demand as they ramp up the 28nm versions of their current lineup. Smartly, they are not making the mistakes of the past, attempting to match Intel in die-size and failing to deliver. So, no, they won’t match Intel’s 22nm Ivy Bridge processors in size or raw CPU power per watt.
The key is they are not even going to try.
By ditching TMSC and moving their 28nm production to GlobalFoundries, they have a source for the next 18 months that is not in competition with Intel for fab line space. When they move to 22nm then they have the opportunity to get competitive bids from those currently doing that work.
From Clouds to Games
The core of AMD’s strategy is to leverage their superior graphics performance and experience in driver software to attack the entry-level processor market in that gray area between a traditional desktop, notebook and tablet. CPU performance is becoming less important than GPU performance at the tablet and smartphone level. Anyone who doesn’t believe that should ask Nvidia why their Tegra 3’s are getting their clocks cleaned by the iPad 3, even though both are derived from the same ARM (NASDAQ: ARMH) v7 instruction set.
As more computing moves to the cloud, our GPUs will work harder. So, better architectural marriage of the CPU and GPU will drive the consumer electronics market from top to bottom. AMD’s challenge will be building up their importance in the supply chain. Sales of discrete graphics cards in the U.S. are falling but in the rest of the world the numbers are still strong.
High end gaming is still very big business and will continue to be well into the future of the expanding Asian middle class. AMD’s asymmetric dual-GPU system was not ready for prime time with the Llano APUs. If it is with Trinity; if it just works that is a serious advantage to AMD in laptop design. Intel’s Ivy Bridge cannot do that, and while adding a discrete card will net you a solution, AMD’s APU is farther along this particular technology curve. Rumors are swirling that not only will Microsoft use a Trinity A8 in the next Xbox but Sony is considering it for the Playstation 4 as well. The price to performance value proposition is very high with these chips at this point in the product cycle.
Trinity on a Tablet?
I’m not sure of that at this point. The low-end Trinity APU is an dual-core A6 that draws just 17w at 2.1GHz. It’s not hard to imagine this slowed down into the 800MHz -1GHz range of the ARM processors and proving to be a strong competitor in the upcoming Windows 8 tablet market.
Computing is changing rapidly; Apple’s simplicity of design is driving a revolution in appliance design that is affecting chip design and vice versa. This merging of the CPU and GPU onto a single die is still being worked out; the technical details are dizzying. What is not dizzying is price. If Windows 8 and Metro is a winner, come this holiday season you will be shocked at the number of touch-screen all-in-one PCs that are sold. All of the pieces are in place for the PC world to have something Apple does not.
The takeaway is that AMD has begun to focus themselves at the low to mid end of the computing market, focusing on providing specialized processors that are device specific, like the ARMs are. This is where all of the growth is. Early benchmark results show that Trinity is not the Holy Grail for AMD, but rather another step along a path that started when the company bought ATI and is paying dividends now. Their share of the laptop market grew by 2.5% in 2011 after years of falling market share.
AMD has its work cut out for itself But, a return to profitability with leadership focused on executing in the highest revenue potential market segments means they might just be awakening from their coma.
PeterPham8 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Intel, and Microsoft. Motley Fool newsletter services recommend Apple, Intel, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.