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ATI is a duff purchase for AMD

Comment The opposite of synergy
Mon Aug 07 2006, 17:05
ANALYSTS AT INTEL must be laughing their socks off. Once the smoke clears and the mirrors have been taken down, AMD will discover that it has purchased rather less than it might have hoped in acquiring ATI. In fact, it could turn out to be a bad move for the industry as a whole.

The problem is not so much what ATI has but what it doesn't have. The graphics industry is driven largely by the fanboys and they are driven largely by getting extra frames per second. So far ATI seems to be onto a winner: put two X1900XTXs into a Crossfire capable machine and you'll get frame rates to make you proud. But there's a word in that last sentence that should make you stop and think. It should have made AMD stop and think. It's Crossfire. And nobody seems to have noticed that Crossfire is dead.

The Way of the Dodo
Intel has been plugging Crossfire for use with the new Core 2 Duo but that's ending quickly now that AMD owns the technology. It was bound to go that way and AMD must have known it. So scratch Intel as a long-term platform for Crossfire.

And AMD can't use Crossfire either. For a start, despite lots of promises, plenty of column inches and many product announcements, try to buy a Crossfire motherboard for an AM2 socket processor and see how far you get. They're incredibly rare. There's no sign of products from Asus, Gigabyte, MSI, DFI or any of the other big names apart from a few press releases. In fact, the only one we could find for sale was an ECS that was out of stock. This is two and half months after the launch of AM2.

We tried asking ATI about this lack of Crossfire for AM2 some time ago. Its PR people said they'd find some on sale for us to see and were never heard from again.

Even if motherboard manufacturers were willing to suddenly switch on large streams of ATI chipset-based products, AMD won't let them now. After all, that would be too much like treading on the toes of its existing chipset partners, Nvidia, Via and SIS. AMD really wouldn't want Nvidia or Via pulling out as it just couldn't replace them quickly enough.

That leaves Crossfire gone. That means no more ultra-high frame rates with X1900XTXs in Crossfire. Which means the fanboys will start defecting to Nvidia's SLI. Fewer fanboys means fewer column inches means fewer sales. And that means ATI is worth less.

Frisson Chips
AMD is in the awkward position of having to dump ATI's chipset business. Not that there was much to it apart from a nice deal with Intel which is probably dead now. And AMD won't want to compete with Nvidia, Via and SIS so it can't even keep producing chipsets for its own processors.

That leaves laptop graphics, mobile phone graphics and set-top box chips as the only other areas worth something. That's a reasonable area of the business but it's hardly going to keep the stockholders' dividends pouring in.

One Way
So far, the purchase looks like a one way spiral downwards to loss of profitability. The chipset business has to go. That means Crossfire is history. That means a trailing off of sales on graphics processors as Nvidia permanently secures the performance crown. In short, the whole thing looks like a very expensive way of downsizing the entire ATI workforce.

AMD has said that it wants to start building graphics technology into its processors but there's a fair chance of that being a dead end. Sony already tried to do that with Cell and discovered just how fast the graphics market moves in comparison with processors. It ended up having to put a separate graphics chip into the PS3.

There's only one way that springs to mind as a potential escape route towards profit: releasing graphics chips that fit into the same sockets as AMD's processors and use HyperTransport instead of PCIe. It would mean convincing memory manufacturers to release GDDR4 memory modules, would lead to huge motherboards (barring some radical form factor changes), incredible cooling requirements, etc. But it would be enormously risky as, once again, it could incur the wrath of Nvidia.

Where does this leave AMD? There's a fair chance that, once the smoke clears and the mirrors have been taken down, it has spent $5.4 on a company that would have carried on its profitable duel for the top of the graphics market for years to come but will now gently evaporate into nothing. µ

See Also
AMD has to buy ATI to survive


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