Anyone who looks at this with a time horizon of only a quarter or four is doing themselves and the companies involved a major disservice. Also, this deal has nothing to do with GPUs or chipsets, it is about the technology behind them.
The deal has many aspects but sadly the only one likely to be noticed in the short term is the money laid out, and that is unquestionably the wrong way to analyse this. There are both short and long term implications, the short term ones will batter the stock tomorrow because of myopic analysts, and the long will be of great benefit to those with foresight.
The short term effects include Nvidia, Intel, the loss of business, and the potential damage to partners. These are all short term reasons, and have nothing to do with the reasons behind the buy. Of them all, Nvidia is the most problematic for AMD, closely followed by Intel for ATI. In either case, it won't have any effect in the extremely short term, say until the end of the year, and after that, new business will outweigh the losses, AMD hopes.
Let's take Intel and ATI first. Intel buys a lot of ATI chips and graphics cards, and has a license for Crossfire. This is all likely to end soon - no surprises there. The official word is that the love-in is already over. From what we gather, that's unrelated to the AMD buy. ATI chipsets were a stop gap to cover Intel's demand forecasting woes, and since that rough spot has been covered, well, ATI was on the way to being discarded anyway. No market loss there.
On the flip side, Crossfire + Conroe is set to become the gaming platform of choice for 2007. R600 is going to flip the power balance to favour ATI again, and Nvidia has been playing power games over SLI licences. Intel was preparing to kick Nvidia in the teeth, and if it decides right now to pull back the boot, it will still be a long time before it can get the fine print sorted out and products on the street.
So, expect the Crossfire + Conroe fliers to hastily have Crossfire magic markered out, and SLI written in, but the affair between Intel and Nvidia will be a stormy one at best. You can bet that Intel is going to accelerate its internal GPUs as much as possible. It doesn't want to be in bed with Nvidia a second longer than it has to be.
So, what about Intel flat out buying Nvidia? We severely doubt that, mainly because there is next to nothing that Nvidia brings to the table that Intel cannot, do internally. For the short term, it would be expensive and disruptive to a company that is just stumbling its way out of several grievous self-inflicted wounds. It would turn into an ugly mess. Long term, well, Intel will be there with internal projects, so why spend the money now to placate Wall Street?
This brings us to ATI. The loss of any additional Intel business, mainly having Crossfire being de-sanctified, will be minimal. I think that deal was struck without much, if any money, changing hands, so any loss would have minor monetary effects.
Short term, this means Intel will have to grin and bear it, or have absolutely no gaming platform with dual GPUs. For 2007, it means it sticka with the deals they have, or are stuck with the slower GPU on their platform. We're putting our money on it staying put, and taking classes on how to not visibly wince when asked about AMD Crossfire on an Intel box.
That brings us to the AMD and Nvidia relationship. Everyone thinks for some reason that this is a stab in the eye at its close partner Nvidia, and it will mean doom for both sides if they are forced to break things off. Two problems, they won't have to break things off and it could be good for Nvidia.
If AMD plays its cards right, and it has shown that it is quite savvy in corporate dealings of late, it can turn this into a win/win long term. The reason for that is this deal has nothing to do with GPUs or chipsets at all, it is about technology and engineers. Think long term.
That brings us to the long term side of things, and here all is good for AMD. In fact, if this deal does not happen, AMD will be out of business in five years, or at least out of the CPU business. In that time frame, this is good for AMD, good for Nvidia, and good for all the AMD partners. It kind of stinks for Intel though, but that is a lot of what AMD was aiming for.
Let's look at this long term, say five or so years, the design cycle of a modern CPU. As we've noted earlier, the X86 CPU is about to take a radical turn, and the designs you will see at the turn of the decade won't resemble anything you see now. What do we mean by that? Mini-cores and Larrabee.
Until Sun came out with Niagara, modern CPUs were big, fast, hot out of order execution (OoO) beasts that ran a thread as fast as possible. Programmers were stupid creatures that had to have their work done for them in hardware, and elegance was the domain of game developers of yore. Fat cores were in.
Then came Sun with a hard left turn, lots of little, stupid cores that can do more in aggregate that a single big core. It had been tried in the past, but not with a modern ISA for mainstream use. If your application fit the bill, in Sun's case, this meant no FP code more than anything else, it simply flew. If it did not fit, well, you had problems. Can we offer you one of our other more conventional products?
The first salvo in the modern mini-core wars was fired, and the world changed. Now, Sun is on the verge of releasing Niagara II, and Niagara III is sure to follow. Intel was not about to let this winning strategy go unchallenged, and now has enough mini-core projects going to fill a phone book.
Kevet and Keifer were a mini-core and a CPU made of 32 of those cores respectively aimed at server workloads. It was four times what Niagara was reaching for, but also five years later. Intel is going for the swarm of CPUs on a slab approach to high performance CPUs, and more importantly, is going to upgrade the chips on a much swifter cycle than we've been used to.
With 32 small and simple cores, you can design each core much more quickly than a normal CPU, much more quickly. Design complexity, verification and other headaches make things almost a geometrically increasing design problem. A small core cut and pasted 32 times can mean smaller teams doing more real work instead of busy work, and more teams tweaking things for niches.
We think Intel is aiming at a much more rapid design upgrade cycle, most likely yearly, and much more niche-aimed CPUs. If you can make a new core with 1/10th the effort, and put it in an already existing and verified infrastructure/interconnect, then you can revamp your line up with a rapidity that would be flat out impossible to do today.
Now, if you add in GPU functionality to the cores, not a GPU on the die, but integrated into the x86 pipeline, you have something that can, on a command, eat a GPU for lunch. A very smart game developer told me that with one quarter of the raw power, a CPU can do the same real work as a GPU due to a variety of effects, memory scatter-gather being near the top of that list. The take home message is that a GPU is the king of graphics in todays world, but with the hard left turn Sun and Intel are taking, it will be the third nipple of the chip industry in no time.
Basically, GPUs are a dead end, and Intel is going to ram that home very soon. AMD knows this, ATI knows this, and most likely Nvidia knows this. AMD has to compete, if it doesn't, Intel will leave it in the dust, and the company will die. AMD can develop the talent internally to make that GPU functionality, hunt down all the patents, licensing, and all the minutia, and still start out a year behind Intel. That is if all goes perfectly, and the projects are started tomorrow.
The other option is to buy a team of engineers that produce world-class products, are battle tested, and have a track record of producing product on the same yearly beat Intel is aiming for. There are two of these in existence, ATI and Nvidia. Nvidia is too expensive, and has a culture that would mix with AMD like sand and Vaseline. That leaves ATI, undervalued and just as good.
So build versus buy for long term strategic competitiveness, the choice is obvious, you have to buy. This will put AMD about 12-18 months behind the first of the mini-cores from Intel, about the range AMD is behind for everything else. Intel bites the bullet and proves the market, then AMD steps in. Here, AMD is going to let Intel do the heavy lifting, and then waltz in at the right time.
Long term, buying ATI is the only thing AMD can do to survive. It will bring some short term pain, and Wall Street will simply not have a clue once again, but there is no doubt that it is a necessary thing.
The more interesting time is mid-term, in the year to three year range. ATI has two sets of deep engineering knowledge that AMD can suck in and benefit from, memory controllers and PCIe. AMD is integrating both into the CPU, so ATI engineering can help greatly there. On the flip side, AMD has world-class manufacturing facilities that ATI can make GPUs and chipsets on without paying an arm and a leg to use. This is a win/win.
That brings us back to Nvidia, and why I think it is not a death-blow for Jen Hsen's company. If AMD is smart, it can placate Nvidia by ceding markets to it, and keeping the platform open. We think it will. AMD has never been one to shut out partners as a blatant money grab like Intel. It sees things long term, and if you look at what it is doing with the Torrenza platform, you can see it has no intention to close the market.
Nvidia can have a big piece of the new pie in the future, things are not bleak at all. Short term heart attacks aside, the technology it brings to the table is still in great demand. Remember, this deal is not about AMD making GPUs or chipsets, it is about it making a completely different set of cores. GPUs and chipsets will still be in great demand, it is just that ATI won't be making them.
The net effect is good for ATI, good for AMD, and good for everyone else, including all the current AMD partners. For all the analysts, deep breaths, think of your happy place. This is not bad, not bad at all, in fact it is very good. Breathe. If it doesn't happen, well, sell your AMD stock, it is done for. µ
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