We often talk about the competition between AMD, Intel, Qualcomm, and NVIDIA, but a new threat has emerged that potentially puts some of these companies at risk. That is the threat represented by major cloud providers to develop and use their custom-designed processors instead of buying them from specialty firms.
It seemed that the most vigorous defender of the model was not Intel or NVIDIA but AMD because of its specialized customer processor development unit that has been effective at capturing two of the three major gaming platforms.
Sure enough, that was confirmed this week when Meta, formally known as Facebook, partnered with AMD to develop its new processor. While much of the coverage is on how AMD has captured a quarter of the data center market, the more important news is that this is a massive pushback against the build-it-yourself trend, which puts the very nature of the market at risk.
Seeing the bigger threat
One of the downsides of tight competition is that competing vendors can over-focus on their competitors, causing them to miss broader trends that are far more dangerous. I first saw this in play when working in IBM’s Telephony division. We were focused hard on a competitor’s line, Northern Telecom, blinding us to the fact that folks weren’t replacing their PBXs. Without a replacement cycle, the market was about to collapse catastrophically. Even when some of us saw and flagged the risk, operational management remained focused on the more obvious battle, refusing to acknowledge that a significant threat was about to end our market.
The pandemic has sped up the shift to the cloud, putting on-premise hardware at risk of becoming obsolete. But cloud providers would need to ramp up their services to pick up the load. However, the major cloud providers decided they wanted something designed for them rather than processor companies. Intel, the dominant player in the space, was struggling with internal changes. By policy, Intel, at the time, didn’t believe it had to develop a custom chip architecture. That’s changing under Pat Gelsinger, but the effort started late, given that Google, Amazon, and Microsoft are doing their chip development.
But AMD had already spun up its custom processor business and was ready to step in. AMD isn’t moving competitively against Intel since Intel wasn’t in the hunt; however, it provides a solid counterpoint to doing it alone. AMD brings to the table decades of competitive testing, compliance understanding, and a long-term heavy focus on security. These strengths are what any cloud processor should have, and AMD already has them in its portfolio.
Another advantage of working with a firm like AMD is that it understands fabrication and has existing priority relationships with several fab companies. Altogether, these benefits should make working with AMD the better, faster, cheaper choice than working alone. And this Facebook deal helps drive peers to do similar custom work, potentially eliminating the processor market’s long-term threat.
So, in this instance, AMD, rather than being a threat to Intel or NVIDIA, is helping change the market to safer and potentially more lucrative in the long term for all three vendors. These large-scale customers increasingly want custom parts, and the best place to have the work done is by experienced companies. AMD and Facebook just reminded everyone of this dynamic, potentially making the market more lucrative for all.
While it is often fun to pit processor companies against each other, sometimes the efforts have a more significant positive impact on the industry than negative. In this instance, only AMD was ready and able to do what Facebook wanted, and, had they not, it was likely Facebook would have gone directly to a third-party fab for help rather than AMD’s competitors. Facebook’s solution reminds its peers that these large-scale companies want customer work and that using a firm like AMD, Intel, or NVIDIA is far better than going it alone. You get the benefit of their experience without having to reinvent the processor wheel.