AMD at CES: The ATI gamble pays off

Over the last several weeks I’ve been briefed on what most of the PC manufacturers are bringing to the Consumer Electronics show and a surprising amount of laptops are based on AMD Fusion.  

Of course, 

AMD wouldn’t be where they are now had not taken a huge risk and acquired ATI – a decision that was harshly ridiculed at the time.

Yet, if they hadn’t made this move, they likely would be all but out of business by the end of 2011. 

Let’s explore this today.

Living under Intel’s cloud

The historic problem for AMD is that they have always lived under Intel’s cloud.

Largely driven as the redundant vendor in case Intel couldn’t provide enough supply in their initial years, AMD made a critical mistake in the 90s when they negotiated away the right to use Intel’s processor socket which almost made them obsolete because Intel had grown big enough to move away from a redundant vendor paradigm.

For much of last decade, the market was focused on laptops.

However, Intel had been driven by Transmeta to invest heavily in mobile technology and gained gained a near insurmountable lead with their combined wireless and power efficient processor technology.

AMD existed at only the most aggressive price points and even there Intel put up a credible fight. 

AMD was simply over matched and needed to change the game or it was clear that the company would become obsolete.

First, it needed to create manufacturing capacity that could credibly match Intel – because even if they came up with something better, Intel could always retaliate against a PC OEM for using AMD by cutting supply lines. As such, if they wanted to displace Intel in an account this was critical.

Still, they also required a competitive advantage.

Intel’s weakness was graphics, as it had simply been unable to create anything that could realistically compete with Nvidia or ATI – even though the corporation had made several expensive attempts. This vulnerability appeared to be the most likely area of attack.

The gambit

AMD made a two pronged alteration to their structure. First they bought ATI – the more affordable of the two independent graphics companies. Nvidia was simply beyond their resources and neither Nvidia nor AMD could afford to buy the other.     

The second move was to sell off its foundry business to a well-funded new company called Global Foundries which could then go off and get business from other fabless semi-conductor companies in order to create the available capacity AMD needed to go toe to toe with Intel.

Neither one of these two moves had been executed before and represented a substantial risk, simply because they would be blazing a new trail in a very competitive area.

The end goal was to create something that was competitive differentiated against Intel and, if successful, could survive an Intel punitive response.   

The result

At CES you’ll see a large number of AMD only and Intel/AMD notebooks that would not exist had failed to make the above-mentioned moves. 

For once, AMD is actually competitive in the highly contested and fastest growing laptop segment, which they wouldn’t be had they not taken the above-mentioned critical risks.   

For example, vendors now offer AMD-powered laptops under $500 that weigh less than five pounds and boast up to 10 hours of battery life while providing DirectX 11 levels of performance.  

Clearly, AMD is now a major player and had they not made the ATI move, Intel’s very impressive new Sandy Bridge platform likely would have nearly eliminated AMD from the market this year.

But instead, AMD is surging.

Wrapping Up: Sometimes it’s worth the risk

Sometimes companies are defined by the risks they take.   

Apple is a company that takes huge gambles, for instance, but if they hadn’t taken a big one on the iPod the company probably wouldn’t have turned the corner a decade ago. 

AMD took a massive risk with Global Foundries and ATI but it is finally paying off. 
Indeed, Fusion looks to be a player and some of the hottest notebooks at CES will be using it.  

That’s a long way from being the joke they once were on notebooks and it’s nice to see another big gamble pay off. So, say hello to AMD Vision and Vision Pro at CES 2011!

Rob Enderle is one of the last Inquiry Analysts. Inquiry Analysts are paid to stay up to date on current events and identify trends and either explain the trends or make suggestions, tactical and strategic, on how to best take advantage of them. Currently, he provides his services to most of the major technology and media companies. The opinions expressed in this commentary are solely those of the writer. [[ATI]]