The gradual demise of AMD - What happened and what to do next?
As I woke up this morning, I was greeted with a message from Steve (our news guy) in relation to an interesting article posted over at Overclockers.com. I read Greg's thoughts on AMD, and found myself dumbfounded by some of the comments, so much so that I thought I had to express my own thoughts on the AMD situation in this editorial.
There is no doubt that AMD is in a world of "woe" as Greg put it so delicately. It is in big trouble financially and you would think that it is in almost too deep to come back. Stranger things have happened but it really does not look good for AMD at the moment.
Let's discuss what happened and what can they do next.
Where did all the 939 boards go?
I am no Intel fan boy but like most enthusiasts, I simply prefer the better processor. For example, we ran an Athlon X2 Socket 939 system as our graphics card test bed for a long time and we did some articles that revolved around building the ultimate gaming PC which included the FX processor series from AMD. At that time life was good for AMD, even to the point where computer stores were installing AMD processors into new Ma and Pa systems. Market share was up, which in turn meant profit was up. AMD was riding a wave, and a damn big one you could say. So what happened? Basically overnight it cut Socket 939 processors, and motherboards based on this socket from performance companies like DFI became practically impossible to find.
A large amount of people do not really understand the computer market and how Socket 939 boards went dry. It went a little something like this...
Where did all the 939 boards go? continued
We have distributors, companies who import goods into each country and resell them. In the AMD heydays, those distributors that imported brands like DFI, Gigabyte and ASUS were going great guns - 939 boards were selling hand over fist - and they could not see AMD going anywhere but up. When AM2 was released, huge quantities of AM2 boards were imported based on the fact 939 systems were selling 500-, 1000- and more units a week. Distributors understand that there is a transition period, so they ordered a few hundred boards via air in order to get them within a week, and then proceeded to order a larger quantity to come in by sea; maybe 1000-units, maybe 3000-units. Based on our conversations with Aussie distributors, coming to Australia, a sea shipment is going to take about 6 weeks from Taiwan or China, by which time the distributor feels comfortable that people will be phasing out 939, and AM2 should really be beginning to pump along with their sales figures.
As week 6 draws closer, however, things are not looking quite right and a large number of AM2 boards from the air shipment are still sitting in warehouses gathering dust. Oh no.
Now picture you are a supplier. You have 3000+ AM2 boards across a broad range of models starting at AU$80 and going to AU$300 but consumers aren't showing any interest in them. They want 939 boards; do you turn around and order up 939 boards? Well in happy fairyland, yes, but in the real world you do not, you try your hardest to push those AM2 boards - starting by dropping your margin, followed by selling at cost, and then in a plea of desperation, selling them below cost, just to get rid of them.
This was the picture for importers of AM2 boards from our research and discussion with people inside the industry here down under. With the huge number of boards in the country, you would have thought that AM2 stood to get a crack at the market, even if it was only short. It never got off the ground though, and by the time the boards finally sold companies felt so burnt by AMD that even when people wanted 939, no one was going to import more boards. Compared to the number of enquires they had on AMD in the past, what was getting asked now, was so small, that it was not worth the time and effort.
It worked for other technology, why not AMD?
I was discussing the article with someone and when we started discussing about how the transition to AM2 happened and how there was no performance gain when moving to AM2, you quickly think to yourself, well that is fair enough, if there is no performance gain why bother upgrading? Let us have a look at some of the new technology over the past few years.
SATA: Initially we found ourselves with no real performance gains so why did everyone feel that it was worth making the move across? It was the latest and greatest in a RAID situation but this appeals to a minority of people. Then motherboard companies started placing less IDE ports on their boards forcing people to eventually go SATA, if they ever wanted to have a decent number of hard drives, without buying separate IDE controllers.
PCI Express: Here we have another technology that at launch offered little to no performance gains against its counterparts. You have to wonder what really kicked PCI Express. This is another technology that was forced upon users, so much to the point that if you wanted to get the best, you had no other option.
DDR-2: If there was one advancement that you would expect to take forever to kick off you would think that it would be DDR-2 memory. High prices, high latency, lack of range, and more would make you think that we would be using DDR for the next 10 years. But, like the other technologies above, it started being forced upon us, range increased, prices dropped and eventually everyone was buying DDR-2.
So what happened with AMD, why didn't the same strategy work? Well, that is the million dollar question, AMD's bank account was looking healthier than ever, so it could have put its head down into R&D and made the AM2 system something to actually be had. Is Intel the better processor now because the company is smarter? I do not think so. AMD just did not make the right moves. At the prime of its game, it turned around and spent millions and millions of dollars on buying a company called ATI.
ATI purchase and Is it too late for AMD?
There did not seem to be a really outstanding reason to buy ATI. For instance, if you have US$100,000 in your bank account because you've been doing well lately, you do not turn around and buy a $100k car. That leaves you with no money, simple stuff. You wait till you have $150,000 or you buy something cheaper.
But this is exactly what AMD seems to have done. It spent a lot of money on the acquisition of ATI thinking that it could continue to ride the wave and make the money back 10 fold possibly without thinking things through clearly. Something really went wrong in this plan. The company is in deep financial trouble, and it has sacked R&D staff, probably one of the most important departments in the development of a company.
Is it too late for AMD?
Well, is it really? You have to think back. Nvidia was in such a hole when it released the GeForce FX series that you would have thought that ATI would reign supreme for years to come. Nvidia bounced back though and look at them now, they are going fantastic. So surely AMD can do the same? Well normally you would say yes, like Nvidia it had a fantastic run, built up a huge profit, had loads in the bank as reserves and could survive their bad run. However, unlike Nvidia, AMD turned around and decided to spend a lot of its profit buying ATI, meaning that it must come up with a fantastic new and high selling product. But the upcoming R600 series of graphics cards has gone through a series of delays, and AM2 sales are doing nothing now for the company. Plus as we already mentioned, AMD is now at the point where it is sacking staff in the R&D department to reduce expenses and to keep their heads above water. Maybe it is the bigwigs who are causing the problems; not enough staff, not enough money, particular guidelines that are forcing them to not compete with Intel as well as they could. If all that money was not spent on ATI and instead thrown into R&D for the new generation of AMD processors, we would not be in this situation, one might think.
Maybe AMD should re-release the 939 processor *laughs*. It is going to cost a large amount of money to re-launch the 939 product range at the latest clock speeds? Also what is AMD going to do? Only release CPUs for the minority of people who cannot afford to move to a new platform, including at least new memory and graphics card? The chances are that even if 939 was re-released now, thanks to the latest Intel price drops, AMD would stand to either make no money on the 939 processors, or a best very little, nothing near what it would need to get it out of the current hole it has dug.
The new K10 processor architecture is coming, but clearly not soon enough but if you think Intel is going to just sit on its hands while that is released, you are kidding yourself! Also K10 is going to come out with your typical new product price premium, use a new socket, and cost a bucket load to upgrade to. If 939 users are not willing to upgrade to the currently superior Intel Core 2 platform, why would they upgrade to K10 when it is going to cost even more again? Let's just hope it offers some tangible performance increases.
Then we have the R600 (at least we think we do...), if the ATI portion of AMD kicks off again, this could help with a much needed cash injection letting it refocus on CPUs and chipsets (their core business), and hopefully the company could become one big happy family again. The problem is that, say the ATI portion does kick off and AMD can start spending money on the CPU development side of things again, what is going to happen to the graphics card portion of the business? Were their eyes bigger than their stomach when they decided to buy out ATI?
If AMD channels all the money generated from the VGA card business into CPU design, how can you expect that portion to become successful? Can the R600 really bring in the money to support all those divisions; motherboards, VGA, and processors. I highly doubt it, though anything is possible but it seems evident AMD is going to need some type of help in the near future if they intend to remain in existence.
If AMD ends up going down the gurgler, it is essentially taking ATI with it. This means not only will Intel gain a monopoly in the CPU market but also Nvidia in the VGA market. No competition of course means less motivation to create innovative new products and also no reason to offer competitive pricing which if you have not worked out already, is not good for you guys as the consumer. The rich get richer while the poor get poorer.
It is pretty clear that Intel want to get rid of AMD right now and forever - the latest Intel CPU price drops (some up to 40%) make this evident as there was really no good reason for Intel to drop the price on its entire lineup (since it is already doing well), yet it felt compelled to twist the knife that it had already stuck into AMD, metaphorically speaking.
The theory that AMD should do a rehash of the 939 processor completely span me out, the 939 was the best era for AMD, so that is what it should concentrate on? Well, the last generation of AGP cards were really the best era for ATI, so should it concentrate on that? No! AMD seems to be sinking fast and taking the ATI portion of its business with it, if we indeed do lose both these companies what is going to happen to the computer industry? ATI partners have it the worse, especially those like PowerColor, Sapphire and HIS who only do the Radeon lineup of VGA cards. The collapse of one company could have a massive landslide affect and change the computer industry for tens of years to come. I will not say forever because anything can happen. We could see a new GPU company pop up, or a processor one, but it could take years for it to establish itself as a real market competitor.
Are we beginning to see the gradual demise of AMD? The company is walking a tightrope right now and we want to hear your opinion on its future and how it can get out of the trouble it is currently in. Leave your comment below or e-mail.
PRICING: You can find products similar to this one for sale below.
United States: Find other tech and computer products like this over at Amazon.com
United Kingdom: Find other tech and computer products like this over at Amazon.co.uk
Australia: Find other tech and computer products like this over at Amazon.com.au
Canada: Find other tech and computer products like this over at Amazon.ca
Deutschland: Finde andere Technik- und Computerprodukte wie dieses auf Amazon.de