For more than two decades, chipmaker Advanced Micro Devices Inc. was dismissed as a "socket stealer," a company that gained share in the desktop PC market by producing processors that copied chips made by market leader Intel and sold for a lower price. In the past year, that perception has changed. AMD has brought out innovative products that have been embraced by computer makers and customers. And Intel has been forced to follow the lead of its much smaller rival to slow AMD's gains in the enterprise server market.
Intel provided AMD with an opening last year when it introduced Itanium, a 64-bit chip that isn't compatible with Intel's 32-bit chips and can't run software written for the x86 standard without being recompiled. As appealing as 64-bit power might be to computing-hungry businesses, adopting Itanium would force them to make a clean break from their 32-bit systems and their huge installed base of applications, a costly move that many business-technology managers are reluctant to make.
AMD responded to that opportunity with Opteron, a chip that can run 32-bit and 64-bit x86 code. And it's paying off in a big way. In the past six months, top-tier computer makers such as Hewlett-Packard, IBM, and Sun Microsystems introduced enterprise servers based on the Opteron chip.
"Intel left an opening big enough to drive a truck through, and we put Opteron in it," says Barry Crume, director of AMD's server and workstation group. "We've taken a page out of their book. We did the exact thing that made Intel a success--paid attention to the existing software base."
AMD is on a roll, but the chipmaker still faces many challenges ahead, says AMD CEO Hector Ruiz. "We have lofty ambitions."
AMD's enterprise push dates back to 2001, when it introduced the Athlon MP processor and began to make inroads into the workstation, server, and multiprocessing markets. But it wasn't until the company introduced Opteron in April 2003 that computer makers and technology buyers began to take AMD seriously, says Nathan Brookwood, an analyst at research firm Insight 64.
Although AMD's Athlon MP was often benchmarked with a 10% to 20% performance advantage over Intel's Xeon offerings at the time, that difference "was hardly worth [computer makers] building up an AMD infrastructure and trying to convince customers that AMD was as good or as reliable as Intel," Brookwood says.
But, when computer makers looked at Opteron and its ability to run both 32-bit and 64-bit code, then saw that Intel was focusing on an incompatible 64-bit Itanium architecture, they discovered that "a lot of customers were now interested" in using chips from AMD, he says.
Intel's decision to dedicate its development and marketing resources to Itanium for the 64-bit market dates back to the early and mid-1990s, when most industry experts thought the x86 architecture was going to run out of steam around the year 2000. Intel wanted a microprocessor architecture that could grow for a decade or two, and adopted an architecture for Itanium that originally was developed in conjunction with HP. Intel didn't believe that adding 64-bit extensions to its 32-bit chips was a good approach for the long run.
"It's quite clear that Intel's preference would have been to have a very neat market segmentation between Itanium and x86, with no 64-bit crossover," Mercury Research analyst Dean McCarron says. "They didn't want to go there if they didn't have to, but it was also clear the market said they liked 64-bit x86."
Intel executives acknowledge that AMD has made gains in the server market. But they argue that Itanium has been successful and remains key to their strategy for competing against high-end systems based on RISC chips. "For us, the big opportunity is the non-Intel-server market," says Ajay Malhotra, general manager of enterprise marketing and planning at Intel. "Xeon, with or without extensions, wouldn't have given us the perfect tool to go after the RISC market--the mission-critical segment."
More than half of server-market revenue is derived from RISC architectures such as Sun's Sparc, IBM's Power, and HP's PA-RISC, even though x86-based machines account for as much as 90% of unit volume, Malhotra points out. "If Xeon extensions alone could have gotten us there, you could probably suspect Intel would've done that," he says. "The money that eventually gets shifted [away from RISC systems] I'm confident will move to Itanium, not to Xeon with extensions and not to Opteron."
Intel also argues that Itanium has been more successful than its public image would suggest. The company shipped more than 100,000 of the processors in 2003, a respectable number for a new architecture in the high-end server market where total shipments are limited. In comparison, AMD shipped slightly more than 65,000 Opterons last year, according to statistics from Mercury Research.
AMD expects those numbers to grow significantly this year and next. The company shipped around 70,000 Opterons in the first quarter of this year, and volumes are expected to increase significantly as the year goes on, analyst McCarron says. It's only in the past couple of months that major computer makers, which account for 70% of all x86-based servers sold, began to offer Opteron systems in earnest to the open market.
"We're seeing significant opportunities in the marketplace, and, frankly, we can hardly build the systems fast enough," says Jonathan Schwartz, president and chief operating officer of Sun. Opteron-based servers are now a strategic focus at Sun, he says.
Still, those numbers are tiny compared with the volume server market that's dominated by Intel's Xeon processor, McCarron says. Intel shipped about 6 million Xeons last year and 1.7 million in the first quarter of this year.
Opteron represents new opportunities for AMD on several fronts, McCarron says. Although AMD achieved its largest share of the microprocessor market in early 2001, when it was inside about 22% of all PCs, those numbers came from consumer PCs using its Athlon processor. Today, AMD controls about 15% of the microprocessor market and only 5% of the server processor market. But its growing success in the enterprise is expected to provide it with opportunities to gain greater access to the business desktop and laptop markets as well, he says.
Some customers are interested in making a change. VeriSign Inc., a provider of technology infrastructure and information-security services, has a critical need for 64-bit computing because "what we care about is how many operations per second we can get in a given class" of computer, says Aristotle Balogh, senior VP of operations and infrastructure. VeriSign also works with large data sets that would benefit from 64-bit computing.
VeriSign has prototyped every Itanium chip to be released by Intel and uses some Itanium-based servers. "They're just incredibly expensive. There's just no way around it," Balogh says. "But when we got ahold of some Opteron boxes about a year ago, frankly, we were blown away by the absolute price-performance improvement."
A four-way Opteron server costs less than $30,000 and delivers nearly twice the performance of an eight-way RISC system priced at more than $150,000, he says. Balogh hasn't been impressed with Itanium's performance, he says. He plans to evaluate Xeon with 64-bit extensions.
"This round goes to AMD. But I suspect we'll be running Intel side by side with Opteron within a year," Balogh says. "AMD has gotten a foothold in the enterprise, and I actually have a reason to buy AMD now. But Intel isn't going anywhere. It's the mainstay of much of the production operation."
Keyhole Inc. provides realistic satellite imagery to desktop PC users via the Internet and needs large amounts of computing power to process terabytes of data at streaming-video speeds, VP of engineering Brian McClendon says. The company has used Xeon- and Itanium-based systems, "but right now the Opteron is definitely the best bang for the buck," he says.
Keyhole tested Sun's V20x dual Opteron servers early this year and saw price-performance that was double its existing systems, McClendon says. A big advantage was Opteron's 32/64-bit compatibility, allowing Keyhole to run existing code uncompiled at 64 bits. With Itanium, Keyhole had to spend days recompiling entire applications to make them usable, he says.
"A compatible instruction set that maintains performance is a critical step in getting acceptance of 64-bit computing," McClendon says. "The more recent announcement of an x86/64-bit [Xeon] by Intel has demonstrated that [Opteron] is a completely safe bet."
Despite AMD's recent accomplishments, Ruiz acknowledges that the company has many challenges ahead. Although it has posted two consecutive profitable quarters, it hasn't recorded a profitable year since 2000. Ruiz says market share growth won't happen overnight. "We know we can compete by focusing on fundamentals. We believe we can anticipate the market," he says. "We have lofty ambitions, and we also have reasonable goals, to grow profitability quarter by quarter and steadily grow market share."
Illustration by Alex Nabaum