Suddenly AMD is relevant again

After being left for dead, the company roars back with two huge console wins

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Very few companies get a second act in technology, but it looks like AMD is about to get a third act. After a rapid rise and fall in the mid-aughts, AMD is now on its third life thanks to Sony and Microsoft. The AMD "Jaguar" design is going to power the PlayStation 4 and reportedly (but not confirmed) the new Microsoft Xbox One, the first time consoles would have identical SoCs, and a gigantic win for AMD.

AMD started life like Intel, as a memory maker. In 1982, it signed a license agreement with Intel to make x86 clone chips. For the next 20 years, AMD was a middling player, making clone x86 chips that paled in comparison to what Intel produced. It started to close the gap with the K5 and K6 chips in the late 1990s, and really got the engine roaring with the K7 design in 1999.

But the Intel empire fought back and AMD screwed up with the Barcelona architecture in 2007. AMD clung to desktop PC sales as the world went to notebooks and Intel's designs left AMD in the dust. Most of the server gains were lost, as were a lot of desktop and notebook gains. Sales fell, as did several CEOs. By last year, Intel was unofficially viewing Qualcomm as more of a competitor than AMD.

How quickly fortunes can be reversed. And it all stems from a bad business decision in 2006 when AMD bought the Canadian graphics computing firm ATI Technologies for $5.4 billion. A lot of people felt this was a gross overvaluation of ATI and they would be proven right. AMD would take a few billion in write-downs from that acquisition for years to come.

From the beginning, AMD promised a fusion of CPU and GPU technology onto one chip. It became known as the Fusion strategy. Credit CEO Rory Read with realizing that trying to compete with Intel on pure performance was a losing game. He successfully recognized that the future of computing will be low-power, system on a chip (SoC) designs featuring multi-core CPUs and GPUs.

That's what Qualcomm is doing with Snapdragon and Nvidia is doing with Tegra, except they use an ARM CPU, not x86. So why did they lose the Microsoft and Sony deals? I'd like to say that Microsoft and Sony skipped on an ARM SoC because the bulk of game developer talent and tools still reside in the x86 world, but more likely it's because ARM is still a 32-bit processor, unable to see more than 4GB of memory. Both the PlayStation 4 and Xbox One will come with 8GB of memory.

Intel has attempted to do graphics but its graphics technology has always lagged GPU makers like Nvidia and AMD. Haswell is going to have some improved graphics but it still can't compare to the ATI GPU technology. AMD had both pieces of the puzzle in Jaguar, an x86 core and a powerful GPU, and it's also cheaper than Haswell.

ARM will continue to enjoy design wins in the tablet/smartphone space where small apps are the norm and 4GB of memory is enough. But it won't be competitive with x86 until it breaks that 64-bit barrier, which should happen next year. No one wants to go back to living within the 4GB constraint.

So finally, seven expensive years after the ATI purchase, AMD sees a big payback. Its business had dropped so precipitously that analysts were wondering if it could survive much longer. With Sony and Microsoft on board, AMD now has a solid revenue stream (assuming the consoles are a success) and two giant firms to prop it up should it stumble again.
Microsoft has sold 77 million Xbox 360s and Sony has sold 70 million PlayStation 3 consoles. If the two repeat that, that's 140 million chips for AMD over the next few years. I guess Read was serious when he said SoCs would eventually account for half of AMD's business.

So, AMD gets back on its feet again. Now let's see where it goes.

Read more of Andy Patrizio's Chip Shots blog and follow the latest IT news at ITworld. Follow Andy on Twitter at @apatrizio. For the latest IT news, analysis and how-tos, follow ITworld on Twitter and Facebook.

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