AMD's chipset game: Rien ne vas plus

Markham (ON) – AMD’s has raised its bet and placed its chips in a cutthroat chipset market: To gain ground on Nvidia and Intel, the manufacturer decided to put a fully-fledged GPU into its next mainstream integrated chipset 780G, which could win the company lots of new customers. But it could cost AMD lots of discrete graphics card sales as well and cut deep into its profit margins. Will AMD win and what does the 780 mean to you?


AMD's Markham offices, previously ATI headquarters

On a Roulette table, you typically meet two types of players. Those who simply try to stay in the game as long as possible while holding on to their budget for as long as possible. Simply participating will get you a nearly 50/50 or a nearly 2/3 chance when playing the outer fields. You’ll never win big, but you won’t lose big either. However, if you want to catch up to the big boys, you’ll have to take higher risks that could leave you bankrupt or propel you to the top of the table.

AMD’s chipset division is in such a game right now. Let’s watch.

AMD has lost touch with the other big players, Intel and Nvidia, and is behind. There’s nothing to get particularly excited about AMD’s chipsets these days and the company could continue its current game and probably would be ok, if it pushes its platform message strongly. But the next bets in this game, the 780G and 780V, are now on the table and we know AMD’s strategy: The green team wants to join the high-rollers again and takes an unexpected risk that could surprise the others or fail miserably.


780G chipset (left), SB700 Southbridge


The big picture: Upvalue the chipset, devalue cheap graphics cards

Integrated graphics chipsets are the commodity in the graphics chip industry. They are in the very low-end of PCs, but account for the lion’s share of the market in terms of unit numbers. You don’t talk about them, they simply do their job. And for some time now, they are even good enough again to run today’s standard Windows operating system. No one who buys a PC with a graphics chipset really cares (or cannot afford to care) about the graphics performance. But this may be different with this new 780G chipset, which is aiming for cheap and mainstream PCs in the $399 and $499 price range.

Technically, from a performance view, the 780G isn’t just a chipset. It really is a $19 chipset that performs (we believe AMD on this one for a moment) like a $50 entry-level standalone graphics card. In the past, a graphics chipset was based on a recent graphics engine, but usually saw substantial downgrades to keep a clear performance and price distance to the discrete product. AMD claims that in the 780G there is a full R620 graphics chip, just like in its current entry-level graphics cards, offering a performance similar to that of, well, $50 graphics cards.

That means, of course that the 780G offers the R620 DirectX 10 core, which includes two independent display controllers (VGA and HDMI/DVI/DP with HDCP), a Hypertransport 3 interface and two PCIe Gen 2 interfaces. There’s also a new Displaycache, which cuts down power consumption. In terms of core data, there are two versions of the 780: The base 780V (codenamed RS780C) is clocked at 350 MHz and integrates a Radeon 3100 engine; the more interesting one is the 780G (codenamed RS780), which runs at 500 MHz, runs a Radeon 3200 engine, supports UVD as well as Hybrid Graphics, which allows users to combine the integrated chipset with a discrete graphics card to increase the system’s graphics performance. We will return to that further down.

The decision to put such a capable chip into the 780G has really two effects: From an application view, AMD increases the value of the chipset again, in a similar way Windows Vista devalued it: When Vista launched, your average chipsets, especially Intel’s 915 and 945 were pretty much useless, since they couldn’t run the software’s fancy eye candy. So you had to go with a 256 MB discrete graphics card and it is still a good idea to do so today. However, the 780G brings up the performance to a pre-Vista time and lends chipsets new credibility.

However, on the other side, if that chipset is good enough for Vista, why would you or an OEM keep using a $50 graphics card, if a $19 chipset does the job just as well? AMD’s corporate vice president and general manager of the firm’s chipset division, Phil Eisler, conceded to TG Daily that there is a certain danger that the company could shoot itself in the foot with this chip: This chip could cannibalize discrete sales. “We have had an internal debate about that,” he said. We have no doubt about that, especially since this chipset is claimed to playback HD DVD and Blu-ray without problems (something you only could do with a high-end graphics card 18 months ago) and to run almost any mainstream PC game out there. AMD itself calls the 780G “the by far fastest motherboard GPU we have ever built.” So, if the 780G is really that good, it is a clear money saving opportunity for OEMs, which potentially could drop discrete graphics cards from their systems – not just Nvidia cards, but ATI Radeon cards as well.

From that perspective, the decision to use a full R620 core for the 780G is a risky play, but it will also challenge Intel and Nvidia. Intel, of course, is the main target and AMD claims that the 780G is more than twice as fast as Intel’s G35 under 3DMark06, almost three times as fast under 3DMark05and achieves frame rates of 27 fps under Crysis (1024x768), 43 fps under Call of Duty 4, 40 fps under Half-Life 2 and 35 fps under Doom 3.

Hybrid Graphics

780G motherboards

To compensate for the risk of selling fewer discrete cards, Eisler believes OEMs and consumers will take advantage of the new Hybrid Graphics technology. The goal of every chip manufacturer is to sell more chips every quarter, so it shouldn’t be too surprising that AMD and Nvidia are linking integrated graphics chipsets with discrete graphics.

he concept itself is enticing: You can upgrade your $19 chipset with, for example, a Radeon HD 3450 graphics cards, which currently sells for about $55 in U.S. retail: AMD promises that the addition of the graphics card will more than double the graphics performance of the system. Compared to a non-hybrid graphics system with just a HD 3450 graphics card, the 780G will add about 70% of the 3450’s performance.

To illustrate the performance gain, AMD claims that the above mentioned frame rates will substantially increase in a hybrid graphics environment: Crysis will see 32 fps, Call of Duty 4 73 fps, Half-Life 2 68 fps and Doom 3 60 fps.

The problem in this scenario really is that buyers of $399-$499 PCs don’t upgrade their graphics, which means that OEMs will have to install the graphics cars in the first place. Margins are extremely tight in this space anyway, so why would spend an extra $30-$50 for a graphics card, especially if the 780G is already good enough to run most games and Vista?

A partial answer may be that graphics performance simply sells. And that $499 PC may not have a discrete card, but a $599 or $649 PC may have Hybrid graphics installed. Eisler believes that two out of three PCs using the 780 chipset will use the chipset only, whereas the remaining third of PCs will include an additional graphics card.


Conclusion

I'm not sure whether it is a smart move on AMD’s side to use a full R620 for the 780G chipset, which by the way is couple with the SB700 Southbridge (basically a SB600 Southbridge with lower power consumption and improved connectivity). Vendors will have a close look at this one and if they can save a few bucks, they will – no matter how great hybrid graphics is.

From the consumer view, it may be worth your while looking at those reviews and see how well the chipset stacks up against other chipsets and entry-level discrete systems. It could save you a bundle of money on your next Vista home office PC.


Silverstone Prototype HTPC

An interesting market for the 780G certainly is the home entertainment center PC (HTPC). If you think about those noisy boxes we have today, the idea of an entirely passively cooled system that is still capable of playing your HD movies and running a few games would be fantastic. It isn’t really surprising that AMD is especially pitching this idea, even if the company has to concede that the success and failure of HTPCs will not be decided by AMD – but by companies such as Comcast and AT&T, which do not provide the bandwidth that would be necessary to support decent HTPCs, as well as most Hollywood studios, which apparently still believe consumers will pay $20 for a DRM-riddled movie download.

Technically, the 780G chipset is a great platform for a HTPC. Realistically, the HTPC will not become mainstream in 2008, no matter how badly AMD wants this to happen.

Intel, Transmeta Kiss and Make Up

Intel has patched up hurt feelings with Transmeta with a big fat check.

Share prices of Transmeta more than tripled following a ground-shaking settlement with CPU market leader Intel. Intel has just agreed to a $250 million USD settlement with Transmeta, perhaps the biggest financial event in Transmeta's rocky history.

Transmeta, founded in 1995, has had its share of ups and downs. It focuses on the design of power efficient architectures and its resume includes the Crusoe and Efficeon x86 architectures. The company at one time employed Linux legend Linus Torvalds. In the 1990s it tried to compete with Intel and AMD in the processor market, but could not become profitable and faced struggling sales.

The company made lots of headlines in October 2006, when it filed suit against Intel on infringement of ten patents. Not long after the suit was filed, Transmeta decided to do away with its engineering services departments in February 2007. This meant that Transmeta no longer would develop new hardware or software, but would exist solely to market its existing intellectual property. Despite this drastic shift, Transmeta showed signs of life when it received a $7.5 million USD cash infusion from AMD for use of its patent portfolio.

Intel countersued Transmeta in January, claiming Transmeta infringed on seven Intel patents.

Now that the pair has made up -- how exactly the massive settlement will effect Transmeta has yet to be seen. The effects on the stock were instant, though as prices per share jumped from $9.75 yesterday to $26.01 today.

In exchange for the settlement, Transmeta is getting cozy with Intel -- it will grant licenses to any of its existing patents, and any new patents it is granted over the next 10 years. It will also transfer some technology rights. Among these rights is LongRun2, a technology which reduces unwanted leakage of electrical current from chips.

Transmeta's President and Chief Executive Les Crudele was excited about the deal. "We believe that this arrangement will create value for Transmeta stockholders both by realizing immediate financial value for our intellectual-property rights and by supporting our technology development and licensing business going forward," said Crudele.

What exactly his comments on "technology development" allude to, if anything material, has yet to be seen because Transmeta currently has no real development resources.

Transmeta may have a rocky history and an uncertain future, but it has scored a major victory and has formed an unlikely relationship with a former rival.

AMD Gives Transmeta a Shot in the Arm

Transmeta and AMD put aside their differences to give each other a shoulder to lean on

AMD last week announced a strategic monetary investment in former CPU manufacturer Transmeta, despite quickly mounting debts. Transmeta will receive $7.5 million cash -- approximately 4% of Transmeta's market capitalization -- from AMD in exchange for preferred stock.

"AMD has long been a leader in the development and delivery of energy-efficient, high-performance computing technologies, standards and initiatives," stated Transmeta president and CEO Les Crudele. "Transmeta has been proud to endorse and contribute to those industry leading activities, and we look forward to continuing our collaboration with AMD on technology initiatives in the future."

Transmeta posted a net loss of near $24 million for fiscal 2006; AMD posted a net loss of $611 million for the first quarter of 2007.

Last year, AMD closed the doors of its Geode and Alchemy divisions. Both divisions produced low-power processors that directly competed with Transmeta's Crusoe and Efficeon family. AMD then spun off the remnants of its Alchemy division to Raza Microelectronics, leaving AMD with an x86-only product lineup.

AMD hopes to take advantage of energy-efficient Transmeta technology to benefit AMD products and customers. AMD President and COO Dirk Meyer claims, "Transmeta was a key ally in helping to bring our highly-successful AMD64 technology to market and has supported the widespread industry adoption of both AMD64 and AMD’s HyperTransport technology."

Last February, Transmeta cut its workforce by 39% to focus its interests on just intellectual property. For the majority of 2007, Transmeta's primary revenue prospect revolves around an open patent infringement lawsuit aimed at Intel over ten patents allegedly found in low-power Intel processors. Intel immediately counter-sued over this claim.

Unlike the acquisition of ATI, this is only an investment in Transmeta by AMD. The companies have not announced any plans of collaboration.

AMD's Large Debt Mounting Up Fast

AMD scrambles to raise capital but risks long term company health

In July of last year, AMD and ATI merged to form one of the largest semiconductor companies. The cost of the acquisition was an enormous burden for AMD: $5.4 billion USD. Analysts at the time said that the acquisition would be a bad move for AMD, noting that the chip company would be better off plunking the large amount of cash in other core businesses like micro processors.
Of the $5.4 billion that it took to purchase ATI, AMD borrowed roughly $2.5 billion in loans and combined with $1.2 biillion common stock. The acquisition not only cost AMD much of its available principle but also left it in heavy debt. At the time, AMD did not disclose plans of how it would pay off the debt. In fact, two months before the confirmed acquisition of ATI, AMD announced that it would be spending $5.8 billion USD into the development of fabs in Dresden, Germany.

Last week, AMD announced that it will offer Convertible Senior Notes to investors in an attempt to raise roughly $2.2 billion. However, unlike common stock purchases, Convertible Senior Notes put AMD further into debt -- in this case, another $2.2 billion USD. Using Convertible Senior Notes, investors profit since the notes can be converted to common stock once AMD is performing well.

Using Convertible Senior Notes, AMD can receive usable cash now, but not have to worry about paying back its investors until its common stock reaches a predefined price. In this case, AMD set the conversion point to be $42.12 USD per share but its current price is roughly $14. In the catastrophic event that AMD goes bankrupt, Convertible Senior Notes take priority over other debts and thus bond investors are guaranteed the return on their investment.

With excellent market performance from rival Intel, AMD posted a painful first quarter loss of $611 million USD this year. AMD is now left with roughly $1.1 billion in the bank; a figure that has analysts worried.

Nicholas Aberle, Senior Vice President of Equity Research, Caris Company, states, "AMD is still spending a good clip. Without borrowing the company could run out of cash by late Q3, early Q4." Arberle adds, "[AMD] needed to raise capital just to keep the doors open."

Raising capital is only part of the equation so far. Last month, AMD announced plans to restructure the company and to cut $500 million USD in capital spending in order to feather off some of its financial woes. While the strategy may prove to be helpful in the short term, cutting back on capital spending eats into new facilities and R&D.

In addition, cutting expenses is not an easy task in the middle of a fierce price war. AMD announced large cuts across its high-end processors earlier this April, following Intel's cuts just last week.

Both companies are expected to further slash prices as AMD debuts its Barcelona processor family this summer.

AMD-ATI: A Done Deal

The wait is over, ATI and AMD have sealed the deal
The official AMD-ATI announcement is still three hours away, but AMD sent the newswire out a few hours early. For those still in doubt, occasional DailyTech blogger and T-Break Editor-In-Chief Abbas Jaffar Ali was able to sneak an image from the conference already; and a picture is worth a thousand words.                                                     

                                                                            

AMD announced the deal is valued at around $5.4B USD: $4.2B in cash and 57M shares of AMD common stock (valued at a little over $18 USD per share as of July 21, 2006) will be used to purchase the ATI in a takeover bid. A little more than half of the cash to be used from the transaction will come from a $2.5B USD loan from Morgan Stanley, which was the bank quoted Saturday when the news of this story first broke. This is in addition to the $5.8B USD the company plans to invest in Dresden, Germany over the next three years and the $3.5B USD slated for a new semiconductor facility in Luther Forest, New York. ATI was a fabless semiconductor company, meaning the company relied completely on third-party facilities to manufacture its ASICs. Although AMD certainly will have semiconductor fabrication, the company is already hard-pressed to keep up with CPU demand. AMD President Dirk Meyer emphasized that AMD will not use its in-house facilities for ATI semiconductors at this time, especially with the TSMC and UMC opportunities that are already available.

AMD's press release also claims that the combined company would have had approximately $7.3B in sales over the last four quarters and just under 15,000 employees. The new company keeps the AMD headquarters in Sunnyvale, California, and the previous ATI headquarters will act as a business hub for part of the company. ATI's previous CEO Dave Orton will act as executive vice president of the ATI division and report directly to Hector Ruiz and Dirk Meyer. AMD's press release indicates that ATI will, for now, act as a division of AMD. In the event the takeover falls through, ATI must pay AMD a termination fee of $162M to cover AMD's initial investments and lendings. AMD CEO Hector Ruiz also confirmed that there will not be any significant layoffs as a result of the takeover.

The merger is more than a small shakeup for the industry. NVIDIA, AMD's number one supplier of core logic for AMD platforms, is also a direct competitor of ATI for discrete and integrated graphics. Jaffar Ali was able to reach NVIDIA's Director of Product PR EMEA, Luciano Alibrandi, who claims "Our PC strategy is to be the leading innovator of GPU and core logic for both Intel and AMD platforms. GeForce is the #1 GPU brand. Quadro is the #1 professional and workstation graphics brand. nForce the #1 core logic brand. And SLI is the #1 multi-GPU brand. They are specifically sought out by end users of both Intel and AMD processors. Today's announcement only enhances our strategy." It appears definite that NVIDIA will approach the Intel market with much more vigor than in the past, though no NVIDIA representatives would comment on whether or not the merger will result in a scaling back of NVIDIA AMD components. AMD President Dirk Meyer added "With regard to GPUs: I fully expect ATI's solutions to compete with NVIDIAs on the AMD platform."


Microsoft had already voiced its opinion in the AMD press release when Jim Allchin, Co-President of Microsoft’s Platforms and Services Division, claimed "We're excited by the potential of what AMD and ATI can deliver together to enhance the Windows Vista experience for our customers even further." Since it may take years for the AMD takeover to really kick into effect, it may take some time for customer-ready products to hit store shelves.

The addition of in-house core-logic also strengthens AMD's presence in the server market. A portfolio manager for AMD, who wishes to remain nameless for now, told DailyTech "[I] doubt AMD will have the price flexibility to bundle ATI chipsets (18% gross margin) until they bring the manufacturing in-house. Available capacity for that is still down the road." The same manager went on to claim that without total reliance on Broadcom for server core-logic the company will have much better success securing major deals for large quantities of server products. All of these products will now be obtained through the single AMD channel instead of multiple vendors -- the company previously prided itself in diversification of channel solutions until the Dell picked up AMD to provide server products.

The deal still needs to receive approval from the AMD and ATI shareholders, and then pass FTC and Canadian Competition Bureau approval. AMD recently announced that the company would cut back its Geode research, while almost simultaneously selling the AMD Alchemy division. This departure of low-end x86 and non-x86 presence is in stark comparison to ATI's recent purchase of Bitboys Oy. Many of the Alchemy processors AMD recently spun off competed (at least indirectly) with ATI Imageon products -- many of which will show up in the new Nokia devices and digital TVs. AMD will also gain a significant presence with the Microsoft XBOX team, as ATI designed the XBOX 360 graphics processor and the XBOX 360 HD DVD H.264 decoder.

Transmeta Sues Intel

Patent infringement dating back to the Pentium 3

This week Transmeta Corporation announced that it filed a lawsuit against Intel claiming that Intel infringed on several patents that belong to Transmeta. Interestingly, Transmeta is claiming that the patents Intel had infringed on dates back all the way to the Pentium 3 processor and carries forward to even Core 2 products. Why Transmeta did not bring up the subject several years ago is unknown.

Transmeta is requesting that an injunction be placed on Intel, preventing it from selling products that infringed on Transmeta patents, and is also requesting that Intel have to pay for damages including legal fees. Transmeta's executive vice president John O'Hara Horsley said "Transmeta has developed a strong portfolio of intellectual property rights to capture and protect our proud legacy of developing advanced computing and microprocessor technologies."

Despite bringing Intel into court, both Transmeta and Intel had cooperated with each other on many occassions. Both companies have used each other's technologies in products. Transmeta said however that it felt it was not fairly compensated for its technology and thus must turn to the courts for a solution. "We believe that the action we have taken today is an appropriate step to return value to our stockholders from our investments over the past decade," said Arthur L. Swift, CEO of Transmeta.

Intel so far has not responded.