AMD's Race for Server Space
For all its recent success, there's still one major goal that has eluded Advanced Micro Devices, the perennial second-place runner in the market for computer chips. Despite having made rival Intel (INTC) sweat over the past year by taking up residence in servers and PCs from Dell (DELL), AMD (AMD) has always labored with a long-term goal in mind: a 30% share of the combined market for PC and server chips.
Right now, it's about as close as it has ever been—about 22%—according to the most recent estimates from market researcher IDC. But given comments made by an AMD vice-president during a trip to China, it's clear that the company now has its sights set on an aggressive step that should help it move closer to its goal.
In comments made at the opening of a new AMD research center in Shanghai, Marty Seyer, an AMD vice-president and head of its server chip division, said the company is aiming for a 40% share of the global market for server chips by 2009. Such a goal would represent a significant jump from its current share, which stands at 26%, says IDC analyst Shan Rau.
AMD's Opteron chip, the company's first chip aimed squarely at the corporate server market, was first described at a chip industry conference in 1999 and launched in 2003. Having won early commitments from companies including Sun Microsystems (SUNW), IBM (IBM), and Hewlett-Packard (HPQ), the Opteron has been giving Intel headaches ever since its launch, and has boosted AMD's revenue and earnings. Sales at AMD are up from $3.5 billion in its fiscal 2003 to $5.8 billion in fiscal 2005, while the company's net income in the same period went from a $274 million loss to a $165 million profit (see BusinessWeek.com, 9/26/05, "Who's Winning the Server War?").
So how is Sunnyvale (Calif.)-based AMD going to take more market share away from Intel in the server chip business? Its recent wins with Dell—long an Intel-only operation—will help. Dell announced last week that it would add AMD chips to its two-processor server, having already committed to offering AMD chips in four-way servers. That's a big deal—despite Dell's recent shortfalls, it remains the world's leading computer company (see BusinessWeek.com, 8/18/06, "Dell Disappoints Once More").
"What's fueling the growth is renewed business from IBM and the new business from Dell," IDC's Rau says. "Those volumes are likely to kick up AMD's market share in the third quarter. With those two announcements, AMD is probably well on its way to breaking above 30% share in servers."
INTEL STRIKES BACK.
Analyst Jim McGregor of InState/MDR in Scottsdale, Ariz., says Seyer, known for a tendency to publicly tweak the nose of the competition, is probably just looking to "create some energy around the marketing message," though his challenge is not without basis (see BusinessWeek.com, 5/2/06, "AMD Sticks It to Intel—Again"). "I have to admit they have been doing some interesting things in the server area. You have to give them credit for going from zero to 26% in about three years," he says.
So can AMD pull it off? A lot depends on Intel, which after watching AMD's success during 2005 and much of 2006 finally roared back earlier this year with the release of its Xeon 5100 series of chips—previously known by its codename, Woodcrest—which, by many measures, has retaken the performance lead from AMD's Opteron.
"You have to expect that Woodcrest is going to have some impact on the market, but these shifts don't happen quickly," McGregor says. "When AMD first moved to selling 64-bit chips like Opteron and Athlon, it took 18 to 24 months for the impact to be apparent."
And Intel isn't sitting still. It has already demonstrated a new version of its Xeon processor, codenamed Tulsa, in a server from Dell.
FOUR TO THE CORE.
Also lying ahead for both companies are quad-core microprocessors, which will likely appear in servers first. Until recently, all computer chips had a single central brain, or "core." Starting in 2005, chips from AMD and Intel started sprouting two cores each as a way to distribute computing tasks and accomplish more work per cycle. AMD said last week that it had "taped out"—or completed the design—of a next-generation server chip with four cores that will become part of the Opteron line in 2007.
For its part, Intel CEO Paul Otellini said in July that the company will have quad-core chips on the market in late 2006 or early 2007. They will be a big story going into 2007, but will likely have only a limited impact on the market until 2008, IDC's Rau says. "You'll hear a lot about quad-core from the marketing arms of both companies, but they won't be sold in noticeable volumes right away," Rau adds.
In the meantime, AMD's optimistic goal is a reminder that Satchel Paige's old quote could be as relevent for Intel as it was for baseball: "Don't look back. Something may be gaining on you."