AMD seeks to cash in chips on Vista

After watching its market share for the North American desktop PC market slip in a soft third quarter, Advanced Micro Devices Inc. (AMD) will seek greater profits in 2007 through a new family of quad-core server chips and its acquisition of graphics chip maker ATI.

“From a customer perspective, our integration is completed,” said Henri Richard, AMD’s chief sales and marketing officer during the company’s annual analyst meeting in New York on Thursday. The companies still face several years of work to reach their goal of launching a combined processor and graphics chip called Fusion, but since closing the deal in October, they have already combined sales forces, supply chains and manufacturing facilities.

In the short term, that will enable “the new AMD” to benefit when Microsoft Corp.’s planned launch of the Windows Vista OS sparks increased demand for visual capability in PCs.

“Vista will change the paradigm of how people relate to their PCs and their criteria for selecting devices in 2007. That emphasis on a more visual experience will give AMD an edge,” Richard said.

AMD will also use the ATI acquisition to enter the fast-growing consumer electronics market in 2007, selling more video processing chips as demand rises for digital and high-definition TV, and selling more embedded chips as handheld devices converge the capabilities of cell phones and PCs, he said. AMD expects 19 percent growth for its chips used in the handheld sector and 44 percent growth in digital TVs.

In the meantime, AMD will focus on its bread-and-butter product, the Opteron server chip. AMD plans to increase its revenue from microprocessors and chipsets by 20 percent in 2007, twice its prediction for the industry’s growth rate.

Chip-making rival Intel Corp. regained some ground in the desktop and server markets in recent months with its Core 2 Duo and dual-core Woodcrest Xeon chips. But AMD is poised to defend its turf. The company demonstrated a four-chip server using laboratory versions of its “Barcelona” quad-core Opteron chip at the meeting. Compared to AMD’s own dual-core server chips, the design marks a 40 percent to 70 percent improvement in processing power and a 60 percent improvement in performance per watt.

AMD plans to launch that chip for high-end servers in the second half of 2007, and update it with a “Shanghai” model in 2008. The company also plans to expand from its stable of processors designed for two, four and eight-chip servers in 2007 by launching “Budapest,”a quad-core Opteron chip designed for the single-processor servers used in the small business market.

AMD will also improve its Turion and Sempron notebook chips, extending battery life with a more efficient “Hawk” model in 2007 and “Griffin” model in 2008. Together, those products will help return AMD to a better mix of products, Richard said. “We had been heavily reliant on the desktop sector. Now our server and laptop segments are growing faster, so we will soon reach the industry average.”

AMD has already started designing an eight-core server chip, set for release in three years, but has no plans to build chips with even more cores.

“I think most people recognize the industry made a mistake getting into the megahertz wars, because we should have been more focused on the efficiency of the overall platform. And we would make another mistake if we got into a core war,” said Phil Hester, AMD’s chief technology officer.

“You’d scratch your head if someone tried to sell you a 16- or 32-cylinder car and ask ‘Why on earth do I need this?’ You really need something whose capabilities are matched to what you’ll use it for every day.”

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