Dawn of a new era - the AMD-ATI deal....

July 24, 2006 was a red-letter day as far as the personal computing industry is concerned.

On that day, the world’s second largest CPU manufacturer, Advanced Micro Devices (AMD), announced its decision to acquire the world’s second largest manufacturer of GPUs, ATI Technologies, for a whopping $5.4 billion.

Whether we realize it or not, this acquisition is bound to change computing as we know it, as well as dramatically alter the landscape of personal computing, both from a technological, as well as a commercial point of view.

I have shivers just thinking about it.

So what does this mean for us PC users and enthusiasts?

It probably means a lot of changes, both in the short and long term. Consider the following:

AMD is the leader when it comes to the enthusiast segment, while Intel, the world's largest chipmaker, rules the corporate roost. The corporate market is significantly larger than the enthusiast market, and that is where the money is. AMD has been making significant advances as far as putting its chips inside corporate desktops as of late, and a prime example of this is the deal AMD signed with Dell, a fixture among corporate desktops, as well as a known stalwart of Intel-based PCs, only a few months ago.

While AMD may not have the sales figures to top Intel, it currently possesses what Intel hasn't had for some time now - the performance crown. It is generally conceded by all that the latest round of AMD processors, particularly those belonging to the Athon 64 (single-core), Athlon 64 X2 (dual-core), and Athlon 64 FX (enthusiast) families outperform Intel's current offerings of NetBurst processors, the Pentium 4 (single-core), Pentium D (dual-core), and Pentium 4 Extreme Edition (enthusiast). However, this seems about to change in the next few weeks or months, with Intel's release of its new processor, the Intel Core 2, based on the new Intel Core Microarchitecture.

Initial testing has revealed that the Intel Core 2 has what it takes to take back the performance crown from AMD, and with AMD not having anything with which to counter it, Intel may even find itself keeping the crown in its possession for a while. Benchmarks of midrange Core 2 processors have determined that they outperform AMD's fastest FX series processors, and by a significant margin. And these are only midrange parts, not top-of-the-line. And not only do they run faster, they do so consuming less energy, and producing less heat, in effect beating AMD at its own game.

Of course, there is a downside to the Core 2, and this downside is characteristic of every processor based on a newly introduced architecture - price. Core 2 processors are extremely expensive, and with AMD slashing the prices of their entire product line, the Core 2 will most probably remain a high-end part, at least for the near term. AMD's chips on the other hand, will have an opportunity to go mainstream, with competitive pricing, and performance and power efficiency superior to Intel's previous generation.

We could therefore see a potential reversal of roles with AMD aggressively attacking the corporate market, and Intel making inroads with the enthusiast crowd.

Of course, this is where ATI fits into the picture. AMD has traditionally been a single product company. It manufactures CPUs, and leaves everything else, such as core logic and graphics, to other manufacturers. NVIDIA has proven itself to be the top dog in this field, with its chipsets and GPUs the parts of choice for enthusiasts looking to build a state-of-the-art PC. Unfortunately, this flexibility when it comes to parts selection has played against AMD in its aspirations to making headway in the corporate market, in which volume, and therefore cost and simplicity, are more paramount than extreme performance or 3D graphics. Looked at another way, this is the reason why Ferrari doesn't make Camrys and Accords, and why Toyota and Honda don't sell exotics with price tags to match. With its purchase of ATI, AMD by a single master stroke, has a ready source or chipsets and integrated graphics chips, enabling it to go head-to-head with Intel in the battle for corporate desktops.

Of course, it begs the question - what happens to the current relationship between AMD and NVIDIA?

NVIDIA develops and manufactures top-of-the-line chipsets for the AMD platform. Will it continue to do so, despite AMD, with its acquisition of ATI, being a potential business rival, particularly when it comes to discrete (GPUs on video cards, as opposed to integrated on motherboards) graphics?

And what about ATI and Intel? ATI is currently licensed by Intel to develop and manufacture chipsets for its own line of processors. With ATI now owned by AMD, AMD is now in the rather awkward position of making chipsets for its chief rival.

The AMD-ATI merger has left NVIDIA virtually the last and largest independent core logic and GPU maker. This theoretically puts NVIDIA in the advantageous position of having AMD and Intel both as clients. However, with ATI supplying integrated graphics to AMD, and Intel with its own integrated graphics line, and with both AMD and Intel having its own core logic lines, NVIDIA would be by its lonesome in selling high-end chipsets and graphics parts. Now this actually isn't bad, unless you consider that integrated and low-end graphics virtually represent the entire market, with only a small percentage going for the high performance parts. Ditto with high end chipsets.

And what of ATI's own high end graphics line? ATI has been a thorn to NVIDIA's side ever since ATI stole the show some years back with its DirectX 9 compliant Radeon 9700 Pro, beating NVIDIA to the punch and relegating its vaunted GeForce 4 Ti series to second stringer status. Will ATI still be competitive with the high end of the graphics market? Or will it just play a supporting role to AMD's chip business? Will Intel even consider buying graphics chips from ATI, now owned by its nemesis AMD? Or will it buy from NVIDIA instead, boosting its sales? Only the future can tell.

Of course, there's also the possibility that we may be looking into radically new products in the future from AMD, devices which combine CPUs and GPUs into a single unit. Lest you think that this idea is crazy, its actually not unheard of for processors to integrate the functions of what used to be separate chips. Examples of this happening in the past include the math coprocessor and L1 cache (integrated in the first 486 processor), L2 cache (integrated in the Pentium Pro) and memory controller (in the Opteron and Athlon 64). The GPU may very well be the next. And with ATI's technical know-how at its disposal, AMD would certainly have the means to accomplish this.

All we can do is speculate.

In all likelihood, NVIDIA will still survive. NVIDIA is just too good a company, and its product lines are often the best, or close to being the best in the industry.

The AMD-ATI deal has just made AMD a lot more dangerous, and Intel will have to keep on its toes to remain competitive with AMD. History has shown us that market leaders can easily fall prey to bad business decisions, just like what happened before to such stalwarts such as Atari (in the aftermath of the first video game revolution), IBM (with its loss of influence regarding the PC standard, which it invented), or even the defunct 3DFX (the top 3D graphics company in the late 90s). Intel will definitely have its work cut out for it.

One thing is certain though. Things have just gotten a lot more interesting. :-)

Links:

AMD to Buy Graphics Chip Maker ATI
AMD confirms ATI acquisition
AMD-ATI Deal Won't Stop Shaking For A While