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Tuesday, April 26, 2005

Manufacturing Misfire

Continued from 'Firing on All Cylinders....'

If AMD's on such a roll, why am I so pessimistic with my 'second gear' comments? Well, if I were an AMD marketeer, I'd be so frustrated by now. AMD currently has only one high volume fab devoted to CPUs, its 8-inch Fab 30 in Dresden, Germany. Fab 36, a 300 mm (12-inch) manufacturing facility, won't be online until (optimistically) early next year. Although AMD has licensed Chartered Semiconductor to support its 90 nm and upcoming 65 nm processes, the foundry capacity also won't come on line until early next year. And it won't have much effect; according to AMD's Director of Strategic Marketing, Tim Wright, Chartered's limited incremental supply is primarily intended to only smooth out any bumps in AMD's internal manufacturing capability, along with un-forecasted short-term surges in customers' demand.

AMD's capital spending budget for this year is $1.5 billion, per a new study by IC Insights that I saw mentioned in an InformationWeek email newsletter yesterday. Intel's budget, in contrast, is $5.6 billion, up 46% from last year. Granted, Intel has a more diverse product line, so not all of that cash will get thrown at CPUs, but most of it will....either directly or indirectly. Last Thursday, Intel sent out a lengthy email stating its case, to make sure that I and other journalists knew its side of the story as we were simultaneously getting AMD's Opteron pitch. Here's an excerpt:

While some companies are focused on chip features that may or may not have advantages, the most important advantage for transitioning to multi-core is reliable manufacturing capacity for uniting two and four or more cores into one, and developing a robust ecosystem so customers can deploy real solutions. To that end, in earnings earlier this week, Intel increased our capital investment and confirmed that we are on schedule for aggressive 65 nanometer ramp in our multiple 300 mm fabs throughout the world.

Much ink is spilled on an ongoing basis as to whether or not, for example, Dell will start selling systems based on AMD CPUs. At the end of the day, I don't think Dell's to-date refusal has anything to do with collusion with Intel. I don't think it even has (much) to do with Intel's long-rumoured most-favored-vendor pricing given to Dell as a 'carrot' (in parallel with Intel's continued courting of 'white box' systems manufacturers as a 'stick'). Quoting Dell's President and CEO, Kevin Rollins, “For us to make a shift, we’d have to analyze costs not just from Intel.” Dell would have to bankroll incremental, AMD-specific testing and development teams and facilities. And that'd only make sense if Dell could be assured of reliable, low-cost, long-term supply from AMD (and its core logic partners, for example, in contrast to Intel's in-house core logic capabilities), requirements that AMD's current fab network and capital expenditure budget don't seem capable of delivering.

AMD's CPUs' strengths are indisputable. It's manufacturing shortcomings are straitjacketing it. When will AMD's board roll the dice and make the necessary investments to more directly take on Intel?

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