The first major fruits of Advanced Micro Devices' acquisition of ATI Technologies are ready for the public just as the market for those products is going through some profound changes.
Spider will be AMD's first "platform" product when it makes its expected debut Monday. It is designed for desktop PCs, and the entire Spider package comes with a new processor, AMD's quad-core Phenom chip, the new 7-series chipsets, and new graphics chips.
The two Phenom processors launching Monday are essentially desktop versions of AMD's Barcelona quad-core processors. They're designed for the upper half of the desktop market: gamers who don't have thousands of dollars to spend on the ultra high-end equipment and families who want a powerful home PC without breaking the bank. When combined with the Radeon HD 3850 and 3870 unveiled last Wednesday, you get a pretty decent system for around $900 to $1,200, said Leslie Sobon, director of desktop product marketing for AMD.
For years, AMD disdained a so-called platform approach for its products, preferring to say that unlike Intel's Centrino and Viiv programs, it gave its PC customers a choice of the components they could use to build a system. But PC companies like platforms because they make their lives easier, knowing they can slap components together that have already been tested and validated to work with each other.
In order to get that kind of technology in-house, AMD bought ATI Technologies last year for $5.4 billion. But Spider, which comes out of that mega-acquisition, hits the market at a tough time for desktop PCs and AMD.
The desktop market has been slowly declining in mature economies such as the U.S. and Western Europe for some time. People with that midrange PC budget--$900 to $1,200--have been spending their cash on notebooks over the last couple of years. That's not expected to change anytime soon, and most PC vendors don't terribly mind, since notebooks are more profitable.
But, there's still a lot of investment in equipment used to build desktop PCs, and there's always going to be a class of people who want something fixed and permanent in their homes. The PC industry's response to that trend was to try to find new ways to sell desktops as either gaming machines or multimedia hubs, rather than the general-purpose PC for the home.
For the most part, the multimedia hub strategy has been a spectacular failure: plenty of people have bought Windows Media Center PCs, but few are actually using those PCs in lieu of a cable or satellite receiver and DVR with their living room televisions.
And PC gaming, while still a significant market, is barely holding its own against console gaming. According to NPD, $1.5 billion worth of PC games were sold at U.S. retail stores in 2001. Last year, only $970 million worth of PC games were sold through the same channels--and there are a lot more PCs out in the wild today compared with 2001. Meanwhile, console sales have skyrocketed.
Unfortunately, AMD's greatest strength as a company has historically been PC gamers and enthusiasts. The company arrived as a corporation with the launch of the Opteron server processor, but it has long enjoyed the attention of PC fanboys who crave every last inch of performance they can get.
The hope behind that strategy has always been that PC gamers and enthusiasts are influencers, in that they are the ones whom family members call and ask what they should buy when shopping for a new PC. But I'm not convinced that's as true anymore, simply because PCs are less of a novelty these days than they were in the past.
People are more confident about buying a PC these days, and they have a wealth of options for advice. That means marketing your wares to a general audience is extremely important, and that's an area where AMD simply does not play.
Intel dominates the marketing of the PC industry. The Intel Inside program was a masterstroke, and years ahead of its time. AMD has no suitable equivalent, mainly because marketing to the general public is expensive. "We're not sitting here with billions of dollars of marketing to push one chip or another, we rely on our customers (the PC companies) to do the end user marketing," Sobon said.
AMD still does pretty well at retail without that kind of marketing effort. In October, AMD had about 45 percent of the U.S. retail market, according to CurrentAnalysisWest. That number also doesn't include Dell, which has made AMD a significant part of its product lineup. Most of that share, however, is made up of desktops, which are a shrinking market and less profitable to boot.
The initial plan for Spider is to launch it through channel partners, rather than top-tier PC companies like Hewlett-Packard and Dell. Falcon Northwest and Velocity Micro are well-known names among the PC gaming community, but they are boutique players in the market at large. And the other vendors in AMD's launch plans? iBuypower and Cyberpower, two companies that aren't exactly on the lips of most PC buyers.
This is the perennial problem for AMD. It can't reach a wider group of buyers in the more profitable segments of the market without the combination of great products and a steady marketing campaign. After Intel's product teams pulled their collective head out of the sand in 2006, the competitive comparisons were much less in AMD's favor.
This is a really tough period for AMD. It's having trouble getting faster versions of Barcelona, the chip it desperately needs to fund the rest of its operation, out the door. The Spider platform is launching into a segment that is changing rapidly, and through partners that won't produce volume. Puma, a revamped notebook processor, is still months away.
And perhaps most troubling, AMD recently canceled a meeting of industry analysts to talk about its future roadmap. CEO Hector Ruiz has done a lot of good for AMD, validating the company as a true industry player with the success of Opteron, but he'll ultimately be judged on whether the $5.4 billion gamble on ATI will pay off in the form of the Fusion products expected in 2009. Right now, that's far from certain.
Correction: This post initially misstated the brand of the two processors that launched Monday. They are Phenom processors.