April 22, 2004 4:00 AM PDT

A year old, Opteron serves notice

With its Opteron server chip, underdog Advanced Micro Devices appears to have finally bet on a winner.

Since introducing the 64-bit processor a year ago Thursday, AMD has been granted new access to the major server makers, seen its red ink turn to black and even managed to get powerful Intel to rethink its own product plans.

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What's new:
Since introducing the 64-bit processor a year ago, AMD has been granted new access to the major server makers, seen its red ink turn to black and even managed to get powerful Intel to rethink its own product plans.

Bottom line:
Opteron sales are still far behind those of Intel's competing Xeon chip, but they've enabled AMD to post profits for its two most recent quarters. And because the server market moves slowly, letting companies build stable customer bases, continued success for the server-centric Opteron could help AMD better weather the volatile PC chip market.

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"Opteron was AMD's ticket to tier one," said Dean McCarron, principal analyst with Mercury Research. "It gave AMD the advantage it needed to break into servers, the most difficult technology market. In addition it helped AMD's bottom line."

Though Opteron sales still lag those of Intel's competing Xeon chip by a wide margin, the accomplishments aren't small ones for AMD--especially considering the gamble the company took when starting down a path not already paved by Microsoft.

Working with Hewlett-Packard, Intel spent years developing its 64-bit Itanium server chip. AMD, meanwhile, decided to tweak the x86 architecture, the underpinnings of all PC processors, believing that new chip-to-chip data connection called Hypertransport.

But Opteron had momentum right out of the gate. IBM immediately said it would offer the chip in one of its servers, and not long after, Sun Microsystems and HP also announced plans to offer Opteron servers, giving AMD three of the world's four top server manufacturers. A range of customers from corporations to universities have begun installing Opteron servers for use in their business processes, product development and research.

AMD even got Intel's attention. Earlier this year, Intel said it would deliver a 64-bit capable x86 chip of its own. The first version of that chip, a 64-bit capable Xeon processor dubbed Nocona, will come out later this year and be capable of running 32-bit software.

A recent analysis by the Microprocessor Report concluded that Intel used AMD's published design specifications and examples of its 64-bit chips to help develop the Nocona line. An Intel spokesman said Nocona was designed to be compatible with x86 and Microsoft's 64-bit Windows, thus making the chips look very similar. Most server makers, including IBM, will offer Nocona servers alongside their Opteron machines.

Feeling chipper
Since its introduction, Opteron has also helped bolster AMD's finances. Unprofitable since the second quarter of 2001, the chipmaker posted earnings for its two most recent quarters. And during the last quarter, AMD's average selling price for a processor also rose, likely as a result of Opteron, because server chips sell for higher prices than desktop processors.

"A very modest contribution of unit volumes for server products has a very significant impact on bottom line revenue and profit," McCarron said.

AMD knows it's got a good thing going. "We've been pretty confident that the approach we've been taking to 64 bits is the right one...but the rate at which we've seen tier one OEMs (original equipment manufacturers) such as HP, IBM and Sun sign up exceeded our plans," said Dirk Meyer, senior vice president of AMD's Computational Products Group.

The server space is notoriously conservative when it comes to adopting new products. Meyer said he believes Opteron's initial success was because of pent-up demand from companies that were looking for servers that would offer a relatively inexpensive migration path to 64-bit software.

As far back as the mid-1990s, "we got visits from people in the technical communities, (and) from global tier-one OEMs begging us to do a 64-bit extension to the x86, because they saw it as something that their customers wanted," Meyer said. "It might be interesting...to know that even way back then, this is something we developed more as a pull from customers, instead of a push."

So far, AMD has shipped about 150,000 Opterons, mainly in two-processor servers, McCarron said. That's about half of all AMD's server chips during the year. Intel shipped about 6 million Xeon chips during the same time frame, he said.

Although it's present in a relatively small number of servers, Opteron has had a disproportionate effect on the server market as a whole. By prompting Intel to divulge its Nocona plans, Opteron essentially allowed AMD to set the agenda for the server industry, something it has not done before, McCarron said.

"I am sure (AMD executives) would prefer their unit volumes would be higher, but to make that much progress in a year certainly qualifies as an achievement," McCarron said.

Clusters of success
Many computer users in the scientific community have chosen Opteron because of its price and performance, said Mason Katz, group leader for cluster development at Rocks Cluster, a division of the San Diego Supercomputer Center at the University of California, San Diego. A little more than 6 percent of Rocks Cluster software customers use Opteron. That number may double by the end of the year, he said.

"We're seeing people buying Opteron clusters for about the same price as an Intel (Xeon) cluster, and basically for free they get 64-bit addressing (from Opteron) if they need it," Katz said. "What sets Opteron apart from other AMD server chips is that AMD is doing a better job of partnering with first- and second-tier vendors. The fact that you can go to someone like Sun (for Opteron servers)...is what truly makes it competitive with (Intel). AMD has finally figured out how to get into the top-tier vendors. It looks like Opteron is here to stay...which is really good news for everyone."

Opteron's continued success could also have a stabilizing effect on AMD. Because the server market moves slowly, it allows companies to build stable customer bases. Continued success in servers would help AMD better weather the volatile PC chip market, McCarron said.

Most of AMD's progress has been in single- and dual-processor Opteron servers used in computing clusters, or collections of computers strung together to create supercomputerlike performance. AMD and partners such as HP and Sun are testing the market for four- and eight-processor servers, which are more likely to be used by businesses to handle critical computing tasks, such as running databases. This week, HP launched its four-processor Opteron server; Sun's is still in the works.

AMD already has made a number of moves, such as the development of Hypertransport, to foster the development of four- and eight-processor servers with Opteron. It has also dropped prices of Opteron Model 800 chips.

Four-processor Opteron servers are appealing to Sun, said Souheil Saliba, Sun's vice president of marketing and strategy.

"When we announced the fact that we were going with Opteron, we announced it was going to go anywhere and everywhere," he said. "We decided very early on we were not going to put shackles on ourselves."

Sun plans four- and eight-processor Opteron servers as well as server blades using the chip.

"The nature of our relationship...is such that I am able to go back to (AMD) and say, 'What if? Have you considered doing this?'" Saliba said. "The good news...is they're all ears."

As for the next few years, the 64-bit debate on the desktop looms. Intel won't likely bring its 32/64-bit chips to desktops and notebooks until Microsoft's update to Windows is released. Code-named Longhorn, the operating system is not expected until the first half of 2006. By contrast, AMD says 64 bits on the desktop will start to gain popularity, at least with gamers, soon after Microsoft releases its first 64-bit version of Windows, due at the end of this year.

Analysts, however, have said AMD could be a bit optimistic. Few 64-bit applications exist and memory prices are on the rise.

One of the key features of 64-bit chips is that they can handle more than 4GB of memory, but memory prices are on the rise. Today, 4GB of DDR memory costs around $800 or more at retail, more than many complete PCs. Typically, memory constitutes only 8 percent of a PC's component costs, according to PC executives and analysts.

 

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