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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.

AMD's Spider platform is designed for gaming and multimedia desktops.

(Credit: AMD)

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.

In baseball, amassing a single, double, triple and home run in the same game is known as hitting for the cycle. AMD will try for the chip industry equivalent next year.

The company announced plans Monday to introduce a desktop PC processor with three cores in the first quarter of 2008. The three-core chip will carry the same Phenom brand name that AMD plans to attach to its quad-core desktop chips due to ship to PC companies by the end of this year.

Bob Brewer, corporate vice president of marketing and strategy, said that AMD's move was made in recognition that demand for quad-core chips has been tepid. There's simply not a lot of desktop software that can take advantage of four cores, and most of the growth in the PC market right now is in the notebook section, where quad-cores haven't yet made an impact.

But PC owners can still take advantage of multiple cores if they're running several applications at once, Brewer said. Therefore, AMD wants to offer the choice of buying a three-core processor for perhaps a little less than a quad-core chip.

Now, for the real reason AMD's doing this.

The three-core Phenom chip is basically the same as the quad-core one, it just has one less working core, Brewer confirmed. One disadvantage of the monolithic quad-core design that AMD chose for its quad-core chips is that just one manufacturing defect on part of the chip can knock out an entire quad-core processor. But if you invent a category for three-core chips, suddenly you can make money off those chips that would otherwise have to be discarded because of a defect that disabled one core.

This can lead to all sorts of speculation about the yields AMD is getting on its first quad-core parts. Barcelona, the server version of its quad-core design, was six months later than expected due to unspecified "technical glitches," which may or may not have to do with yields. It's really hard to know for sure, since no chip company wants to discuss yields.

But it's conceivable that AMD needs to allocate all of its working quad-core models toward the much more lucrative server market to boost its average selling prices. Then, to serve the desktop market, the company can trot out tri-core (triple-core? three-core?) chips.

If yield pressures aren't forcing its hand, then this is actually a good move for AMD. After all, you weren't going to get anything out of quad-core chips with a single busted core. Chip companies have been doing this for years; Intel's Celeron and AMD's Duron chips were the same as the Pentium 4 and Athlon XP chips, just with some cache memory disabled. The disabled transistors don't work, obviously, but they don't have any adverse effect on the working transistors.

This is also a product that Intel won't be able to easily match just yet. Intel's road map for the next six months or so calls for packaged quad-core chips, two dual-core chips put together into the same package. Intel's unlikely to switch to a design that could accomodate three cores until later in 2008 when it releases the Nehalem generation of chips.

But I tend to think this is going to be confusing for PC buyers already faced with four-digit model numbers when trying to make a decision on a processor. Because the three cores will be able to take advantage of the amount of cache memory that's usually allocated for four cores, a fast triple-core chip could outperform a low-end quad-core chips in certain situations. AMD will have to figure out a coherent way to explain that if triple-core chips are to take off.

Perhaps it's also worth noting that the triple is the hardest part of the cycle to pull off. AMD declined to specify its pricing plans for the triple-core Phenom processors, but the pricing will probably play a large role in how the chips are received by PC companies and buyers.