AMD server push fraught with peril
By Stephen Shankland
Staff Writer, CNET News.com
April 24, 2001, 12:30 p.m. PT
Advanced Micro Devices has signed up its most significant customer yet to help it win
a place in the server market, but the chipmaker faces numerous obstacles competing
with Intel in the new area.
NEC, the second-largest Japanese server seller after Fujitsu, said Monday it's using AMD's
1.33GHz Athlon chips--its fastest CPU so far--to power a special-purpose server "appliance"
that will be able to send streams of video over the Internet. The rack-mountable system uses
one server to encode video and audio information and two more servers to send the information
out over the network.
AMD has embarked on an ambitious effort to sell CPUs for use in servers, the comparatively
powerful computers that run network services such as sending out Web pages, running voice
mail systems or keeping track of company inventory. In the server market, profit margins are
plumper but customers are more demanding.
AMD has no choice but to
enter the server market to
compete with Intel, said
Technology Business
Research analyst Humberto
Andrade. Currently, Intel can
subsidize aggressive price
cuts on the products that
compete with AMD by
charging more for products
where AMD doesn't compete,
Andrade said.
"You've got to have a full line,"
he said. "It's like automobile
manufacturers with a small
car, medium-sized car, a
full-sized car, an SUV and a
pickup. If you have all those
segments, you're a strong
competitor.
"Intel can drop prices to compete as much as they want if they still have profit on the other
segments."
Low-end servers, while not as sophisticated as million-dollar machines from companies such
as Sun Microsystems, Hewlett-Packard and IBM, still are a cut above desktop PCs, with
requirements for more and higher-quality memory, faster and longer-lived hard disks, faster
network communications and other features.
The low-end server market--systems costing up to $100,000--grew 7 percent last year, from
$29 billion in 1999 to $31 billion in 2000, according to market research firm IDC.
AMD has grown more ambitious with its Athlon line, which for a time ran at faster speeds than
Intel's top-end models and which enabled AMD to grow out of its previous low-end, low-margin
stronghold. Intel has responded with an aggressive push to sell its new Pentium 4 line,
charging a mere $352 for its top-end 1.7GHz model.
"It's definitely a bloody price war," Andrade said.
But penetrating the server market is a different game altogether. Not only must customers be
convinced that AMD's chips have high enough performance, but AMD has to convince server
sellers it's in it for the long haul and go up against joint marketing agreements and other tested
Intel sales tactics.
To make headway in the server market, AMD will first have to make more than its current
limited progress expanding from home PCs to corporate models, said TBRI analyst Brooks
Gray. That route wins over conservative corporate buyers to provide an entryway to higher-end
bids.
"The progression needs to be through the corporate desktop channel first, then you can move
into servers," Gray said. "I'd be very surprised if AMD can jump from consumer desktops...to a
broad presence in the server market. The 'Intel Inside' brand clearly pulls more weight."
People and products
Major new products from AMD will provide the technological underpinnings for a more
ambitious server initiative, though. The company will release a new high-end "Palomino" chip
that, when paired with the AMD-760MP chipset, will enable two-processor servers and
workstations.
In addition, more powerful AMD chips that can process 64-bit instructions are due in the first
half of 2002, a spokeswoman said. The Clawhammer, targeted for single-processor and
two-processor servers, is expected in the first quarter of 2002, while Sledgehammer, for four-
and eight-processor servers, is due a quarter later.
Designing the underpinnings for multiprocessor systems is tough, though, as Intel can attest. It
faced numerous delays with its "Profusion" chips that enabled eight-processor Intel systems.
Multiprocessor systems require special-purpose chips to link the CPUs together and to
connect them to memory and other parts of the computer, a comparatively new area for AMD.
Reinforcing the technology is the addition of new personnel at AMD. The company has hired
Kevin Knox, formerly an analyst with Gartner, to help plug its products to corporate customers.
And leading the server and workstation marketing effort is Ed Ellett, who previously promoted
Compaq Computer desktop PCs.
AMD's allies
AMD has a handful of server partnerships, but some of the news of late hasn't been good for
the company.
Allies include U-tron Technologies and Net Integration Technologies--a far cry from the biggest
names such as Compaq, Dell, HP and IBM that sell Intel servers.
Cobalt Networks, acquired by Sun Microsystems in 2000, sold AMD-based servers for dishing
up Web pages. But the newer Cobalt products are based on Intel's Pentium chips. And
Penguin Computing said it was dropping Athlons from one server line because it didn't support
two-processor systems.
AMD thus far has only a "minimal" presence in the server market, said ARS Market
Intelligence analyst Steve Greenberg, but the NEC deal will help. "This recent news by AMD is
a strategic move in which it will enable the company to penetrate into the corporate enterprise
market."
NEC, though, isn't the strongest of allies. The company is the ninth-largest server seller
worldwide, with the vast majority of its sales in Japan. And NEC's PC shipments slipped 0.5
percent to 1.5 million units in the first quarter, according to recent figures from Gartner.
But AMD has strong allies in the desktop market, Andrade said, which could prove fruitful in its
server push. In Japan and Europe, NEC and Fujitsu have close ties with AMD, he said.
"They have relationships with every single important (computer maker) out there but Dell,"
Andrade said.
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