Top 10 Chip Stories to Watch in 2008

This past year was an exciting one for processors and platforms. Next year looks to be another one filled with technological innovation and oversold hype, business rumors that don't pan out and surprises that shock us all, and as always, winners and losers in the big game of chips. ChannelWeb assembled a panel of industry experts comprising vendors, analysts and solution providers to discuss what they think will be the most important chip stories to watch in 2008.

BUSINESS

1. Is AMD on the Brink?

Advanced Micro Devices had a rough 2007, losing dollars by the hundreds of millions each of the three quarters it has reported earnings for this year. A good portion of that financial misery can be attributed to costs associated with the Sunnyvale, Calif.-based chipmaker's acquisition of Canadian graphics maker ATI in late 2006. But AMD also struggled to roll out a quad-core microprocessor to match rival Intel's, and ended the year with the revelation that a glitch on its already-delayed quad-core Opteron and Phenom chips had delayed volume shipments of the former until February or March.

AMD CEO Hector Ruiz doesn't expect profitability until the third quarter of 2008. So the question becomes, can AMD survive any more setbacks? Some on the panel fear that if all doesn't go well, the company could be broken up in 2008 or 2009. And 38 percent of ChannelWeb poll respondents characterize the quad-core delays as "a disaster" for AMD. Of course, AMD has survived lean times before and has a track record of surprising everybody with game-changing products. By most estimates, the company has a year to five quarters' worth of cash reserves to turn things around. If AMD can get its quad-core offerings back on track in early 2008, build on headway it's been making in the mobile space and convince buyers that the AMD-ATI tag team has no rival on integrated CPU-GPU punch, that could happen.

"If AMD is not able to compete in the server space, it would be a devastating blow to their recovery," said IDC analyst Shane Rau. "If AMD misses a Q4-Q1 cycle, we're going to be looking at Q4 08-Q1 09 for the next big opportunity."

Joe Toste, vice president of marketing at Equus Computer Systems, said the irony is that the industry needs a strong AMD. "But this is the year that Intel shifts their paranoia from AMD to Nvidia. [Intel CEO Paul] Otellini was really upset that Apple notebooks went to Nvidia."

2. Intel's Game of Monopoly

The biggest semiconductor company in the world continues to face lawsuits and anti-trust proceedings in a number of venues around the globe. Allegations that Intel has monopolistic practices largely stem from rival x86 chipmaker AMD's claims that Intel has offered various "rebates" to computer manufacturers in exchange for maintaining the use of competitors' chips at just 10 percent of their mix or less. Regulators in a number of markets have taken those charges seriously, and the Santa Clara, Calif.-based chip giant enters 2008 facing legal difficulties in the United States, the European Union, Japan, South Korea and other venues. Recent developments include formal accusations of anti-competitive practices by the European Commission, which if proven could result in Intel being fined 10 percent of its annual revenue, and by South Korean regulators, which could carry a fine of 3 percent of annual sales if Intel is found guilty. Needless to say, Intel denies all charges and allegations in these cases.

Two questions for the coming year are whether we will see final judgments on any of these proceedings, and if Intel winds up being penalized, to what extent it will affect the chip giant's business. On the first question, AMD insists that the nature of its assorted cases against Intel mean judgments will be rendered quickly.

On the second question, panelist F. Scott Kieff, a law professor specializing in anti-trust regulation in the technology sector, believes the comparison to Microsoft works in Intel's favor. Kieff feels that Intel is "getting unfairly beaten up" on anti-trust matters and could face stiff penalties in the coming year. But he also contends that assorted rulings against Microsoft show that you can penalize a market dominator and scarcely cause it to break stride.

"It's hard to predict, but we could see tough action taken against Intel," said Kieff, a professor at Washington University in St. Louis. "It's just not clear that it would make a big impact. Most people think the actions against Microsoft cost Microsoft a lot of money, but they didn't change the market much. Meanwhile, if AMD were to go away, the logic of EU regulators would make them look even harder at Intel."

3. Consolidation in the Cards?

With IT booming and the giants of technology reporting record earnings, market watchers' thoughts turn to the possibility of mergers and acquisitions. But in the chip space, it's difficult to predict who could conceivably gobble up whom. Intel, as previously mentioned, has anti-trust concerns all over the globe. The company has been humming along without making any major acquisitions in years, so why give its enemies more monopoly money to play with now? AMD, meanwhile, is probably too busy trying to pay for ATI to think about more acquisitions in 2008.

For the panel, that leaves Nvidia as the major client player with the best likelihood of entering the M&A sweepstakes. The Santa Clara, Calif.-based graphics maker could certainly use a CPU presence to reduce its somewhat parasitic relationship with CPU makers. But does Nvidia really want to directly challenge its gargantuan neighbor Intel on its prime turf? That's a game another Silicon Valley neighbor, AMD, is increasingly finding tough to suit up for. If Nvidia does make a move, a number of panelists mention VIA, a maker of ultra-low voltage x86 chips for ultra-small PCs, as a possible acquisition. Then there's the blockbuster a few panelists dare to predict: An Nvidia-AMD merger. Toss in wild-cards like IBM and Samsung, and as panelist Steve Dallman of Intel said, "I think next year's going to be a pretty exciting year."

Rahul Sood, CTO of HP's global gaming business, said, "Nvidia should probably get into the business of making CPUs, or pushing hard on GPU computing. Who knows? Maybe they'll look to buy VIA, or perhaps they are watching AMD closely. Either way, they could seriously turn this industry upside down."

Dean McCarron, president of Mercury Research didn't agree. "I don't think acquisitions will be a big story in 2008. But a lot of eyes will be on AMD changing their manufacturing arrangements. Are they going with an asset-light strategy? Fabless or limited ownership?"

Next: Technology Developments to Watch

TECHNOLOGY

4. Virtualization Goes Mainstream

Virtualization may have been the hottest technology in 2007, what with VMware's boffo IPO, Citrix's acquisition of XenSource as well as Oracle and Microsoft's belated entry into the fray. But 2008 will be the year when all the buzz becomes reality, panelists said. Bob Anderson, executive vice president of business development and strategy at ZT Systems, saide he thinks that the push for power savings in data centers is the overarching story that affects all other trends in the market. And as IT professionals continue to fret about reducing the energy consumption of servers, virtualization will be regarded as the No. 1 cure.

Patrick Moorhead, vice president of advanced marketing at AMD described 2006 as the "proof-of-concept" year for server virtualization, 2007 as a year of testing and small-scale integration, while, "2008 is the year in which you're going to see actual volume."

That means continued jockeying for virtual pride-of-place on Windows and Unix servers between HP, IBM, Dell and Sun, as well as plenty of opportunities for smaller system builders. Managed IT service providers will also have a piece of the action, according to Moorhead, who said, "Virtualization is going to make a huge statement in the MSP channel." He also believes client-side virtualization is now in the position that the server-centered technology occupied in 2006.

Keith Millar, vice president of product management at Liquid Computing, added, "There's going to be a race to support Virtual Machines with processor features, such as memory mapping and virtual page management."

5. Graphicspalooza

With the explosion of high-definition digital media and gaming, graphics and video processing is integral to PC performance across all form factors and price points. User experience isn't just for enthusiasts anymore. That means that while the traditional path of cutting-edge graphics trickling down to the mainstream from high-performance systems is still operative, that cycle is now a whole lot tighter. Nvidia and AMD's ATI division are the most obvious drivers of this trend, but watch out for Intel, especially in the ultra-mobile space, said panelists.

Meanwhile, the particular strengths of GPU processing -- like grinding through critical computational algorithms in mathematically demanding work -- is being exploited as never before to accelerate system performance. Areas to watch include stream computing, where Nvidia and AMD will continue to go at it with competing products in 2008.

"The strongest part of a mainstream [whitebox] business is the $1,000 system. That's not the biggest part of the market, but we see it as the strongest and the biggest growth area. Every single one of those systems has a GPU in it, so that tells you something," Toste said.

"Graphics are more than just for games," Moorhead added. "On the mainstream client, all things Vista, like Google Earth and Powerpoint, have become 3D-aware and that's just the start. You will see software that will take video encoding and use the GPU to bring what would be a 10-hour rendering process into real-time. On the server-workstation side, you're looking at real-time rendering for not just movies, but pharmaceutical companies running intense math computations. Or weather modeling, which is just one giant mathematical computation, taking current data and doing what's called pattern-matching. This is the year the whole graphics thing is going to bust out of the seams."

6. Small Victories

Is this the year we finally get "the whole Internet in our pocket?" That's been the dream for some time, and 2007 was notable for the release of several dynamic ultra-mobile personal computers (UMPCs) and smartphones. The iPhone got the biggest buzz, but slightly larger x86-based UMPCs from companies like OQO are arguably more impressive, ounce-for-ounce. OQO's O2 UMPC runs on a CPU from VIA, an up-and-coming maker of ultra low-voltage chips.

Apple showed us that a smartphone can sell like hotcakes. But to get the full Internet experience on a tiny device, a lot of work remains to be done. According to Intel CEO Paul Otellini, the hardware -- from those ultra low-voltage CPUs to solid state flash drives the size of a penny -- is already there. But at September's Intel Developer Forum, Otellini said two big hurdles stand in the way of the full PC experience on a UMPC or handset. First, software developers must figure out clever ways to squeeze the large-format, graphically rich interface of the Web onto the smallest of screens in user-friendly fashion. The other big challenge, Otellini said, is connectivity. On that front, Intel is putting a whole bunch of its eggs in the WiMAX basket. However, a list of currently deployed WiMAX networks around the globe shows how far we are from widespread adoption of that standard, let alone whether it will ultimately be the one we adopt.

Intel's not hedging its bets on this space blowing up -- the chip giant has its first UMPC platform, the Silverthorne "system-on-a-chip", coming out in 2008. Our panel's not as eager to bet it all on small just yet, however. They have questions as to whether progress on UMPC technology will live up to the hype, if a stable ecosytem of OEMs will emerge, and to what extent sales of such devices will grow.

"2008 is a very interesting year for UMPCs, with lots of hype. The technology will be catching up with the vision of the product. VIA plays in this segment. They've picked up some wins and we should see some competition between them and Intel in this area," said Mercury's McCarron.

Added IDC's Rau: "You need an SOC [system-on-a-chip] to create a performing device. It's a well-into-2009 development. Demand for UMPCs is still very slight, representing about 1 percent of volume according to IDC numbers for UMPCs out of mini-PCs."

7. Tick and Tock

Before the extent of AMD's annus horribilis became widely understood, chip watchers were eager to see if either AMD or Intel would be able to race ahead of the other on both micro-architecture and die fabrication in 2008. With its "native" multi-core architecture, AMD is believed by some to hold the advantage in "tock", while Intel's already raced ahead on "tick" with its late-2007 launch of 45nm-process devices. And while the smaller chipmaker's woes have put a bit of a damper on that horse race, it will still be exciting to see whether AMD gets its next die shrink rolling before Intel succeeds in ramping its scheduled micro-architecture reboot, codenamed Nehalem -- or vice-versa.

Nehalem is widely expected to be a major redesign that will bring Intel's micro-architecture in line with AMD's, meaning independent power supplies to individual cores and a memory controller on the CPU die. The folks at AMD believe that's a tacit admission from the market leader that the smaller guys got it right in the first place. Meanwhile, Intel can't have helped but notice all the delays AMD experienced in moving to quad-core. Building chips the way AMD does is exceedingly difficult to do. You have to wonder if Intel's going to be able to hit its second-half deadline for shipping such a complicated upgrade. Interestingly, AMD's target for 45nm is the second half of 2008, as well. We'll see which company gets to its target first.

"Our architecture with Barcelona and Phenom is the one Intel wants to get to," AMD's Moorhead said. "And we'll ramp up 45nm in the second half of next year, so we'll be on the same footing there. It will in some ways break Intel's business model, because they'll have a memory controller on there also. How will they price that?"

Steve Dallman, general manager of the Worldwide Reseller Channel Organization at Intel, said, "So when we get Nehalem in the second half of 2008, that's going to be a heck of an opportunity for a lot of the system builders. It's an opportunity for high-end products, and later on, a tier below that. Nehalem will probably be one of the biggest architectural changes the channel will have seen in the past few years."

Brian Corn, vice president of marketing and development at Source Code, concurred. "With Nehalem, we'll finally be able to compare Intel with AMD. All this time, we've been comparing apples and oranges because of the fundamental differences in their micro-architectures. Now the technology, like the way the memory architecture is built, is going to be really, really similar."

Next: Channel Developments to Watch

THE CHANNEL

8. Platforms, Platforms, Platforms

If 2007 was the year hardware platforms really found purchase, 2008 will be the year they really take off, said panelists. For the channel, that's exciting news. Building around integrated hardware, firmware and software platforms is a no-brainer for makers of custom systems. Intel's vPro and Centrino Pro platforms got the most channel ink in 2007, and it's no wonder. Those platforms for commercial desktop and notebook clients are designed to enable secure, dynamic remote system management below the operating system, giving vPro and Centrino Pro broad appeal to internal IT administrators and managed service providers alike.

AMD closed out its year with the release of its Spider platform, a mid-priced integrated building block for enthusiast systems that incorporates its new quad-core Phenom CPU, new graphics cards from its ATI division, its 7-series chipset, and overclocking tools for hard-core gamers. Somewhat lost in the shuffle of AMD's financial and manufacturing struggles was the news that AMD is only just beginning to capitalize on the synergy between its CPU and GPU divisions since acquiring ATI. Going forward, AMD will unveil its third-generation mobile platform, Puma, and a commercial client platform called Hardcastle in 2008. Meanwhile, Intel has platforms a-plenty in store for next year, including a 45nm refresh of Santa Rosa (desktops/notebooks), Montevina (the fifth-generation Centrino platform set to succeed Santa Rosa), and its 'systems-on-a-chip' Silverthorne (UMPCs) and Canmore (consumer electronics devices) platforms.

Nvidia, too, will be making platform plays, such as its late-2007 release of integrated graphics chipsets for lower-end Intel CPUs. Perhaps more interesting than that is the work Nvidia is doing with other components builders to create a system-wide standard called Enthusiast System Architecture. That initiative establishes an information-sharing protocol between PC power supplies, chassis and water-cooling systems that can be used to adjust operating parameters for those components, giving builders and users of high-performance PC systems a new way to fine-tune primary system support components.

Platforms "represent the current dominating trend, multiple components under one brand," Rau said. "Years ago, the chipmaker would just throw a processor over the wall to the OEM. Those days are gone."

Added McCarron: "Platform-wise, Nivida is moving into the Intel chipset market. The year of the battle between Intel and Nvidia is this year. Both Intel and Nvidia have very good track records on execution."

9. Whitebook Wonderland

Will we ever have a whitebook ecosystem that rivals the whitebox desktop and server channel? On the one hand, with major changes to its Verified By Intel (VBI) standardization program announced late in 2007, Intel basically conceded that there's no good way to police many notebook components to the extent it does for desktop and server/workstation building blocks. On the other hand, analysts agree that notebook shipments are going to overtake desktops sometime in the first half of 2009, if not near the end of 2008. For system builders, the question is whether the growing demand for mobile PCs -- particularly in custom-hungry verticals like education and health care -- justifies entering the whitebook fray in the face of intense competition from major notebook vendors.

The profitability of whitebooks will probably never match that of whiteboxes in their heyday, said panelists. What's more, few in the channel will be pure-play whitebook builders -- most system builders with whitebook offerings will also have managed service offerings and even branded notebooks in their mix. So while the sheer demand for mobile PCs guarantees that a whitebook ecosystem is going to grow and thrive, it's going to look a lot different than it did in the past.

"There is a transition from desktops happening. But the whitebook will only be successful if Intel makes it successful," said Toste. "Intel first did Common Building Blocks, then VBI. It's moving the whole ecosystem for the worldwide channel based on these standards. They want to really leapfrog the Asuses, etc., and go directly to the people making the cases, the power supplies, the displays. What to watch is what Intel does in mobile strategy for the channel."

McCarron said he expects development in the whitebook channel. "If you look at how rapidly this switch from desktops to laptops is happening -- 2009 is virtually guaranteed, and I think 2008 is likely. There is already the beginnings of a whitebook ecosystem, and I expect it to continue. It's going to be hard to standardize motherboards too much, but optical drives can be standardized, and memory and hard drives already are. I'd expect to see multiple ecosystems, with a few key suppliers."

Added Intel's Dallman: "We're still pretty committed to improving the channel's ability to integrate and provide notebooks. It won't go to the degree of integration that they were able to in desktops, because the parts are somewhat molded together. But Common Building Blocks has been taken on by even HP. With the rapid changes occurring in technology, the channel can be really successful at being first to market with the latest platforms."

10. The Shift to Service

It's been said a jillion times before, but IT services are where the opportunities are for VARs. Two developments will make vendors and VARs pay even more attention to managed services in the coming year, said panelists. The first is the burgeoning ecosystem of OEMs, software developers and MSPs that's growing around Intel's vPro and Centrino Pro platforms. Expect rival chipmakers to make their own moves in this growing space in 2008. The second is the realization by the industry that today's small businesses have IT needs that simply aren't being met -- and piles of untapped dollars waiting to be spent on the right service offering. For VARs adrift on the enterprise sea, SMBs look like giant, cartoon pork chops.

With the commoditization of hardware, not to mention the rise of virtualization and other power-saving technologies that bite into sales volumes, pure product reselling has never been tougher. Get on board the services train before it leaves the station, said panelists.

"The reason we've been successful is a perfect storm of technology coming together with vPro and other tool sets becoming so robust," said Michael Drake, CEO of Master IT. "You've got the ubiquity of the Internet, so businesses need to have non-stop uptime. And now you see the CEO's or the business owner's willingness to let go of IT, because we [MSPs] have matured enough as a juvenile industry to show them the money."

Toste said Intel is "doing cool stuff with vPro and Microsoft. Nobody can say Intel's not helping you. They want to help system builders extend their product mix with managed services. So should system builders move into managed services? Well, you can partner with somebody, but you'd better have some kind of break-fix component of your own."

Intel's Dallman, too, sees the shift to services. "Even the system builders are saying, 'Maybe I should buy a done mobile unit and provide services to my customer. The channel is probably touching or shipping as many systems as they've ever shipped, and anywhere they're not building, they're touching with managed services."

Added AMD's Moorhead: "The highest value-add when you're a custom system builder is configurations where people are looking for choice, like hard drives, memory and special skins. The custom guys don't go after lowland desktops anymore. With more commodity-level notebooks, channel guys will take in a branded notebook and wrap the services around that to make a profitable business."