AMD Bullish On Future Of Graphics Business

After a mixed third quarter, AMD is looking to build on its edge in graphics technology while still trying to figure out how to capitalize on it.

Dirk Meyer, the CEO of Sunnyvale, Calif.-based chipmaker Advanced Micro Devices (AMD), emphasized the importance of the company's graphics business during AMD's third quarter earnings call Thursday. Meyer spoke at length about the growing importance of both discrete and integrated graphics units as AMD focuses on protecting its margins.

"To the extent that the industry conversation is increasingly a conversation around graphics," Meyer said during the Q&A. "I just think that's awesome news for AMD, since we've got the world's best graphics. And clearly graphics capability is increasingly important to consumers, given what they do with these machines."

AMD is expected to release the 6000 series of its Radeon reference design next week. AMD acquired Radeon in its 2005 acquisition of ATI, a brand name AMD dropped last month. Meyer confirmed that the release of an AMD product was pending, without specifying which product.

"We'll be introducing our second-generation of DX11 technology into the market with some launch activities next week," Meyer said.

Next: Advantages For AMD

The reference to Windows DX11 support for AMD's reference architecture underscored a possible advantage in AMD's competition with Intel to develop integrated CPU and GPU cards, which AMD calls Accelerated Processor Units (APUs). Intel's Sandy Bridge reference design is its highly-anticipated response to AMD's APU-based Fusion technology.

"The chatter in the industry, of course, is that Sandy Bridge has improved graphics capability as compared to Intel's previous integrated graphics platforms," Meyer said. "While we expect that to be true, we also expect that capability is not going to be at the leading edge of capability that consumers demand."

Meyer offered one important point of differentiation between Sandy Bridge and Fusion, "An example of that is the modern graphics standard these days is the Windows 7 DX11 standard, which it's our understanding that the Sandy Bridge doesn't support."

While Intel hasn't yet added the capability AMD brings to market, Nvidia, in Meyer's point of view, added it a bit too late.

When asked about the high-volume desktop graphics for AMD's competitors, Meyer took an explicit swipe at rival Nvidia and said he felt "bullish" about the competition.

Next: Meyer Comments On Nvidia

"Nvidia came out with some more-competitive DX11 products, finally, and those had some impact in the marketplace, although as I said we've now shipped 25 million DX11 parts and are going to refresh the product line top to bottom this quarter. So we feel very bullish about where we'll leave the year competitively," Meyer said.

Meyer said AMD offers greater value than competitors in terms of graphics performance, power concumption, and price points, and also has the edge in integrated CPU/GPU processors. Overall, he said AMD is "able to deliver a more vivid experience to the user."

However, the more confidence Meyer expressed in AMD's graphics technology, the more apparent it was that AMD's products had yet to deliver the market share gains that the company had hoped.

Meyer was strikingly candid with regard to AMD's difficulty translating advantages in technology into profitability, particularly with regard to graphics: "Profitability is the big focus, and we put that focus also on our graphics business. However, the third quarter was a bit special. We saw a significant sequential decline in revenue and with that a loss in gross margin that we could not compensate for."

Meyer cited three factors to explain the sequential weakness in AMD's discrete notebook graphics earnings in particular.

Next: Demand Weakens

The first factor as weakening demand. "I think with the benefit of hindsight we probably saw in Q2 some customers double ordering from us. There was chatter in the industry that our foundry supplier for GPUs was short, our supplies were short. And therefore we probably saw OEMs trying to ensure they had enough inventory to cover whatever demand scenario unfolded. And therefore as demand weakened a little bit we probably saw OEMs want to start to drain their notebook GPU inventory."

The second factor Meyer mentioned sounded much like the first, with a particular emphasis on the impact of Nvidia, AMD's main rival in the graphics space.

"Some of our customers, in response to our real or perceived GPU shortages, created Nvidia capable notebook platforms, just to protect their position and ability to ship," Meyer said.

The third and final factor was OEMs de-emphasizing the discrete graphics option in response to the dramatic weakening of the Euro that occurred 90 days ago, he said.