Intel’s Punching Bag Finally Has a Chance to Compete

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(Bloomberg Businessweek) -- For 50 years now, Intel Corp. has had Advanced Micro Devices Inc. to kick around. AMD has seen good eras, but it has remained an afterthought in the semiconductor business, and less than a decade ago seemed so adrift that analysts predicted it would be acquired or simply go out of business. Today, things are starting to look different.

In its five years under Chief Executive Officer Lisa Su, AMD has scraped its way back to relevance. It has stabilized and improved finances, spent the money needed to develop chips that can outmatch Intel’s, and sold them to major clients who might have laughed it out of the building a few years ago. Those heavyweights include the cloud arms of Amazon.com, Microsoft, and (as of Aug. 8) Google, the trifecta of cloud computing. The big cloud providers are especially desperate for an alternative to Intel’s pricey server chips. “We’re really excited to have AMD as an option for our customers,” says Matt Garman, who heads infrastructure for Amazon’s cloud business. “For a long time, they weren’t.”

Intel’s Punching Bag Finally Has a Chance to Compete

AMD’s value proposition used to begin and end with price—being a cheaper Brand X. Arguably its greatest disadvantage was Intel’s ability to steadily refine its manufacturing production techniques, improving its chips’ capacity and performance while lowering their costs. But Intel botched the rollout of its most advanced technology: processors made up of transistors just 10 nanometers thick, 7,500 times thinner than a human hair. Years of delays have handed AMD a real chance to challenge Intel in the lucrative server-chips business, a market in which a single chip can cost close to $18,000. AMD said on Aug. 7 that it has 7-nanometer server chips ready to order and that Google is already using them. Intel has delayed its older 10nm shipments until sometime next year.

“I like to keep my promises,” says Su. Lee Rusk, an AMD engineering project leader who’s been with the company for more than three decades, says of his team’s beating Intel to market with smaller transistors, “It’s just kind of mind-blowing.”

Intel says it’s been delayed because incorporating all its best innovations into the chips has taken longer than expected, and it’s confident its designs will help maintain its market share. “It’s natural market behavior to have customers always look at what their options are,” says Lisa Spelman, a vice president of Intel’s Xeon server business.

When Su, an electrical engineer by training, became the first woman to run a chip company in 2014, she was AMD’s fourth CEO in a decade. The company had lost money in six of those 10 years, and with glitchy chips that were weak imitations of Intel’s, its share of the server-chip market had gone from 26.2% to less than 1%. Today, it’s still just 3.4% while Intel has pretty much all the rest, according to Mercury Research, but AMD’s share is growing, and its share price has increased more than ninefold since Su took over, to about $32. “It’s all about earning credibility. Every single day,” Su says. Now that the chips have been redesigned from the ground up, she adds, “We are structurally in a better place.”

Born in Taiwan, Su graduated from the Bronx High School of Science in New York and got her Ph.D. from MIT. After stints at such places as Texas Instruments Inc. and IBM Corp., she arrived at AMD in 2012 as a senior vice president in charge of much of the company, and helped turn things around by getting AMD chips in Microsoft’s Xbox One and Sony’s PlayStation 4. As CEO, she’s mostly kept her head down and focused on customer demands, compared with predecessors known for splashy product launches that often couldn’t deliver on their promises or their jabs at Intel. (The long-standing industry joke was that AMD stands for “Almost Made a Difference.”)

Su says she’s not involved directly in the engineering of AMD’s products. Yet when AMD was developing the Zen chip design at the heart of its current processors, she’d turn up in the lab to review test results. She also made the decision to move production of her best chips to the factories of Taiwan Semiconductor Manufacturing Co., which exclusively builds chips for other companies instead of designing and selling its own.

The CEO and her team say they aren’t taking their momentary advantage for granted, or fooling themselves about the challenges ahead—like that other 96.6% of the server-chip market. “Judge me on what franchise I build five years from now,” Su says. Intel remains roughly seven times AMD’s market value, and its server unit alone last year recorded a profit of $11 billion, close to double AMD’s annual revenue. Still, Su says that imbalance in resources and reach is motivating, not overwhelming. “I expect our competition is going to continue to be very formidable,” she says. “But yeah, I think we’ve earned a seat at that table.”

To contact the editor responsible for this story: Jeff Muskus at jmuskus@bloomberg.net, Jillian Ward

©2019 Bloomberg L.P.

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