Wednesday, May 31, 2006

Regain The Lead?

"[At AMD, t]hey've been very quiet recently on what they are going to do to regain the lead in the server space in the back half of the year" [my emphasis].

That was Doug Freedman quoted in reuters.

Mr. (?) Freedman, you are an imbecile because AMD currently has the lead ALL ACROSS THE BOARD, having the undisputed best processors from the top multiprocessor x86 server segment to dual core 64 bit processors for the mobile market, including the value desktop, and the gaming high end market. If Intel is able to regain the lead at some of those segments, that is something THAT HASN'T HAPPENED, thus AMD doesn't have to regain anything, quite the contrary, at most you may wonder what are they doing to KEEP THE LEAD.

Tuesday, May 30, 2006

AMD Digital Media Xpress

This is a technology that I don't know of, but it caught my attention the following, from laptoplogic:

The 128-bit Digital Media Xpress instructions are able to compute up to four floating-point operations in a single instruction. These instructions can simultaneously operate in parallel on multiple data sources.

The number of XMM registers are doubled from 8 to 16. This inceases performance by reducing substantial memory access overhead.

As I said many times before, the main advantage of AMD64 is not the huge addressing space, but going from the puny 8 General Purpose Registers (AX, CX, DX, BX, SI, DI, BP and SP) of which only six are truly GPRs, to 16 GPRs.

It has been confirmed by independents that it is included in Turions X2, although AMD has been quiet about it. Perhaps AMD is still deciding whether to make it official as it is right now, or to finish the specification with minor modifications.

Core2 Beginning to Crumble

The Inquirer gives us an interesting article that discredits that the upcoming products are as good as claimed. If they were that good, and easy to manufacture, Intel would be allowing reviewers to freely play with them, but it is happening the opposite.

Intel gathered reviewers, gave them Conroes and Benchmark Software to do the reviews which Intel expects to be published by June 4th. Also, the reviewers were promised to be sent units "at a later date", but haven't received them.

Intel is a marketing-governed company. If Intel had truly good products, in mass production as would be expected for something that will be launched in less than two months, it would leave the reviewers to play with those supposedly excellent products any way they wanted, to create a wave of word-of-mouth enthusiasm.

Nevertheless, the Conroe sightings (and Woodcrests, Meroms too for that matter) have been suspiciously scarse.

Let us review Intel's attitude towards Core2 processors:

  • Many months ahead of launching, Intel disclosed that they have managed to develop killer new products,
  • That those products were coming imminently to the market
  • And Intel didn't care about totally eroding the credibility of all Pentium 4s embarrassing them by the comparison to the next products.
Thus, they followed an attitude of "tabula rasa" and "all or nothing" with Core2. How are we going to believe that they want to be secretive now? We must conclude that Intel is having serious problems with the new processors.

We already have pointed out predictions:
  • That they are very complex, thus it is entirely reasonable to expect all sorts of development delays, production delays, and overall low quality like in Blue Screens of Death.
  • Being so big (larger than the 90nm they come to replace), they must be very hard to manufacture
Naturally, the recent developments are in agreement with these predictions. That's why I will go beyond to speculate about exactly what's the matter:

I don't think the most important problem to be yields (the statistical distribution of operative processors versus clock frequency), because although they are gigantic in area, since Intel managed to ramp Yonah (Core Duo) quickly enough, it demonstrated it has enough control of the 65nm process, therefore Core2 would be at most harder to manufacture, but definitively mass produceable.

Then it should be processor malfunction. I think that Intel has not been able to iron out all the bugs in Core2. I guess that the frequent operational situations are well covered, but not the rare cases. To avoid Blue Screens of Death (BSODs), they must make sure that the software will not trip the bugs, and the only way to accomplish that in tests and benchmarks is to make sure they have been patched by Intel. It is becoming more probable almost by the day that Core2 will require Microsoft and other Software vendors to come up with patches to "support" Core2... Don't expect anybody to say that the Core2 need the patches because they are buggy, but expect any Marketing bullshit such as "since Core2 are so advanced they require updates to the Operating Systems and Applications to make use of all of its features".

In Bob Colwell's Stanford lecture, he complained that in the very old Pentium Pro the problem of race conditions already showed up with all of its nastyness. That is, with the re-ordering in Pentium Pro, sometimes the processor followed a re-ordering strategy that far from incrementing the efficiency made the processor to stall. I have worked as Software Architect in low level of abstraction software, therefore I have firsthand knowledge about how difficult the race conditions are to predict, detect, and correct. Being Core2 so much more aggressive in Reordering and other optimization strategies, it is truly a certainty that they are susceptible to lots of bugs and race conditions, that must be one among the many problems Intel is desperately trying to solve right now.

The insistence of management about this unrealistic schedule may be an indication of Intel's internal disconnection; although these design and development problems are crucial, they are also not at all easy to understand for those who don't have a solid engineering background. The Marketroids at Intel that compose top management must be just demanding from engineering something as impossible as demanding from nine women to deliver a baby in one month; the reality of the bees nest they got into will explode in their faces very soon.

Imagine then some problems in manufacturing (yields of less than 40% operating processors and most of those can't run at the promised frequencies) with a buggy operation, and all you can do to sustain the illusion of superiority is to cherry pick wafers, processors, tests, benchmarks, reviewers and do special manufacturing runs for demos.

Isn't it in Sun Tzu's "The Art Of War" that if you are weak you must pretend strength, and if you are strong you can pretend weakness?

If you care to read more about this subject, in "Steam..." I said, doing an analogy between Steam Engines/Diesel-Electric and Intel/AMD processors:

The design ideas and techniques of Steam Engines were exhausted, played out, but Diesel's had the whole world ahead.

Intel's new lineup of products are steam engines. There aren't any new ideas to further the basic Pentium Pro architecture; I, for one, am skeptical from the professional point of view (summary here), about some of the design compromises Intel chose; and in particular, there are some assertions that my considerable understanding of this subject are not capable of explaining, such as the claims of higher power efficiency, or how is Intel going to successfully deal with the problem of trading off combinatorial complexities for marginal benefits so pervasive in all engineering disciplines; especially with Intel's track record.

Monday, May 29, 2006

AMD's balance sheet

To help those pondering the third factory news (or conversion of Fab30 to Fab38), I have prepared the following table with the help of the data available in Google finance about AMD:

In Millions of USD (except for per share items) As of 2006-03-26 As of 2005-12-25 As of 2005-09-25 As of 2005-06-26 As of 2005-03-27
Total Equity 4709.92 3351.84 2974.24 2846.61 2934.7

Total Common Shares Outstanding 483.39 435.53 401.96 396.33 394.7

Equity per share 9.74 7.7 7.4 7.18 7.44

Approximate stock price at quarter ending 36 31 23 17 16

Approx. Share Price/Book Value ratio 3.69 4.03 3.11 2.37 2.15

As we may see, when AMD was at $36 it wasn't even trading at 4x book value. Today, at $31+, we are, relating to the latest report, at 3.2x book value. This severely discredits the accusations of stock dillution formulated against AMD. In any case, it is important to see how much the book value of the company has risen, being so big, it is very notorious and phenomenal.

Assuming that the 2.5 G$ investment is raised half and half between stock issuance and debt, the stock holders equity will grow by 1.2 G$. At a price of $30 per share, we are speaking about 40 M shares, or 8.3% of the float. Assuming 3x share price to book value, that means that the infusion of 1.2 G$ translates to (100% + 3*8.3%)/(100% + 8.3%) * $31 = 115% * $31 = $35.75. Take into account that the 15% share price will be absorbed along the following 18 months.

Of course that there are more details involved such as the expenses of decomissioning Fab30 to make it Fab38, but I think the general approach works, do your own calculations if you want and let us know of your results.

[ Update May 30 ]
Look also at the dramatic decline of Inventories in the last two quarters. This speaks of a company that is selling off all of its production (Q1 06, Q4 05, Q3 05, Q2 05, Q1 05)
Total Inventory 337.22 388.63 931.76 911.16 846.15

As a comparison, look at the financials for Dell, and you will see the opposite: 20+% reduction in Equity, a Book Value of about $1.5, meaning a multiplier of more than 10x!!

Third Factory, 300mm

"As global demand continues to rise for AMD products, we are scaling our manufacturing capacity intelligently to meet our customers' growing needs"
"We expect that AMD's momentum and demand for our products will continue to increase, fueled by our technology leadership, our commitment to customer-centric innovation and the continuing global antitrust scrutiny that will ensure truly competitive markets."
hrough the combination of leading-edge equipment, Automated Precision Manufacturing (APM) and the great people of Dresden, the plant will [reach] full capacity by the end of 2008"

Dr. Héctor de Jesús Ruiz, Chairman of the Board and Chief Executive Officer.

Is it justified a third factory for AMD?
How would the stock market appreciate this 2.6 G$ investment?
Are there other implications about this move?
These questions are what is going to be treated in this article.

1) AMD currently has a 200mm factory running at over 100% designed capacity (it is "borrowing" area from Fab36 among other tricks to accomplish this, according to Charlie Demerjian), by the time Fab36 will be reaching full capacity, substantial investments would be needed in Fab30, including upgrading to 300mm rather than 200mm equipment. It has been demonstrated that there is sinergy between AMD Fabs, look at what Charlie says about Fab 30 doing 150% what it was designed for thanks to spare space in Fab36; that helps to justify to put all the eggs in one basket. Besides, the German government loves this kind of economical activity, and everything seems to indicate that it will continue to underwrite, and even finance, the construction of facilities.

When Dr. Ruiz says "the Great People of Dresden", it is not just a courteous remark, it is true. The great AMD technologies benefit greatly from having top-notch technicians controlling its greatest manufacturing process APM. To be inserted in the heart of Europe is another advantage.

2) This leads me to Wall Street's appreciation: The Street loves when a company puts money directly into the "Capital" section of the Assets ledger, these investments increase the book value of AMD. Better than that, the financial help the German government would provide it going to be seen as a free-bonus. This is no idle or spare production capacity neither, the Street acknowledges that AMD has very good semiconductor manufacturing technology, thus, it may not believe AMD to be able to sell a 100% processor full production, but it doesn't require much imagination to understand that the capacity will be used anyway.

3) The announcement itself is a confirmation that AMD is jacking up its expectations. Fab30 all alone could supply 22% of the market, but let's say that it was using tricks. We can be sure that Fab30 was supplying 18% of the market. Fab36, with 300mm wafers can produce more than double 200mm Fab30, thus, Fab30 + Fab36 are enough for 54% of the market, consequently, the radical upgrading of Fab30 (Fab 38) means that AMD is aiming for more than half of the market (!), significantly above the 30% that it has officially declared to aspire to.

Does AMD has enough steam to aspire to more than half of the market?

A quick overview of Intel's general situation provides a grim outlook for that company:

  1. The transition to 65nm was neutered by AMD's 90nm sSOI; pushing them further down the path toward 42nm. But without SOI, or really deciding whether it is time for immersion technologies or not, the efforts put into 42nm so prematurely may prove rushed and wasted
  2. A significant portion of the benefits to go to smaller scales is lost because of architectural defficiencies. In particular, this thing of the gigantic caches that Intel processors have to try to compensate for not having DCA/ccHTT/HTT can not continue, because the physics of the shrinks determine decreasing power/performance benefits. In particular, Core2 65nm processors are actually larger than the 90nm products they come to replace, thus no economies in production. And just like it was explained before, smaller scales have greater power leakage overall.
  3. Core2 are dauntingly complex µ-procs. This means that there is no architectural improvement coming; Intel decided to rely solely in shrinks to improve speeds and performance. This is not only my opinion, but also that of Ars Technica's eminence Jon Hannibal Stokes: "Core's performance will scale primarily with increases in the number of cores per die (i.e. feature size shrinks) and with the addition of more cache, and secondarily with modest, periodic clockspeed increases". Athough he doesn't says it explicitly, after reading his article one reaches the conclusion that Intel lwon't be able to really do any significant modification to this µ-arch., it would be easier to start over with Banias again.
  4. Also take into account that the complexity may induce nasty problems.
  5. Intel also has a dilemma about Itanium. Should it kill it? Should it keep funding that losses generator?
  6. What about Intel factories? Some say that Intel has worthless factories that it hasn't written off trying to defer the decomissioning expense for better times. In any case, "CopyExactly!" seems so primitive when compared to APM...
  7. Still has to develop the equivalents of SOI, DCA, HTT, ccHTT, APM, etc. to really catch up to AMD instead of "fleeing ahead" to smaller scales.
Having demonstrated that Intel will cede more market share, we can also remember that more and more consumer electronics is being transformed into some sort of personal computer technology. For instance, I watch VHS, DVDs, cable and public TV on my laptop, using my custom VLC Server/Client streaming setup over my wireless network. I also believe that the video game consoles stimulate rather than discourage the market for computers. Because who is going to chat with fellow players through the console rather than a computer?, besides, the entry-level barriers are lower for Computer games than consoles, thus the highest creativity will be expressed in computer games.

AMD's "Ecosystem" approach also has a lot of potential: Coprocessors, and partners with vested interests in pushing AMD forward. Remember that AMD leaves a lot more of opportunities to add value to partners than Intel

Confirming that AMD is closer to the bleeding edge of technology than Intel, there is the potential of things such as Z-Ram (Zero Capacitor RAM with 5 times higher densities than regular six-transistor flip-flops). I don't know about the introduction rates for semiconductor technology, but it seems that very soon, like in the scale of one or two years, AMD will be able to include Z-Ram either as L2 or L3 cache memory. All that separates AMD from glory (and Intel from demise) is 8 Mb of cache internal to the µ-proc. Z-Ram may be precisely that. Remember that the gigantic L2 caches is the snorkel that prevents the already shit-submerged Intel from drawning, Z-Ram may nullify that...

AMD does have the package to get to over 50% market share:
  1. Good, proven management
  2. Good, proven, exciting technology
  3. The brand name has appreciated significantly, creating a loyal customer base
  4. Technological leadership assures media exposure, free good publicity, public awareness, toghether with the enthusiasm of partners in the ecosystem
  5. The ecosystem itself
  6. Production Capacity!
The stock market is very myopic, that's why it thinks that a duopoly is not as profitable as Intel's monopoly; but it is not true. Once the technology market gets used to the competitive struggle among AMD and Intel, I predict that an era of technology flourishment will began. It happens every time a key technology gets developed by leaps and bounds because of competitive struggles. That's where the profits will come from to compensate the smaller margins.

My theory is that AMD is very cheap at a market capitalization of less than 23% the combined market caps of Intel and AMD, because that is the true value of AMD given its market share; which today is 121 G$ * 23% ~ 27.8 G$, which today means $57.50 per share.

In the future, I will cease to invest in AMD when it reaches an inflation adjusted value of todays 61 G$, or $120 per share. This is a four-bagger.

Thursday, May 18, 2006

I still hate Lucy

It is not clear from my latest post that I still despise Lucy.

Lucy is still headed for bankruptcy, that is a company that doesn't care about the customer. That doesn't fly once the customers find out that they are unappreciated.

And I am not more optimistic about AMD because Lucy, the bottom of the barrel, decided to smudge AMD's shinning reputation by finally giving in to the pressure and associating with it.

As a matter of fact, I consider far more important than the Dell news, today's opinion of the Illustrious Rahul Sood from Voodoo PC who said "In the meantime I can't talk too much about Conroe other than to say I am very impressed with the performance - it's $%*#ing fast man, seriously" because it made me change my opinion on Core2: First, since I still don't understand how Intel could reduce so dramatically power consumption on Woodcrest (see my previous posts where I detail why the features didn't seem to me sufficient to really explain Core2 claimed power efficiency, summary below), "The Inquirer" news about the subject were received with skepticism by me; but now R. Sood adding to the Core2 chorus really weakened my convictions.

I fear that tomorrow we will lose much of that 15% we gained today, just as what happened when AMD reported fantastic earnings: Everybody was waiting for a good earnings report as an exit point for this roller coaster, perhaps now a lot of people will use these news as an exit point too. I am not sure, though, these news are very disrruptive, the boost of market confidence is very significant. I think that the Turion X2 and the power efficient processors are compensation for my improved understanding of the real threat that Core2 is, thus Dell may be seen as a net positive.

Bunnysuit IconIt is important that you know that I didn't think this deal possible, because I think that Dell and Intel have a obscure secret about their relationship that prevents the former to be free and deal with AMD as anyone else; thus I was very wrong, and I sort of lost the bet, so I deserve a "bunnysuit" for this post.

Again, I ask you, members of my honorable audience to not forget to leave a name or callsign in the comments, a simple "I am "whoever", blablabla" would do perfectly.

Summary of why Core2 power inefficient: They are larger, even at 65nm, than Pentium Ms, they have more than twice the transistors, which switch faster, and to top all that off, they have much more execution units that can only be used marginally, with less power efficiency. Intel claims that they did micromanagement of power in the new arquitecture, but after looking at the material readily available, I came to the conclusion that those features can not be enough; so I am really curious to know why or how Core2s could be as power efficient as touted.

Congratulations dear Dellusionals

Okay, Dell is going AMD in 4-way servers.

The world is really upside down. Do you remember I was speaking of going crazy?

Well, this is what I remember from my infancy:

Lucy taking the football off Charlie BrownThat is, Lucy never allowed Charlie Brown to kick the football, and Charlie Brown never learns.

The same thing happened with Dell and the AMD investors: Always saying that AMD was a "distinct possibility" and never actually doing it.

But we will have to rewrite the comic books, this time, Charlie Brown hit the football and scored a 15% field goal. I insist, I am becoming crazy. Unbelievable things are happening too often, I must be seeing some sort of DeLLusions.

I warn you again, I am becoming crazy, you should take what follows seriously, but:

  • Doesn't it arise suspicions that Woodcrest is coming in June and yet Lucy finally allows Charlie Brown to kick the football? Woodcrest can't possibly be so cool...
  • This is not an empty announcement, Dell must have felt excruciating pains to finally gave in to the pressure, that is, the market is there for quad-dual core Opterons and quad-true quad core servers.
  • It is the high end of the market! Dell invited AMD to do business in the elite market, the one with the highest profits, which requires the highest credibility, in which businesses last the longer.
  • It has been demonstrated, just as I been explaining, that the real differentiator among HP and Dell is AMD.
With the field goal scored, the AMD dellusional investor has a lot of credibility points above the rest of the market, this 15% jump overnight will kill a lot of AMD shorts after the squeeze, and won't allow the "why should I hold my shares if it is going down and I will be able to purchase them back anytime?" because another mega jump may happen: Another announcement of a blockbuster product.

Good that I covered my written calls, this is all gains!

Wednesday, May 17, 2006

Dear Shorts and Bears

I sincerely hope you are also having a nice hard laught at my latest public ridicule. I advised you to run to cover, because there were coming three major good news for AMD: The Core2-killer power efficient processors, the launching of Dual Core Turions and Hewlett & Packard results above expectations. Nevertheless, the stock you took bearish positions in is down. Congratulations on the money gained.

Well, I must be a fool, because I haven't understood what is going on, I still want to put more money on bullish positions in AMD. My (surely) damaged brain tells me that:

  • AMD has a number of partners to develop platforms, that means competition which will, compared to Intel's centrino duo, trio, quartet,...:
    • Push down costs and prices
    • Improve quality, performance and appeal. Remember that we are talking about the combined competitive creativity of nVidia, ATI, Broadcom, Hewlett & Packard, Sun Microsystems, IBM, even Gateway, Acer and the whole channel too
    • Offer variety to suit every customer need
    • All those companies acquiring products from AMD even if they are inferior to Intel's just because they can add much more value to them
    These all are benefits of having a real ecosystem: AMD allows partners a lot more aggregated value potential.
  • Silicon On Insulator will give them always the edge on power efficiency, and possibilities such as Z-Ram memory gigantic caches
  • The integrated memory controller (Direct Connect Architecture) coupled with I/O connectivity through Hypertransport, and the glueless, single-space memory model that Cache Coherent Hypertransport offers for n-way systems and coprocessors guarantees not only
    • Superior 2, 4, N-way performance
    • Coprocessors
    • but also pervasive advantages in new crucial features such as Virtualization (as I explained here)
    • It takes ages to design, debug, develop, mass produce, thus it is as long term an advantage as it gets
  • Simple, straightforward and sound designs such as K8 are always better than over complicated and pompuous designs such as Core2 for obvious and non-obvious reasons.
  • Repeated abuses by Intel are reason enough to opt for AMD.
Please, laugh, I am telling you that I am dumbfounded by my losses in the stock market, I just put my money in my foolish opinion that it should account for something that AMD has right now better products than Intel, and even if Intel's promised pies in the sky are actually better than AMD's, anyway AMD:
  • Has superior products in mass production, mass marketed
  • APM allows AMD to react swiftly to changing market preferences or strategies, such as concentrating today everything on dual core mobiles, and two months down the road in n-way servers
  • All financial indicators in AMD have been steadily improving
You know, I am becoming crazy, because I see news like Intel crashing because they can't sell their products with AMD overcompeting them all across the board and instead of that being a reason for confidence about AMD in the stock market, it has been a reason for fears!, it also makes me crazy that the single most important differentiator among Hewlett & Packard and Dell is that the former is a slave of Intel processors, and yet Dell going down the toilet takes AMD with it... I wonder, "how come"? Dell is *not* a customer of AMD!! It is weird, but my faulty logic tells me that since Dell has less credibility in general, the fact that it is refusing AMD must have less importance than when it was a successful company...

Keep laughing, because to tell you the truth, Dr. Ruiz, the wetback CEO, and the Engineer President, Mr. Meyer, really inspire a lot of confidence in me, but Mr. Otellini and fellows really make me laugh, truly!

It has been so repetitive that I see financial institutions downgrading AMD such as the Deutsche Bank, Merryll Lynch, Bank of America, and at the same time increasing their long positions; and similarly, pumpy&dumpy with Intel that I don't know what's the meaning of a downgrade anymore. It is so utterly confusing to see the greatest news I have seen about AMD in a while, you know, the justification of the whole power efficiency campaing which made me do the effort to inform you, dear shorts and bears, with all of my sincerely, writing this article that you should cover; and then realize that while I was writing the article Bank of America was downgrading AMD as if instead of good news there were bad news. It makes me wonder, what are good news for AMD? If it sells a lot with the greatests margins, it takes a 6% hit. If it does great products, it goes down because it is in a collision course with Intel, if they increase production, that's bad because they have larger depreciation expenses, etc.

The weirdest thing of all is that I am consistently making predictions about the technology market and they fulfill, but my interpretation should be wrong because the stock market seems to understand them exactly the opposite.

The laughs don't end there. I am being contrarian to my instincts. In the first manifestation of schizophrenia in my life, being totally optimistic about AMD, I took moderately bearish positions such as writing in-the-money (covered) calls, and WON MONEY!

I expect the quality of my posts to get down, like I said, I am becoming crazy, not because I am losing money, but because I see the stock market world upside down. Since I am heading for a margin call, probably I won't be able to pay a Psyquiatrist who could help me be clear minded enough as to keep the quality up. Perhaps my friends and family should move to declare me legally incompetent.

My public ridicules are so pathetic that even I am having a blast!

Tuesday, May 16, 2006

Shorts and Bears: Run to cover!

The bearish position game on AMD is over.

AMD has unveiled a new line of power efficient processors, the official news here. For instance, a Desktop Athlon 64 X2 can be made with a power envelope of mere 14 Watts!! that's about 25% of the power consumption of the promised Intel Merom mobile chip.

Why is this important?:

  • Fanless: Can use just a passive disipator: No noise, no mechanical parts that wear down and deteriorate
  • No overheating: Longer lasting circuits, better overclocking possibilities
  • Tighter packaging (same space, more processors), or alternatively: A smaller media center pc
  • Better accessibility: It is easier to work in a computer that doesn't have a turbine of a fan cooler
  • Longer lasting battery
  • At 14 watts, a pedal or a hand crank power device makes sense (although it is true I am kidding ;-)
  • Smaller electricity bill: Remember that heat in a computer requires air conditioning that is also expensive; it has been calculated (sorry about not having the link) that the electricity bill in supporting air conditioning is twice what the computer itself consumes.
  • Once the upcoming revolution of solid state storage (using Flash memories instead of harddrives) takes place, the brand with the best power envelope would be the natural choice for the designers of an entirely new generation of computing devices whoose batteries will last a lot more, like what happened when the world switched to digital mobile telephones compared to analog.
Why is AMD able to pull this trick off?: Silicon On Insulator. AMD does strained germanium doping silicon on insulator chips. Intel only does Strained Silicon. Today, the transistors are so small that they can't prevent current leakage --a problem that gets exponentially worse with shrinking dimensions-- thus, although the shrinkage to 65nm still gives power benefits due to smaller transistors, there is trade-off that explains why Intel's products at 65nm have been so rather dissapointing. In any case, SOI means that the transistors are floating in an insulator that helps a lot with the leakage. Intel insists in claiming that SOI is just a fanciful and expensive way to do chips without concrete benefits. Remember that in my previous articles, I have serious doubts at the possibility of Intel promised power envelopes to be true...

Another thing: A lot of people and investors were worried about AMD doing this worldwide advertising campaign with Intel announcing a giant progress in power consumption in their chips, for a while some people became worried at Intel promised products being actually superior in power consumption to AMD's; but no way, this was the trick AMD had up its sleeves.

Thus, from the point of view of an investor, Silicon On Insulator is becoming a huge strategical (long term) AMD advantage that is being reaped in Power Consumption and perhaps soon enough in Z-Ram gigantic caches and the techniques that IBM claims give huge switching speed increase. Intel announced that they are already moving towards 45nm, without Silicon On Insulator, thus all these benefits of SOI may evidentiate Intel's move to 45nm as rushed and worthless, another huge effort lost, if they have to go back to square zero to rethink their production lines to include SOI. (Perhaps something like that would occur with immersion anyway)

And remember that to be fair, the Front Side Bus should be counted in a comparison to AMD processors, or at least the power consumption of the integrated memory controller should be discounted, so, AMD numbers are actually even better!!


Monday, May 15, 2006

Head-on collision

The summary of my latest post is this:

The market for Microprocessors was going to be excellent for this year.

But some events happened.

AMD did such a terrific job, that naturally and unavoidably put itself in a collision course to Intel. Dell, thanks to the bit of extra pressure it meant having dead-non-competitive processors broke and initiated its collapse, and Microsoft failed miserably at giving a reason to speak of future.

Now that AMD is in a head-on collision course, can it survive?

Sure! The N-Way server market guarantees it thanks to DCA/HTT/ccHTT alone, plus all the traditional competitive advantages.

What would happen if AMD survives a head-on collision against Intel? That it will prove the viability of the Duopoly and will reach who knows what stock price.

In October 2005 something similar happened, good results, and a plunge (although much more moderate), but the priciple is the same: The objective bad news are already here, AMD is priced for its mediocrity and Conroe's (Core2) excellence. If neither is true, well, you know.

Keep writing the covered calls, but only out of the money.

Thursday, May 11, 2006

Over Reaction

I thought at late november that the market for x86 microprocessors this year was going to be stellar. There are some phenomenons taking place that pretty much guaranteed it:

  • The convergence between entertainment and computers
  • The launching of Microsoft Vista
  • The increasing market for home editing of digital video with its huge demands of raw performance
  • The impressive strentgh of the digital audio market
  • Growth of the digital photography market
  • The development of all the normal computing needs
  • The growth of China and India markets for technology
  • The growth of mobile computing.
Some of these principles would operate on the consumer side, some others on the server side. For instance, the heating of the competition struggle between Google, Yahoo, and MSN search engines guarantees growth in the market for servers. Leading edge games keep requiring 1+ K$ microprocessors, etc.

Since AMD was in a much better position to benefit for that clearly defined bullish market for its products thanks to the abysmal all-around advantages they have over the competition, the easiest investment was AMD, which climbed like a rocket up to a multiyear record of $42. But then something happened, and came back crashing to levels it had *before* its two greatest quarters: 2005 Q4 and 2006 Q1.

I feel the need to explain what happened.

Right now, by coincidence, it is happening the collapse of not one, or two market Bellwethers with a lot of influence on the microprocessor market, but three! And what kind of Bellwethers: Intel, Dell, and Microsoft!

They are so important that I won't abuse my audience's intelligence summarizing them.

So, the market for microprocessors became shit for the year.

AMD is healthy, strong, growing; but right in the middle of the trio.

Intel is trying desperately to preserve the monopoly, betting all what is left of its credibility at the success of at best mediocre bloated products that try to accomplish by brute force what AMD's products do through sound design. Finally Windows collapsed under its own weight and Microsoft hasn't been able to build anything else on top of it after five years of trying (!). And Dell...

Let me tell you about Dell. Unexplicably some years ago they decided not to care about the customers, yanked the technical support to make an extra dime, which in reality made them slide a bit. To compensate, Dell decided to cheapen the products diminishing quality. Then the slide became worse, and then they decided that they were going to "compensate" by fooling the consumers with rebates and warranties impossible to execute, manipulating the accounting books at earnings, and not giving the customers what they want - AMD. Perhaps the uncompetitiveness of Intel processors was the last straw that broke the Dell's back, they are now in a terminal collapse. Please, members of the honorable audience, I need to understand why this all began, post a comment.

Going back to Microsoft, it finally hit the wall of complexity. I would say that Windows finally collapsed under its own weight, Windows is a staggering collection of patches. See the bottom of this post for a better description of Windows problems.

Anyway, these three former Wall Street darlings really lost status seriously. All three of them insist in the very ways that got them in the hole, with increasing degrees of desperation. Thus they are doing truly stupid things, and the net consequence is that the market for computers became shit.

Microsoft doesn't provide a needed 64bit operating system for the masses, thus what would be one of the greatest current advantages of AMD became irrelevant. Dell is dumping its products, thus damaging the market for all other players. And Intel is doing everything in its power to prevent AMD to become stronger.

I concurr with the opinion that Wall Street's Market Makers have a lot of clout in the financial media. This is important because due to tradition, history, and amounts, Intel, Microsoft and Dell are companies for which the Market Makers will go the extra mile to protect.

That's bad for AMD: The MM can't even allow the public to have the perception that there is a creditable supplier of 64 bits µ-procs, because that would mean that Microsoft has just been incompetent at Vista and at providing drivers for XP-64. So, on top of a bad market, this company will have to endure a lot of media flak.

Finally, the money at AMD is very weak. This is a company with an awful record as an investment, basically it has given zero returns. It doesn't have a really solid trajectory of earnings, in the past it has conquered the technological leadership only to crash harder than Intel with the 2000 bubble; all things that provide lots of fears and worries to the investors every time a credible threat shows up.

When there is just a bit of nervous selling, these fears scale into a multiple percentage points sell off. Since temporarily the stock becomes severely undervalued, the reality of the fundamentals make it rebound, to produce a roller coaster ride.

That's why the market overreacts in both directions.

I have the special benefit of really understanding the technology behind these products, thus I am in the position of independently coming up with an assessment of the chances for this company. And my verdict is bullish, very bullish, in fact.

I realized that I became an "early adopter", which means that I am in football terms in "off-side", ahead of where the market is. In any case, I feel comfortable buying deep on margin the shares. To benefit from my understanding of the turbulence that surrounds this company, I am writing monthly slightly out of the money covered calls. This is my second month employing the strategy with success.

In case you don't know much about options, a covered call write is when the holder of shares backs up with them the written call contracts. If the price goes down, then the fee obtained by selling the call contracts mitigates the losses on the shares, if the price goes up, but below the contracts' strike price, it is all gains for the writer. Thus, this strategy doesn't give money in short-term spikes up, gives money in slight growth or decline, and is wide open to crashes in the stock price. But I am not afraid of AMD being a bad long term investment, so I happily incurr in that risk.

WINDOWS: This is the explanation about Windows. Windows was based in good ideas that became corrupt thanks to the emphasis Microsoft wanted to give to certain features in certain circumstances.

For instance, NT3.51, a "serious" operating system, had the hardware properly separated from the operating system. But by the time Microsoft wanted to launch NT4, it was clear that Microsoft didn't have a good contender to Unix, just a well received User Interface (the one of Windows 95), thus it had to make sure that NT4 had the W95 U.I.; but the hardware separation, vital to have a robust Operating System, made that much harder to have the fast and fancy Windows95-like user interface for NT4, thus Microsoft broke the separation and included deep into the kernel some graphical issues. Thus NT4 became vulnerable to problems in the graphics hardware.

In Windows there are three processes that must collaborate for every application to run, including the one that controls the user interface. That is an idea that is not bad per se, but in Windows it was taken to a degree, and distorted in a way that made the operating system almost inoperant because all applications are catastrophically vulnerable to all those complex processes interoperating. For instance, have you noticed how when your computer gets in trashing because it doesn't have enough RAM memory for a demanding application, you basically can't fire up the Task Manager to kill the application because although the system is in trashing, yet the Task Manager is requesting more memory to load the graphical widgets it needs? Thus there is no way to actually execute an important operating system service such as killing a process when you need it the most.

There is also the issue of security. Since all software produced by Microsoft disregards good software practices (because of marketing reasons that have proven correct), it became a tower of patches that no one would ever be able to audit, with more security holes than a colander. The only approach that would work to solve this issue would be the
tabula rasa, but Microsoft doesn't dare.

Vista is a nearly perfect complement in Software to Intel's V//V. A brand, or name, that really doesn't tell you nothing about what is it. Nobody really knows what is it either, it is just a marketing buzzword. What are the problems, defficiencies, or innovations that Microsoft is going to put in play with Vista?

I had one idea: It was natural for Microsoft to make use of the opportunity to really clean the Application Programming Interface (the set of services the O.S. gives to the applications, the very definition of the O.S. itself) to make it up to current standards in reliability, security, stability; and of course, implementing new and exciting User Interface ideas. But no, it seems that Microsoft chose to do XP service pack 3 and call it "Vista" (by the way, XP itself may be thought off as a Windows 2000 service pack).

I wrote a premonitory article in January about Vista and Microsoft, it is still vigent

Wednesday, May 03, 2006

Steam Engines versus Diesel and wishful thinking

There is too much confidence about Intel capabilities. It seems that a lot of analysts, investors, and technology enthusiasts think that Intel can pay its way out of any problem, thus, if AMD is Intel's problem, Intel will use its resources to kill the problem, and AMD will be destroyed. I disagree with that point of view, my reasons follow.

Intel is a greedy monopoly. The business model depends on both characteristics to be able to exploit customers and to have happy employees stuffed with stock options. That is one reason to think that Intel won't incurr in any price wars (1). Management, who relies on stock options as their main source of income (2), wouldn't want to do that; not even for long term good prospects, their exploitative and greedy attitude demand instant satisfaction. "In the long run, we are all dead" (Keynes) would seem one of their mottoes.

But they can try a similar approach: If the crux of their problems is that they have been outcompeted, and the market finally became aware of that, then the company has to offer better products. But since they are so hopelessly behind in the technology (While AMD is already doing Silicon On Insulator, Integrated Memory Controller, the upcoming single die quad cores, the coprocessor architecture that HTT 3.0 allows, APM; Intel "counters" with things such as "CopyExact!), they can't come to the market with truly better products.

The next option is to try to outcompete AMD following the brute force approach of putting more of everything known to work and selling the package for about the same price the competition sells. That is a sort of price-war: Not to manufacture products of equivalent costs to that of the competition's while selling them at steep discounts, but to manufacture extremely costly products to sell them at about the same prices as the competition. That is to sell a 4Mb L2 cache at the same price as 2Mb, 65nm at 90nm price.

That approach has been tried many times before in many markets and technologies. The latest steam train engines were by far the most complex ever designed and built, they had the largest boilers, etc.; because only through sheer sizes they were able to be up to the capabilities of the uprising Diesel/Electric engines. And the efforts to keep up were futile in the end:

The design ideas and techniques of Steam Engines were exhausted, played out, but Diesel's had the whole world ahead.

Intel's new lineup of products are steam engines. There aren't any new ideas to further the basic Pentium Pro architecture; I, for one, am skeptical from the professional point of view (summary here), about some of the design compromises Intel chose; and in particular, there are some assertions that my considerable understanding of this subject are not capable of explaining, such as the claims of higher power efficiency, or how is Intel going to successfully deal with the problem of trading off combinatorial complexities for marginal benefits so pervasive in all engineering disciplines; especially with Intel's track record.

I recently heard Henri Richard from AMD repeating the common saying that not even with 9 women it is possible to have a baby in one month; that is, it doesn't matter how much money Intel may have, the design gap is not possible to be closed in less than two years.

The problem is that AMD is in high gear, not in a reckless drive, but *cruising*, ramping two times more production capacity, with the highest market share it has ever had, highest revenue share, highest mind share, highest credibility.

Thus at Intel they have to follow for years the route of profitless existence that AMD followed until its recent emancipation. I wonder what makes the market think that AMD, which has the same management and engineers who reversed the roles with Intel at the brink of bankruptcy, all of a sudden are going to screw it all and at the same time, Intel's management, who allowed this reversal of roles, is suddenly aware of all of their mistakes and going to pull off a momentous come back after those two years.

That is wishful thinking. The market overvalued Intel and undervalued AMD. AMD demonstrated its worth, flew to the point of reaching $42 per share, too high so as to not force the comparison with Intel, thus forced the market to decide whether Intel was overvalued or not. But still the market's money was on Intel, every positive news about Intel was received with joy, every positive news about AMD with concern; that leads to a very easy to understand psychological phenomenon: Wishful thinking.

There are those who say that Intel has managed in the past to quash AMD's rebellions, that's true, but AMD never managed to get this strength before, Intel hadn't screwed it up so badly; in the past Intel could dump products in the only segment in which AMD was competitive, and succeeded because AMD never was able to get out of the "value desktop player" typecasting; today, it is Intel who is outcompeted all across the board but in mobiles in which they only have a bit of "residual" competitiveness.

The wishful thinking that supplies the credibility for more promises and more dissapointments will make the slide toward insignificance of Intel and Dell just slow and uneventful, but equally inexorable.

(1) There is a distiction between "channel clearing", what Intel is doing and proper price war.
(2) Unconfirmed