I have been thinking for a while about writing an article about my mistakes and the learning process that made me turn 180 degrees. I hope my personal experience may help other investors. I have written about my screwups several times, especially in the recent article "Exploration", but this subject has not been covered comprehensively. Anyway, I was a bit too ashamed to really get done with it, waiting in hopes to get a bit of vindication from the market, which happened recently. Also, somebody posted a comment for my last post pointing out some of my mistakes, the author actually did some research of old posts of mine, and his help giving me a cue has been "the straw that broke the camel's back".
I began as an "staunch" AMD supporter and wrote profusely about the chances this company had to displace Intel, both in technology and finances. Nevertheless, Eventually I renounced my own opinions, after losing lots of money and having several changes of mind. I finally settled at pretty much the opposite opinion, that AMD is collapsing, although I have been very consistent about AMD's deterioration this whole 12 months. I also anticipated the market with my investments, which recently led to significant gains, so, I got half vindication, perhaps I am not a total fool after all.
Still, the most expensive mistake in my whole life has been to be dismissive of the Core µarchitecture from late February to October of 2006. You may go back to my posts explaining why I made the mistake, but from July of 2006 on, the process of discovering how wrong I was is very well chronicled in this blog and you may find a good summary in "Exploration". There is one thing I have been half-right about Core, though: I said that Intel will be relying solely on shrinks to improve speeds and performance, which has been half-true, it hasn't been just shrinks, but overall silicon process improvement, and a new µarchitecture with substantially different features like point to point interprocessor communication and integrated memory controller is approaching. Anyway, I think this subject has been well covered in the blog, so, I am going to concentrate on other aspects:
The fellow commenter quoted from "Third Factory" (late May of 2006) this list of reasons for "AMD to get to over 50% market share":
- Good, proven management
- Good, proven, exciting technology
- The brand name has appreciated significantly, creating a loyal customer base
- Technological leadership assures media exposure, free good publicity, public awareness, toghether with the enthusiasm of partners in the ecosystem
- The ecosystem itself
- Production Capacity!
Was AMD's Management good, up to May of 2006? -- Yes!. For the most part, the people in high positions at AMD are either those who saved the company and succeed big time with Hammer or their chosen successors. Hammer was quite a gamble, full of technical and market very hard challenges at which AMD triumphed. With the good work this people inherited, they broke barrier after barrier, taking the company to a position of undisputed leadership. But, as I explained in "Exploration" and many other posts, they later demonstrated to be clueless about how to capitalize on the leadership AMD attained and overstretched the company's resources for tragic consequences. In late May 2006 there weren't many indications of the catastrophic decisions to come, if anything, only the dull launching of AM2 and the insidious denial of the Core µarchitecture threat. Yet, as I explain in "Exploration", I had every intellectual tool to suspect that AMD's management could fail miserably with AMD in a position of leadership, that was terrain unfamiliar to Management, thus, on top of making a huge mistake, I missed my unique opportunities to realize it before it was too late.
AMD still has the exciting technology. You only have to read "Cove3" posts in the Investor Village AMD message board to get convinced, Cove3's unfailing hopes on an eventual AMD superiority still have a bit of chance due precisely to the design superiority.
How is it that AMD still holds to a larger than historic market portion, especially now that every single AMD processor is very far from Intel offerings, that Intel is providing better value, and the new processors are as mediocre or worse than the old generation?: AMD enjoys the inertia from the massive momentum it generated the days of K8's rule, the brand awareness expansion, the opening of business with all major OEMs, etc.
How was I supposed to predict that AMD's management was going to kill the "Virtual Gorilla"? I am still puzzled by the irrationality of the ATI acquisition!
Regarding production capacity, at the time AMD had a credible schedule of capacity growth and having production sold out, even after Core-based processors were launched.
So, I wasn't quite wrong from the point of view of my analysis of the possibilities of AMD, just that Management did very weird things with those possibilities. Conversely, what I identified as Intel mistakes turned out to be Grand Slams because AMD made turds of its possibilities, I still don't think that I was all that wrong regarding Intel. That was yesterday, things now are totally different, Intel rules and AMD tries to follow.
Also from "Third Factory", I was quoted this:
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...
I screwed this up. But still, the greatest single contributor to Core superiority is the large shared L2 cache. AMD, due to its pathetic incompetence to both evolve the K8 architecture towards shared L2 cache and to manufacture large caches, led to the cache architecture of K10 with its performance hits of inefficiency (half the cache, the four L2s are not shared), small size (2 MB shared L3, 4*512 KB L2 not shared/L1 exclusive, 8*64Kb L1 total for a quadcore), and the introduction of a third level with its associated latencies. I may have adopted the thesis that the shared cache could led to race conditions, but I think I quickly grew out of it, the shared caches are superior, period. Another thing is that I had faith on Z-Ram, only recently I lost confidence on it, the same way I lost confidence on SOI (more about this in a minute).
The commentator wrote the following:
And here's a secret for you - EVEN if AMD implemented high K, immersion litho ADDS NOTHING TO PERFORMANCE - it is merely another technique to print the same size 45nm features (Intel chooses a 2 pass process on the critical steps instead). In the end the feature size is the same. Immersion is just another PR gimmick to make it seem like AMD is ahead, while the scary truth is Intel has far superior litho capabilities as they are able to EXTEND AND REUSE the older dry litho one generation further. Sorprisingly even with a 2 pass process, it is still cheaper than a single pass immersion process as the immersion tools are nearly 2X higher price, run at slower speeds and are less mature than existing dry litho technologies.
I never said that immersion would give AMD any performance edge. It is true that, if anything, immersion gives production costs advantages; but my thesis has always been that AMD should prioritize performance over everything else, then power efficiency and only then production economies. Unfortunately, the company chose, apparently, exactly the inverse order of priorities. Recently I have hypothesized about the reasons: AMD assumed it was going to be capacity-bounded, even after the early warnings regarding the Core µarchitecture, and kept executing plans that assumed extraordinarily strong demand for entry level/mid level performance even in the face of mounting evidence that Vista was a flop, the market was saturating due to Intel's "osbornization" of Netburst and AMD-specific demand deteriorating fast.
AMD's management insistence on prioritizing efficiency over performance always stroke me as "fishy", being production costs easy to misreport and power efficiency an easier goal than absolute performance. Then, when the highly anticipated 65nm launch happened late, in scant quantities, fat (75nm equivalent shrink), slow, worse IPC, and saying bullshit to explain the worse IPC, I finally got conviction for the Bear case.
Until then I had trusted AMD's Management. I had increasingly stronger disagreements with Management regarding strategy issues like not launching the "coprocessor revolution", not being decided to make the Linux market an stronghold, but I always gave them the benefit of the doubt. I took the assumption of the "triple challenge", together with its difficulty and its "unnecessariness" as evidence that AMD's manufacturing capabilities were superb. I couldn't conceive that Management could be so irresponsible as to commit the whole company to this without having guarantees of success, but the bad 65nm process was overwhelming evidence to the contrary. This had staggering implications: If AMD's management could be that irresponsible, there was no reason to suppose they knew what they were doing when they acquired ATI, the single die quadcore couldn't possibly be any good, no new good processor would be launched this year, ATI would hemorrhage its Intel-based market share to nVidia without mitigating increased AMD-based market share, the finances of the company would deteriorate to the point of mortgaging the R&D and capital expenditures necessary to accelerate the development of Fusion and to escalate the investments the 45nm and beyond feature sizes would require. This would become a vicious cycle, an exponentially accelerating decline, and, finally, the kludge-but-practical approach of the double-duals would become a great instrument for Intel domination and a bridge to architectures that would close the design disadvantage. Metaphor: AMD tried to jump ahead of Intel but stumbled and fell, suffering life-threatening polytraumatism.
I was yet to be disappointed once more by AMD's management: the Analyst's Day last year in December. I got fooled because I still thought Management could not lie so shamelessly as to promise all the things they promised. The market was fooled too, the price momentarily shot up, but very soon reality took over.
When AMD's 90nm process was no worse than Intel's 65nm process in early '06, there were reasons to think that the upcoming 65nm process would be vastly superior, and that SOI had inherent advantages over strained bulk silicon. Within that frame, "65nm is Intel Marketing" made sense. The key argument there was that there is a problem of "diminishing returns" for ever smaller feature sizes, and I misidentified Intel's strained silicon as more vulnerable to this problem than SOI. I still would like to know what is so special about AMD's 90nm process that makes it superior to its successor, but given the evidence, it seems that the diminishing returns in SOI are more acute than strained silicon, perhaps the heat dissipation disadvantage of SOI aggravates more than the inherent advantages of smaller feature sizes, and I realized very late the significance of Intel's R&D muscle when applied in full force, the great advances of metal gate/high K transistors.
I am particularly ashamed of "Good time to buy AMD", published in October 19, 2006. That the price actually went up until December is besides the point, that article reflects doubts about the Bear case/optimism, like trusting Management on several topics ranging from the merits of the ATI acquisition to seeing them capable of great initiatives like the "coprocessing revolution" while they already had farted the "Quad FX"; seeing strength of AMD demand while all there was was simple inertia; not understanding that although Intel was in a reactive position, AMD's successes and failures at so many innovations gave Intel a clear view of what to prioritize, just what it needs to allocate its resources efficiently to ultimately bring formidable competition.
I wasn't clueless in the AMD-Intel periphery: Dell crashed, the Dell-AMD deal apparently turned out not so good for AMD, Vista flopped, Sun solved its personality complex, VMWare turned out the sensational IPO (although I was too timid to join in early and tried to milk volatility at the worst moment), Apple is triumphant with its iPhone, Google has gone stratospheric,... I developed a partial model concerning price manipulation that actually boosts my already successful and proven "money pump" system... But I can talk about those subjects with concrete predictions in subsequent posts