Shareholders of Advanced Micro Devices (AMD) will remember the painful revenue warning issued in Q2 primarily due to weakness in the channel sales of desktop processors, despite sales to OEMs seeing an increase. In any event, today marks the launch of AMD's next generation "Trinity" APUs for the desktop segment. This is actually a fairly important development from an investor's standpoint and I hope to outline just why that is the case.
The Desktop "Trinity" - Why So Late?
The first thing that investors will note is that though AMD launched "Trinity" for the notebook space back in May (and, according to the last conference call, has been selling quite well), the desktop version took a solid five months to show up officially in the channel. Why?
Well, in the most recent quarter, there was a sharp increase in inventory. This, in particular, had investors worried that the majority of this new inventory consisted primarily of unsold Llano desktop processors and that the company would eventually have to take a substantial write-down as it cleared inventory at fire-sale prices. AMD noted in the CFO commentary that the majority of this inventory was in preparation for the "Trinity" launch, however.
AMD's management played this as intelligently as possible - delay the release of the new chips in order to clear current Llano products without having to take a substantial hit to margins. A quick glance over at Newegg shows that it is still possible to purchase Llano-based desktop CPUs and motherboards, but the prices don't reek of fire-sale (although they have come down slightly since launch). This is not at all conclusive, unfortunately, as it is also still possible to purchase older "Sandy Bridge" CPUs from Intel (INTC) in the channel as well.
In any case, AMD made the right move to stall the Trinity desktop launch in order to get as much inventory cleared at "good" prices as possible. Hopefully, some further light will be shed on how well AMD was able to handle the situation at the earnings call on the 18th. Keep an eye on inventories and the gross margin.
So, How Does The Chip Do?
The top-bin A10-5800K comes in a 100W thermal design power, has four cores, and 384 Radeon graphics cores built in. It also comes priced at $122, a slight premium to the top end A8-3870K available on Newegg for $109.99.
In terms of CPU performance, the chip holds its own against the similarly priced dual-core Intel "Ivy Bridge" i3-3220, while in graphics-heavy tasks using the integrated graphics, it manages to dominate even the highest end i7 3770K.
While integrated graphics provides a more pronounced advantage in mobile form factors such as notebooks, strong integrated graphics allows for a variety of inexpensive desktop PCs (especially small form factor and home theater) to provide some serious computing power. Why buy an Xbox 360 when one can put together a home theater PC with an inexpensive AMD A10-5800K that will also play games with higher image quality and framerates?
HSA - The Master Plan
AMD's grand master plan isn't simply to make sub-$100 graphics cards obsolete. It is widely recognized in the computing industry that GPUs excel at, in a power efficient manner, speeding up highly parallel, computationally tough tasks beyond 3D graphics. Oracle (ORCL) and AMD have already announced their plans to bring GPU acceleration to the wildly popular Java platform. Adobe (ADBE) has designed its Premier Pro CS6 to take advantage of general purpose GPU acceleration. The list of major applications that take advantage of the GPU's raw power will continue to grow, especially as CPU designers are running out of ways to improve traditional performance while keeping power consumption in check.
If AMD's plan succeeds, then it will very quickly find itself at the forefront of mainstream computing performance. Only Nvidia (NVDA), AMD's major competitor in graphics, has a credible general purpose GPU solution. But AMD's advantage is that it can reach a wider audience via its low cost, solidly-performing APUs. Intel's graphics processors, while improving, are nowhere near the level of sophistication of AMD's solutions.
AMD is betting the company on APUs, and it is further betting on the increasing importance of GPUs as time goes on. The latest "Trinity" product is a grand-slam on the graphics front as it handily defeats "Ivy Bridge" in that respect.
On the CPU side, of course Intel still holds the lead, and that's why despite the huge graphics advantage, the top bin "Trinity" APU is priced similarly to the equivalently-performing i3. That being said, AMD will also be releasing its follow-on to its "Zambezi" processors in the high end desktop space to compete with the top-bin, quad-core i5 and i7 products. That will be the next launch to watch to see if AMD's product in the higher end, higher margin space will be able to bring ASPs, and in turn gross margins, up.