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Advanced Micro Devices: Immense Challenges Ahead


  • AMD hasn't been this healthy in many years.
  • However, many large challenges are now emerging.
  • These challenges will grow ever more intense over the next 1.5 years and beyond.
  • Looking for a helping hand in the market? Members of Idea Generator get exclusive ideas and guidance to navigate any climate. Get started today »

Advanced Micro Devices (NASDAQ:AMD) hasn’t been in such a good position as today for a long time. Since 2003, with the launch of its Opteron server processors, it had mostly been downhill for AMD. Yet, today, AMD can boast a competitive CPU lineup across consumer (Ryzen) and server (EPYC) markets. At the same time, it can be said that AMD recovered some ground in the GPU business versus Nvidia (NVDA) as well.

Yet, at the same time, an incredible number of challenges have arrayed themselves against AMD, and at times also Intel (INTC) and Nvidia. This article will cover all of the different challenges coming up – most of which hit within the next 1.5 years.

Intel Counterattacks

Historically, Intel has been AMD’s main problem. Even when Intel dropped the ball, it didn’t take many years to catch it again and run away with it. Typically, Intel’s mistake had been at the CPU architectural level, while Intel always kept a fabrication process lead. However, recently Intel saw itself both with an architecture and process problem, though related.

Intel managed to see itself surpassed in terms of production process by Taiwan Semiconductor Manufacturing Company (TSM), to which AMD now outsources its production. This has meant that AMD now manages to ship 7nm CPUs even as Intel still struggles to make its 10nm process work. Intel went from being 1-1.5 production nodes ahead to being at least 0.5 production nodes behind. This in turn had an impact on:

  • Cost. A better production process allows for a lower cost per CPU die, since for the same die design, each die takes less area on a silicon wafer.
  • CPU speed. A better production process allows for higher performance for the same power consumption.
  • CPU efficiency. A better production process allows for lower power consumption for

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Paulo Santos profile picture

Portuguese independent trader and analyst. I have worked for both sell side (brokerage) and buy side (fund management) institutions. I've been investing professionally for around 30 years.

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Comments (164)

US GDP is expected to contract by over 25% in Q2. let that sink in
I am out of AMD. My average price was $52.95. I was not liking the price action for the last few days. I think I can get into AMD at much lower price. I am still positive on AMD and other semi stocks. I converted my sale proceeds to QQQ,SMH,PTH.

Will be back in AMD if it goes below $45 or so.
You will get your wish late May, when we will test the recent lows ..
In addition to Renior laptops, Lenovo Launches New Server Platform With AMD Data Center Chips
AMD’s immense challenge is mainly with macro economics and very little to do with those you listed currently although they are intrinsically linked.

The looming global recession will slow AMD’s progress and buy more time for Intel to catch up. AMD needs to reach a certain market share number in order to start enjoying higher margin levels currently enjoyed by Intel and Nvidia. I don’t quite know what that number is but the sooner AMD reaches it, the better obviously. While it’s my main concern for AMD, I’m not as worried mainly due to AMD’s technological edge it’s holding and its ability to maintain it more importantly.

In CPU, AMD is well ahead with its modular chiplet architecture. The benefits are well documented in terms of process and performance efficiencies. However, the biggest benefit is how it’s allowing AMD to rapidly scale and innovate to stay ahead of the competition. A quick review of Zen’s progress the last few years highlight its unrelenting pace of innovation. Designing / validating / manufacturing CPUs with interchangeable lego blocks are much easier and faster thanks to Infinity Fabric serving as the lego snaps. AMD’s ease of core count increase is really putting Intel on its backfoot amplifying further its process issues with larger monolithic dies.

AMD modular chiplet architecture will allow for easy customization also as part of the next phase of its capabilities. We’ll start seeing this with its custom CPUs in Frontier with added AI & HPC capabilities. We just don’t know if it’s integrated into the CPU chiplets or separate on its own chiplet. Papermaster hinted that there are already too many custom design requests from customers, too many for them to work on. Being logo blocks in design, it’s not that hard to snap on FPGA or ASICs chiplets via IF also. This is on top of the already planned of IF linking multiple GPUs to CPU for cache coherency in the march toward HSA.

Intel will not be able to keep up with AMD until they move to a similar modular architecture. This could be my queue to exit AMD should Intel succeed with its version. It was a herculean effort for AMD which nearly bankrupted itself in the process. It had to start fresh scrapping support cold turkey of its previous CPU architecture while shifting ⅔ of the GPU team resources over to CPU also. While Intel’s R&D team is much bigger, it’ll be challenging for sure and interesting to follow.

The link explains AMD’s CPU journey quite well and why I’m heavily invested in AMD.

For the GPU side, AMD largely ignored the discreet GPU market for the past 5-7 years as it concentrated on getting its CPU division back competitively with Zen. A company of AMD’s size could only really fight on 1 front really. Trying to do so on 2 fronts would have been catastrophic for AMD I think.

A while back, AMD shifted ⅔ of the GPU team to semi-custom and Zen work to ensure a steady stream of revenue through consoles. What was built for customers was adapted for the consumers GPU market just to stay afloat there. A good way of maintaining mindshare in the customers market with Microsoft & Sony partially footing the R&D bills. The experience gained here now shows up in AMD's APU and HSA capabilities also which will soon be demonstrated with 7nm mobile and Frontier HPC.

AMD did more in GPU strategically than that though. With Zen’s main plan of attack on Intel was raising CPU core counts, AMD also started the groundwork in GPU with the introduction of Mantle API in 2013, a low-level low-overhead rendering API with multi-threaded parallel CPU rendering support for at least 8 cores. Hrm….coincidence? I think not.

Well, it took a while but we now have Vulkan and DirectX 12 in place which are derivatives of Mantle. We’ve already seen how well games can perform on AMD HW if they're are fully optimized for DirectX 12 like Forza. It levels the playing field as it minimizes drivers optimization advantages which NVDA has with Dx11 given its massive SW team. It’ll also benefit AMD’s CPU more with 8 cores being the new minimum set by consoles.

The last hurdle here is for game developers to truly adopt to these 2 APIs, not just partially like we’ve been seeing. Well, the arrival of the new consoles in 2020 just might be that final push for it to happen. RDNA2 will fare better in this new landscape with AMD now capable of adding more focus back to its GPU division, thanks to the current success of its CPU counterpart.

I now think it's really part of a master plan altogether as everything just sorta dovetail nicely.
Absolutely great inputs, and I just marvel (since you didn't mention it) to mention that as an organisation, so much smaller than Intel or Nvidia, they have organised themselves to be so productive in generating new designs, and thanks to TSMC, getting it out of the fabs at record speed.

The world has still not caught on to what you have mentioned, and 'discovered' what teamwork and organisation exists within AMD to bring it all together at rapid fire speed.
I can't wait for RDNA 2 in action.
It is truly impressive how little David (AMD) is taking on 2 Goliaths in Intel and Nvidia, 1 at a time of course.
I did have my doubts earlier on with my investment in AMD thinking that chiplets would be too far off of monolithic CPUs in single thread performance which could hold AMD back. Glad I was proven wrong.
The whole ARM thing is interesting. ARM has successfully destroyed the decades old Wintel stranglehold on the consumer personal electronics market. But in my opinion, that was because Microsoft destroyed the OS that Wintel depended on. ARM can run Windows, but no one wants Windows. Consumers switched from Wintel to ARM/Android and ARM/IOS not because of the processor, but as a way to escape the horrors of Windows Vista/8/10. Server is a different story. Consumer OS preference doesn't affect server sales.

Another point is ARM performance. I never followed this topic closely. But some say Apple's ARM performance is due to a clean slate processor design that reuses the ARM instruction set and nothing else. I kind of think that is an exaggeration. But apparently Apple's version of ARM does outperform others by a significant margin. So big players like Apple and Amazon can afford the R&D needed for competitive performance, but this may not be true for everyone.
Paulo Santos profile picture
ARM is now narrowing the performance differential to AAPL. ARM's IP is available to everybody.
Wintel did not really have stranglehold on consumer personal electronics.
Wintel failed to create a market in it. ARM did it.

By the way, didn't Apple hire Jim Keller and acquire
ARM based CPU startup he was working for ?
And Use it for iphone4+ iPad 1 and 2 .
TSMC has already started deployment of 5nm... Apple's new chips are on that node.
TYB profile picture
You are almost right, 5nm will be in the iPhone12 and then after that waterfall into the iPad and likely the MACs by 2021.
Despite all these huge challenges, AMD will come out as "one of the winners"
in this upcoming revolution in big data/high performance computing.
This is going to be crowded field but lots of money to be made.
AMD has not been able to gain meaningful market share in data servers and that is very concerning. Intel was able to grow 40% from already a very high number to $7B and AMD
at best could get to 250M and that too is questionable.
The most under rated comment AMD fanboys are ignoring.
grxbstrd profile picture
"AMD has not been able to gain meaningful market share in data servers"

right, meanwhile NVDA has carved out ~$4B in annual Data Center revs. That is growing natively with GPUs, and will grow accretively now with networking acquisition.
RyzenFan profile picture
In short term, all companies other than those will benefit from the sudden increased demand of COVID19 related, all will facing uncertainty, including Giants like Apple. But AMD has lot of good products coming and the new Samsung mobile CPU with AMD graphics for phones. TweakTown: AMD and Samsung's Radeon mobile GPU 'destroys' Qualcomm Adreno 650 GPU.
Ok so Idea Generator, how about attaching some numbers to your hypothesis? Year 1 - 5 out...AMD where the growth is coming from by business segment, compared to INTC? That would be helpful as well as give your readers something on which to evaluate your thinking? :-) Thanks.
Paulo Santos profile picture
These challenges are very hard to quantify. Numbers from me or from someone else would just be made up. For instance, if ARM starts taking server share because of a sudden large advantage in performance / power it could be like wildfire. The same could happen with ASICs.
RandSec profile picture
@Paulo Santos : "if ARM starts taking server share because of a sudden large advantage in performance / power it could be like wildfire."

AMD actually has that advantage, and yet no wildfire.
And huge ecosystem of software has to be either re-written or
optimized for ARM architecture.
That almost ensure no quick wild fire, IMHO.

Much smaller software rewrites for AMD x64 but still they still
have some software issue.
Even if AMD's APU has such large advantage in performance
(in data center), somebody should re-write the software to
take full advantage of them....
alphajumbo profile picture
This is the technology industry. Challenges and competition are part of this industry. 4 years ago AMD was on the verge of going bankrupt, the company had a lot of debt lousy product and low margins.Today their competitive position is very strong and the balance sheet much better. They will face competition but they are in a much better shape to fight them. They are fabless and are partnering with arguably the best semiconductor manufacturer in the world with TSMC. They don’t need to spend billions in fabs anymore. Their architecture is very good and more importantly they have been able to meet their aggressive roadmap year after year to the credit of Lisa Sue and her management team. If there is a potential loser I will bet it is more intel because of their big market share and because they struggle in their roadmap and processes. They will be back but AMD will keep improving and hit their roadmap. The huge super computer wins is a testimony that their roadmap is credible and realistic. So they will face challenges but AMD has never been stronger and Lisa Sue is probably the best manager in the Industry having been able to implement a huge turnaround with the a small fraction of the research budget of intel and NVDA.
ProfessorSmatt profile picture
Problems over the next 1.5 years? Really? Please give me your crystal ball so I can use this with other companies. It’s so easy to make assumptions like this during these times but in reality this company actually made it through this pandemic with hardly any issues n still had double digit growth.

Sorry I’ll take Lisa Su’s guidance over yours n others that are trying to attack companies during these times.
Where will AMD stock price be in next 5 years? Answer to this question is more important than were it will be by next earnings or next.
i disagreed, amd already have many advanced technologies plan a head of times. no never know what amd is doing under lisa su. as you might know lisa su is top 0.000001% who understand more about the markets than us and intel. amd is current working on multi generations of zen: zen 4 has already completed now its zen 5, zen 6 and zen 7 also x3d. remember the time when everyone said amd will bankrupt!? and all of us were mostly wrong. amd is here to stay they are enter smartphone now which can make over billion dollars in profit that should be enough. you too worry about amd failing and they will not under lisa su. amd multiple time proven we were wrong. as soon as amd get enough cashes the execution will signify 10x
We have been seeing a lot of supply struggle from AMD in the motherboard/chassis in the server market last 3 months. For most workloads AMD is the better choice but it's ecosystem of suppliers outside the CPU is fairly week compared to Intel.
AMD can use help from other players in GPU arena to battle against Nvidia,
particularly in AI server, data center. :)
I'm thinking there could be some synergy. :)
AMD bulls were expecting a big surge in server market share, and they didn't deliver. AMD always seems to under deliver in these areas. There is much more "stickyness" in cloud server market than most people realize. Cloud operators and users don't want to move away from Intel standard, because it might break something in their stack. Also, people have been saying forever that ARM will move up and take market share from x86. They might for low end tablets, but ARM has never proven that they can make CPUs as fast as x86. I actually think it will be disaster for Apple if they move desktop to ARM chips, as the performance will just not be fast enough.
Joe Blast profile picture
Yes, if Apple makes its own chips it will have the same performance, software, and market share as it did with the 68k architecture, which is to say zero.
Paulo Santos profile picture
The Graviton2 (based on ARM) is already in production in AMZN's AWS.
High teens % EPYC growth (likely 18.5%) is strong.
Your report contains many assertions that are worthy of deep thought, and I agree AMD does face immense challenges ahead.
But, just like Apple learnt the best "rules" from Jim Keller, and has not lost any mojo even after many years of JK's (and other "rock stars of chips") departure, so too will AMD. I feel there are 5 important considerations that counter your conclusions:
- AMD's Mark Papermaster has whatever it takes to continue AMD on its innovation path, be it in chip designs, or increasingly important, interconnect technologies;
- Lisa Su is a magnetic, fiercely focused, visionary and trustable leader both within AMD and to a vast eco-system of partners, customers, governments and IDMs both in USA (Google, Microsoft, Oracle, Cisco come to mind,among others) and Taiwan (ASUS, SMCI, Toshiba, MSI, etc). I feel it would be a mistake to "ignore" her in any assessment of AMD's prospects;
- TSMC is another key factor that would be a mistake to "ignore" in assessing AMD, as gleaning from what I heard at their last earnings conference call (and the one before that), making AMD enormously successful is what is going to propel TSMC ahead of everyone else, esp. Intel and Samsung;
- be it competition from Google, Microsoft, Intel, even Amazon, the total, combined cost "per 'equivalent' chip" from AMD is going to be a lot cheaper than anything any of the above can finally get out of their respective fabs. This is because AMD's and TSMC's heavy-duty engineers are in Taiwan, and they are a highly focused (and "culturally and nationally" paranoichally bent), integrated group, with much lower wage scales than any of the other players. It is worth the while to listen to TSMC's last earnings call, esp. towards the end, when an analyst asked them about either doing an M&A in USA or building a fab there. TSMC management declared what I too have always believed, i.e. Taiwan is the best place in the world to make any kind of chips, incl. design, process, test, packaging, etc; and finally,
- their recently announced rDNA architecture is a must watch, as if it is anything like what they have promised, AMD will have a powerful counter to any of the threats you've listed in your report.
In sum, there are many challenges for AMD that you have rightly raised, but it may be too early to declare their likely loss when the next 12 months will reveal many answers. I'm expecially watching whether they do "deliver" at the US Dept of Energy in the highly ambitious El Capitan project.
Cambridge STR profile picture
It's not too early for them to implement a hiring freeze, which is in place. I guess they agree with you about challenges.
Paulo Santos profile picture
TSMC is available to everybody.
03 May 2020
That is not true, most of their capacity at 7nm has been bought.
"The Graviton2 is exclusive to Amazon.com (AMZN), but others can and will replicate its success. This is so because everyone can get equivalent IP from ARM".
You think Amazon is running an unmodified ARM core? I don't know the answer, but I suspect not. Something will eventually displace x86 from servers, and I suppose it could even be ARM. But remember that AMD nearly went bankrupt by betting the farm on ARM a few years ago.
Paulo Santos profile picture
It will be modified, but not much. And ARM's designs are evolving quickly.
Keller can do magic if you let him, intel is not amd, and amd design lead will not vanish to thin air in any case.

if intel does not have good 7nm, on time - they are road kill.

AMD 7nm, 5nm, 3nm are more secure than intel

x86 is here to stay long time

amd can do arm if it suits them, they all ready started with samsung
Paulo Santos profile picture
AMD doing ARM wouldn't help it much. ARM architectures will be a lot cheaper since it won't be a duopoly. Anyone can get the latest designs from ARM.
Keller wasn't the designer of the Zen core.
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