AMD pins hopes on quad-core Barcelona chip

Struggling to rebound from a $574 million loss in fourth quarter earnings it reported Tuesday, AMD has pinned its hopes for recovery in 2007 to its planned "Barcelona" quad-core Opteron server chip.

Intel's competing "Clovertown" quad-core Xeon chip has been adopted mainly for high-end research server platforms since it launched in November, hobbled in part by a lack of multi-threaded software needed to take full advantage of the new chip technology. But AMD hopes to sell its Barcelona chip to users ranging from managers of high-performance computing centers to SMBs.

AMD expects a bounce in revenue when it launches the processor by the middle of 2007 because many customers have delayed buying new systems until it comes out. The company hopes Barcelona will allow AMD to finally break into the low-end server segment, including one-chip and two-chip computers and tower PCs as well as rack-mounted servers.

"We're not yet in the SMB segment; it represents for us a great volume opportunity because we have so little market share now," said Kevin Knox, vice president of AMD's commercial business, on Wednesday.

AMD's share of the market for servers, blades, and workstations has grown from just 2.8 percent in 2003 -- the year it launched the Opteron chip -- to 6 percent in 2004, 12.2 percent in 2005, and 27 percent in 2006, the company claims. The only problem with that growth is that AMD has so few customers in the single-processor server segment. Its only products in that market include IBM's System x3105 and Sun's Sun Fire X2100.

AMD will also try to squeeze extra profits from denser chips as it transitions from 90-nanometer chip design to 65nm and from more efficient manufacturing as it changes from 200mm to 300mm silicon wafers. In the long term, the company also expects a return on its investment in making chips with even smaller, 45nm features, and on capitalizing on its 2006 acquisition of ATI to release a combined CPU and graphics processor called "Fusion" by 2009.

In the meantime, AMD's success with Barcelona will be the quickest measure of its prospects. As the PC industry continues to see a change in customer demand from desktop to notebook PCs, AMD reported strong sales of its mobile processors and its top-end desktop chips. But sales of its workhorse Opteron server chip stayed flat while revenues sank under the pressure of a price war with Intel.

"Volume has not been the issue; we had a bigger challenge with ASPs," Knox said in reference to average selling prices. "You get into these things when you have products that are very close to equal performance. That is where you get squeezed on the price side, because it's your only leverage left."

Barcelona could change all that as the new chip will perform so much better than Intel's dual-core and quad-core Xeon offerings that AMD won't need to slash prices to boost market share, AMD claims.

"From a sales perspective, we had a pretty good quarter," Knox said. "Obviously, ASPs were an issue, but you saw the same thing last week when Intel reported its earnings. Originally, we had a big performance gap with Opteron. Woodcrest certainly narrowed that gap, but Barcelona will return us to a position where we have that big a gap again, if not bigger."

However, analysts warn that the market may not be ready for quad-core processors, regardless of the vendor.