Monday, June 06, 2005

On AMD, Apple, Intel, IBM and The Great Game of Chips

I posted this 10 days ago in my internal IBM Blogcentral joint but thought it might deserve a wider audience.

The Great Game of Chips

Robert Russell points to rumours of Apple to move from PowerPC to Intel. Indeed like the question of who would be the new pope a few weeks ago, the entire blogosphere is abuzz with prognostications. Everybody seems to be concentrating on Apple's strategic outlook and admittedly they are the sexiest company in technology. Intel would be grateful, Microsoft would be curious, IBM would be unhappy but who cares about those companies, right? The Big Apple is where the action is at, right?

The elephant in the room of all these discussions is AMD.

Intel has been falling behind under the repeated onslaught of AMD's Hammer architecture, first with the Athlon which beat them in the race to 1 GHz, then the Opteron favoured by white box manufacturers everywhere, the move to 64 bit computing on the desktop where Athlon 64 rules(now that Windows XP 64 bit edition has been released, that paradigm is legitimised even though Linux and BSD were there earlier), and now in the dual core race in which Intel again don't have a competitive or affordable offering. In all of these things, Intel has played second fiddle to the fleeter AMD. They have made huge architectural mistakes read the Pentium IV which is too big, runs too hot and doesn't perform, rushed and recalled products. If you read ARS Technica, AnandTech or Tom's Hardware this would be the story that enthusiasts would tell.

It is only a huge amount of payola (read the Intel Inside war chest) that has kept people like Dell exclusively in the Intel camp. Indeed all the first tier manufacturers have AMD in their product lines. Now all affiliate programs are smart marketing and moral payola so don't read my words as pejorative. Obviously also, Intel has the edge on process technology and scale which will mitigate the fallout, but it is only a truism to say that they are have been shaken by the AMD onslaught. They, like Microsoft, can turn on the dime and become "hardcore" about a given technological approach. The problem in The Great Game of Chips is that you have those pesky fabs which take 18 months to a 2 years to turn around, thus any mistake you make ties you up for a good 8 to 10 quarters which is an eternity in Wall Street terms. In mitigation for Intel, AMD can't afford any mistakes given their harrowing corporate history and the skepticism that the market's familiarity with Intel entail. However, with their Dresden fab humming along, they've been able to have generate product at will and on time, and more importantly to control pricing: the best chips on the market always command premium pricing which AMD had never been able to have in the past. It doesn't hurt also that they aren't trying to compete with their clients, the chipset manufacturers, like Intel is so the ecosystem around their offerings is chugging along nicely.

The big bang of the web, of the data center, came about because in the hardware arena, AMD was pushing Moore's law at a furious pace to the delight of Taiwanese chipset manufacturers everywhere. Google's server farms in the past used mostly Intel but I'd hazard that the reason those servers were so cheap and disposable was the competition between Intel and the unsung AMD.

The replacement cycle for machines bought during the of the Y2K hype was a little delayed by the bust of 2000-2001 and the current Iraq war uncertainty but in the next 18-24 months the hardware arena is going to be exciting. And AMD has product, Microsoft has even been complaisant with Windows XP 64 on the software front, they too don't want a monopoly on the hardware front. While the dual core dream might be delayed, a nice dual-processor Opteron with 64 bit Linux distribution would serve most small companies very well. If you won't deal with PowerPC, IBM and others will sell you some happily.

So they, Intel, with 18 months before competitive products will come on tap, need a new high profile Dell to staunch the bleeding. Thus I'm sure they are offering huge incentives to Apple, and must be strutting like peacocks to the temperamental Steve Jobs who can afford to give glimpses of flesh under the burkha. If Apple were indeed to make the move, it would make more sense to go with lower cost AMD, much like Sun have done. If a deal is signed, Jobs would be insane to make it an exclusive one even though that is what Intel would want.

The folks like HP and DEC/Alpha who blinked and mothballed the development of their chips to fall on the Itanium sword, or Sun who dilly-dallied about with UltraSparc earlier on in the 1990s must be rueing their decisions over the past decade but those executives are mostly departed to greener pastures (Carly was even rumoured to be up for the World Bank job before Wolfowitz got the nod - again a demonstation about failure being rewarded but such is life).

When I saw the way the Power architecture was going over the past decade, I was a little frustrated that IBM wasn't burning the midnight oil in our PowerPC efforts at the same furious pace as Intel and AMD. But I suppose we've always moved more slowly. But to our credit, we (IBM) have managed to keep the Power architecture and now the Cell in the game and indeed we're patting ourselves on the back like Kingmakers. The problem is that we don't have the notebook processors or megahertz that marketers and users would like and companies like Apple like a few bragging rights. The Fishkill fab is coming along but competitors might paint it as roadkill, certainly as compared to AMD.

I still think that IBM getting out of the commodity PC business in the Lenovo deal was a huge mistake. But anyway I wasn't consulted - I'm just a software engineer not an MBA type. Presumably some bean counter run the numbers and maybe the rhetoric was about not being in commodity businesses. I on the other hand, believe that you really want to be in the high volume market, if only to get the backwash of innovation that only comes with burning the midnight oil for fear of competitors. Otherwise you relax and have grand ideas and 10 year titanic roadmaps ala Itanium. I don't see Motorola, or Nokia getting out of the mobile phone business just because LG and Samsung are now ascendant. To take the analogy further, IBM has played the Ericsonn/Sony card in the chip business and taken the flight to quality of business and "high end server machines". No consumers for us except for laptops. Meanwhile Samsung can't make enough cell phones and is turning over new models every ninety days to keep the world satisfied.

Obligatory disclaimer. The first stock I bought (outside of the widow's investment that is Big Blue) was that snappy underdog AMD. That was when I priced things out realized that the Athlon was a far better deal than the Pentium III and now IV. I also bought my dad a nice IBM Aptiva, made by IBM Canada, that was Athlon-based but some executive decided to mothball Athlons in the IBM PC business so that was a 6 month window for AMD (or was that Intel Inside dollars at work). This particular technology toli does not constitute financial advice. Past performance is indeed no predictor of future performance. You'd be insane to assume that my pontifications about technology and the Kremlin-watching that I write about has any validity in the real world.

Also keep in mind that my first tentative investments were made just before the bubble burst. And if you still think I have insight, come around my way, I have $500 of Global Crossing and $400 of Nortel stock certificates for you. At least with the Nortel variety you'd be able to buy half a glass of bland Miller Lite beer; certainly you couldn't afford Star beer or your favourite designer microbrewed concoction. More likely it will be the cheapest akpeteshie depending on which palm wine bootlegger you go to.

Star Beer coffin

As for the Global Crossing paper, well store that away in pages of the most obscure library book you can find. Future historians need to know all about the hubris of the past.

Anyway I love this Great Game of Chips, consumers and the web have benefitted immensely. I hope it continues apace.

Let me end with a Coca-Cola coffin to go with your Bag of Chips (the Ga people of Ghana will gladly build great fantasy coffins for you.

Coca Cola coffin

The Low End Theory in Hardware

[Update] I cross-posted The Great Game snippet to Dave Farber's Interesting People mailing list and got quite a few responses.

Mark Stahlman gently corrected me
1) AMD does *not* have its Dresden Fab 36 humming along and won't until sometime next year. As a result it is capacity constrained and cannot really do any damage to Intel at the moment.

I stand corrected but I guess that is in line with AMD's harrowing corporate history which I did allude to, and also to the time lag it takes for mistakes to be corrected or for capacity to come online in the chip world. In contrast in the web world, services can be deployed by the fleetest within 3 to 6 months. Execution in the hardware world is of more critical importance, you can't deploy busloads of consultants armed with duct tape to patch your dodgy chip.

2) When it come to high-performance memory and I/O capabilities, the current sweepstakes has IBM in first, AMD second and Intel in a *distant* third.

As an Lotus/IBMer I should be gratified that you see things in such blue-tinted lenses and perhaps I too should pat myself on my software back. My assessment is that IBM has been happy to have premium pricing and to concentrate on the high end. That is fine as a strategy I suppose, but I'm interested in the ground level and the low end where issues of scale and innovation prevail instead of the scleroticism of the Ivory Tower.

If I took a walk through Google or Yahoo server farms, I doubt I'd see many high-end Power, Itanium or even UltraSparc machines.

The Low End Theory [1] is the lesson of Mr Moore in the data center or Jim Gray's Distributed Computing Economics
3) There is a fundamental battle going on between standard and custom parts... Where will the future volumes be? Which markets -- games, TVs, cellophones, cars, etc. -- will go which way?

This is why I call it the The Great Game. It is like the current Scramble for Congo where everyone has heard about the untold riches, copper, gold, diamonds, coltan etc (the armies of 13 countries have been in that failed state searching for plunder over the past decade, and that's before the UN, and the French got on the ground). The Great Powers want to carve out some loot from their chips (silicon after all being sand). And speaking of coltan or tantalite that you'd find in your mobile phone, the cellphone must be the greatest mass market these days the equivalent of the personal computer.

e.g. within this past year, Nigeria installed the infrastructure for 1 million cell phone lines [2]. From zero to over a million in a year is stunning and perhaps emblematic of pent up demand for development. I don't know the numbers for India or China, but that is a sign of a mass-market, driving the kind of innovation we used to see in the personal computer world. On this list, there's a periodic argument about whether the US is falling behind Europe, Japan or the growling tigers. It is hard to say but certainly having spent this past weekend in London, I can testify to the ascendancy of the small form factor.

The problem for the chip makers is that the price point for the mobile chips that are being sold to emerging markets is actually quite low, and the concerns are about power consumption and battery life, things that like Detroit's focus on big Cadillacs and now SUVs might make one have to rejigger the strategy and rely on huge volume. On the desktop chip side, they'll be depending on the replacement cycle, my Y2K machine is getting a little long in the tooth, or the move to 64 bit or to dual core (like the hyperthreading buzzwords foreshadowed).
Glad you like AMD -- so do I but there are still many fundamental issues unresolved as we rapidly deploy the next-generation platform and prepare for global expansion in digital services.

What I like is not necessarily the company, indeed, my stockbroker seeing my play portfolio treats me like a dilettante.

What I like is the effect the competition is having on the fundamentals of the industry. The notion that Intel is aggressively courting all and sundry to not jump ship and is rushing out dual core parts and pricing them at a level that must be painful for their cautious CFOs. The notion that Microsoft will actually sit down and support AMD64 so that those RedHat ants from the village of Linux don't get too much of a head start tickles me. The notion that Apple can show a little leg and give everyone their collective titillation quotient at the beginning of the silly season. The notion that executives at IBM have been sweating for the past few weeks trying to stem the flow is great for me. In the trenches were I live, I deal the occasional insane mandates from on high, I like others to share my pain. Plus the users all benefit. I'm looking for a nice box for my grandma and I'm glad to have a little pricing power.

[1] For the musically inclined The Low End Theory is the name of an album by A Tribe Called Quest (in the top 10 albums of the 1990s IMHO). I need to do a proper appreciation of it at some point because it is worth writing about, and at length.

The Low End Theory

On Mobile Phones in Nigeria

My original statement was
e.g. within this past year, Nigeria installed 1 million cell phone lines.

Ari Ollikainen lept right in
That's a great oxymoron!

Would you mind explaining to me what you actually mean by that sentence?

Did Nigeria install a mobile phone infrastructure capable of supporting a million cellphone conversations SIMULTANEOUSLY?

Or was a mobile phone infrastructure capable of supporting some statistical model of call holding times much << that 1 million?

Or was it a mobile phone infrastructure with an undefined service spec BUT a million cellphones were sold to the public?

Please illuminate me...

My response...

Ah... the joys of rushed emails while the server restarts. But yes a great oxymoron.

I think it was angling towards your 2nd and especially your last characterizations.
"a mobile phone infrastructure with an undefined service spec BUT a million cellphones were sold to the public?"

The actual quote I had was from a minister of neighbouring Ghana and it was
"capacity for 1 million mobile phone lines had been installed and it was fully utilized indeed they are in a mad rush to upgrade their backbone and deploy more cells"

Knowing a little about the situation in my nearby, smaller Ghana where Telenor (from Norway) where have taken over the running Ghana Telecom and are in fierce competition with a couple of other mobile phone operators Spacefon and another that I forget, there must be an element of over-selling of capacity. Spacefon, when they started out maybe 5 years ago, sold several hundred thousand cell phones having only capacity for 100,000 lines. It was rough going back in 2000-1. 5 years later, they and Ghana Telecom have built out their infrastructure to actually match the usage and the pent up demand.

Depending on who you talk to there are 80-100 million people in Nigeria, and landline penetration is known to be beyond abysmal. Knowing also the fervent economic acumen of the land of the 419 scam, it wouldn't surprise me if well say 3-4 million cell phones were sold on an infrastructure that would statistically service 1 million cell phone lines to 'western' standards.

The thing though is this
  1. there was no mobile phone infrastructure in Nigeria up until the last few years
  2. for the businessmen and farmers who have adopted these mobile phones in droves (and I'll handwave a few million), even though service is of an order that would make westerners scoff, it is plainly Good Enough and certainly far better than the alternatives (having to drive 4 hours on dangerous potholed roads to meet someone at their house just to discuss price or the slightest thing).

Now that you've asked, I'll dig a little further to elucidate my statistics better and perhaps will blog the results...

Thanks for keeping me on my toes...

Thus I have another Lazyweb request. Does anyone have more precise statistics about the cell phone penetration rates in Nigeria in recent years or knowledge about the details of their build out?

This is part of The Great Game of Technology series.

See also: The Low End Theory of Networks

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1 comment:

michael said...

what's the price of cell phone ih nigeria?
Are they local manufactured? or reliance on import?