Shulou(Shulou.com)11/24 Report--

In 2022, chip giant AMD made history, surpassing Intel in market capitalization for the first time, according to news on November 23. Intel has long been a leader in the computer processor market, and AMD has been able to rise rapidly because of its aggressive expansion into entirely new areas.

In February, AMD bought adaptive chip company Xilinx for $49 billion, one of the largest semiconductor acquisitions in history. AMD chips are now being used in Tesla cars, NASA's Mars stamina probe, 5G base stations and the world's fastest supercomputer.

"AMD beat Intel on all important indicators and unless Intel can reshape its manufacturing operations, such as finding new manufacturing methods, they will continue to decline," said Jay Goldberg Goldberger, a semiconductor consultant at D2D Consulting, a consultancy.

But a decade ago, analysts had a very different view of the future of AMD. "if someone had said that AMD could catch up with Intel, it would have been a joke," Goldberger added. "because for decades, there has been an insurmountable gap in the performance of chips between the two companies. However, things have changed."

Su Zifeng, chief executive of AMD, recently spoke to US media CNBC about the company's extraordinary rise, increased huge bets on new chips amid sluggish PC sales and changing trends in the chip industry.

"A real man must have his own fab" AMD was founded in 1969, with Jerry Sanders dominating the eight founders. The notoriously versatile marketing executive has just left Fairchild Semiconductor, which was one of the biggest contributors to the invention and promotion of integrated circuits. "Sanders is one of the best salesmen in Silicon Valley," said Stacy Rasgon, an analyst at Bernstein Research Semiconductor.

Sanders even said a saying that has been pursued by the global semiconductor industry for decades, that is, "real men must have their own wafer factories." But Goldberger said: "this sentence is obviously problematic on many levels and has been proved wrong by history to a large extent."

With the development of technology, the cost of manufacturing chips has become very expensive. Now, it takes billions of dollars and years to build a chip factory. AMD now mainly designs and tests chips and does not have its own fab.

Su Zifeng said: "when you think about what you need to do to have a world-class design, it requires specific skills. Then, you need to think about what to do to have a world-class manufacturing industry? this requires completely different skills, different business models, different capital models."

As early as the 1970s, AMD was mass-producing computer chips. By the 1980s, the company had become Intel's second-largest supplier. After parting ways with Intel, AMD reverse engineered the latter's chips to develop new products compatible with Intel's groundbreaking x86 software. Intel sued AMD, but the 1995 settlement gave AMD the right to continue to design x86 chips, making PC pricing more attractive to end consumers.

In 2006, AMD bought ATI, a large wafer-less chip company, for $5.4 billion. Then, in 2009, the company spun off its manufacturing division completely and set up GlobalFoundries. "it was only then that their execution really began to take off because they no longer had to worry about contract manufacturing," Goldberger said. "

The core, which went on sale in 2021, remains the top manufacturer of conventional chips used in simpler components such as anti-lock brakes or heads-up displays. Grid Core stopped making cutting-edge chips in 2018, and AMD turned to TSMC for its contract manufacturing.

In an all-out effort to catch up with Intel in designing the most advanced microprocessors, AMD has only two main competitors, Nvidia in the field of graphics processing unit (GPU) and Intel in the field of central processing unit (CPU). Although the market share of GPU and CPU controlled by AMD is much lower than that of Nvidia and Intel respectively, AMD has made significant progress since getting out of the manufacturing difficulties and reducing capital expenditure.

At the same time, Intel doubled its investment in manufacturing last year, promising to spend $20 billion on a new fab in Arizona and $100 billion in Ohio, which is said to be the world's largest chip manufacturing base. But it will take years for these projects to come online. "obviously, Intel is not going fast enough," Goldberger said. "they expect market share to continue to decline next year, which I think will happen. This has also greatly helped the development of AMD's data center business.

AMD first released the Zen series of CPU in 2017, which is often seen as the key to the company's recent success. Su Zifeng says this is her favorite product. Analysts also said it was the biggest contributor to saving AMD from the brink of bankruptcy.

"AMD was about six months away from the brink of bankruptcy, but somehow they survived. They seemed to have an epiphany in the design of the new product that it is still on the market to this day," Rasgon said. "the launch of the new product greatly improved AMD's performance, allowing them to stop the loss of market share and eventually turn things around."

Among the Zen series, AMD's EPYC series CPU has made a huge leap forward in the data center field, and its latest product, Genoa, was released earlier this month. AMD's data center customers include Amazon's cloud computing division AWS, Google, Oracle, IBM and Microsoft.

Su Zifeng said: "if you look back at our business five years ago, you will find that 80% of our revenue comes from the consumer market and is dominated by personal computers and games. But when I think about the company's strategic expectations, we think that for high-performance computing, the data center is the most strategic part of the business."

From 2017 to 2021, AMD's revenue more than tripled, from $5.3 billion to more than $16 billion. Meanwhile, Intel's annual revenue grew by about 25% during that period, from nearly $63 billion in 2017 to $79 billion last year.

Sluggish demand for personal computers many attribute AMD's success in catching up with Intel's technological advances to Su Zifeng, who took over as chief executive in 2014. Since then, AMD's staff has more than tripled. Su Zifeng entered the Fortune Business Personality list in 2020 and won the three highest honors in the semiconductor industry.

Su Zifeng also serves on President Joe Biden's Science and Technology Advisory Board, which works to promote the recently passed Chip Act, including $52 billion to support U.S. companies making chips at home. "the passage of the chip bill is an endorsement of the view that semiconductors are vital to US economic prosperity and national security," she said. "

Since all the most advanced semiconductors in the world are made in Asia, the chip shortage crisis highlights the dependence of the United States on overseas production. Now, TSMC is spending $12 billion to build a 5-nanometer process chip factory outside Phoenix. Mr Su said: "We are satisfied with the expansion in Arizona. We think this is a great thing and would like to see further expansion."

For now, the main factor affecting AMD revenue is weak demand in the PC market. AMD's third-quarter results released earlier this month failed to meet market expectations after Intel warned that fourth-quarter results could be weak. PC shipments fell nearly 20% in the third quarter, the biggest drop in more than 20 years. "the drop may be greater than we expected," Mr Su said. Although there are occasional correction cycles, we are very concerned about the long-term road map. "

Focus on customized computing business in the current situation, not only PC sales are slowing down, but also the core architecture that promotes the progress of computer chip technology is also changing. The chip industry has long adhered to Moore's Law, whose core content is that the number of transistors that can be held on integrated circuits should double every two years.

"what we call Moore's Law is at least a decade old, but it's definitely slowing down," Goldberger said. "almost everyone is using CPU for everything, including general computing, but it's all slowing down. So suddenly there are more customized solutions."

That's why AMD bought Xilinx, which is known for its adaptive chips known as field programmable gate arrays (FPGA). Earlier this year, AMD also bought cloud computing startup Pensando for $1.9 billion. "these acquisitions will eventually prove to be the right decision," says Mr Goldberger. AMD is building a custom computing business to help their customers design their own chips. I think this is a very wise strategy. "

More and more large companies are designing custom chips on their own. Amazon has equipped the AWS with its own Graviton processor. Google has designed its own AI chip for Pixel smartphones and a specific video chip for YouTube. Even construction machinery maker John Deere has launched its own self-driving tractor chip.

Su Zifeng said: "if you look at the history of the chip industry over the past five years, you will find that everyone needs more chips, and you will find them everywhere, right? especially in the past five years, the growth of cloud computing has accelerated day by day. This means that when your chip sales are growing very fast, you do want more customization business."

Even the basic chip architecture is at a turning point. Both AMD and Intel chips are based on the 50-year-old x86 architecture, but chips based on ARM architecture are becoming more and more popular. Companies such as Nvidia and Ampere are vigorously developing ARM CPU, and Apple has shifted from Intel to developing its own ARM processors.

"my view is that this is not really a competition between x86 and ARM, they are basically the most important chip architecture on the market," Su said. "what we are seeing is that this is really about how people use computers."

Analysts say that for now, AMD is diversifying beyond the core business of x86 computing chips and is in a strong position. "as we move out of the current cycle, AMD should do much better in 2023 as their performance improvements over Intel chips begin to become noticeable and they start to focus on a lot of new businesses," Goldberger said.

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