Hedging Its Chip Bets

Microsoft embraces AMD Opteron to block Linux, but move could hurt Intel.

On the surface, Microsoft Corp.s support for Advanced Micro Devices Inc.s forthcoming 64-bit Opteron chip, announced last week, appears to be a way of hedging its processor bets. Some, however, say the move is actually a calculated step to thwart Linux.

Currently, Unix systems based on proprietary operating systems dominate the 64-bit processor space, where servers featuring the chips are valued for their ability to handle vast amounts of memory as well as thousands of simultaneous transactions. Overall, 64-bit systems make up one of the most lucrative computer markets—in which servers routinely sell for $1 million or more and are often tied to expensive service agreements.

Microsoft has been counting on longtime partner Intel Corp., of Santa Clara, Calif., and its new Itanium chip to carry Windows applications into that space. But Itanium sales have been relatively sluggish since its introduction last May, with the chip appearing in less than 1 percent of all servers sold, according to International Data Corp., of Framingham, Mass.

If Microsoft maintains its support of only Itanium, it risks missing out on the potential success of Opteron, formerly code-named Hammer. And in doing so, it could inadvertently fuel greater adoption of 64-bit Linux software among enterprise users.

Its for that reason, analysts say, that Microsoft decided to embrace Opteron only a few weeks after SuSE Linux AG, a leading Linux distributor, announced it will provide software for the chip.

The decision by SuSE "probably got Microsoft off their dime," said Kevin Krewell, an analyst at In-Stat/MDR, in Sunnyvale, Calif. "Hammer will be playing into the one- and two-way server space, and I dont think Microsoft wants to see Linux gain any more traction in that area."

Holger Dyroff, who heads SuSEs U.S. operations, agreed. "Any operating system will be very disadvantaged in the market if it is not able to provide a running operating system in 64-bit mode at the time Opteron hits the market" early next year, said Dyroff, in Oakland, Calif.

But Velle Kolde, the lead product manager of Microsofts Windows .Net division, in Redmond, Wash., denied such claims. "While we always pay attention to what our competitors are doing, the decision was made after we completed our technical evaluations of the product," Kolde said.

The agreement was also announced just one week after AMD Chairman Jerry Sanders testified on Microsofts behalf in its federal antitrust trial. While Sanders admitted he took the stand as a "favor" to Microsoft Chairman and Chief Software Architect Bill Gates and that he was lobbying Microsoft to support his Sunnyvale-based companys 64-bit processors, Microsoft has denied suggestions of a quid pro quo arrangement.

Still, contrary to Microsofts assertions, until now no major computer makers or sizable enterprise customers have expressed much interest in Opteron, reflecting AMDs inability to break Intels hold on enterprise customers. But that could change, since Microsofts decision will likely spur software and computer makers to reconsider their indifference to AMDs product. "Software makers have long followed Microsofts lead," said Nathan Brookwood, an analyst with Insight 64, in Saratoga, Calif. "Im sure Microsoft will prod some of its partners to join the effort."

Microsofts Kolde appeared to support this view, saying there is an ecosystem that needs to be developed around the technology, which will involve all elements of the industry. "This is not something any single vendor can drive," Kolde said. "It is not just about Microsoft software or our operating system and applications but about the utilities, about the OEMs delivering systems, the ISVs porting their applications over and people developing new applications that will require 64-bit systems."