AMD-ATI Deal Targets Enterprise Customers

More integrated chip sets should create new business lines, meeting the needs of senior technology managers, Advanced Micro Devices says.

Advanced Micro Devices says its plan to buy graphics processor maker ATI Technologies is in part a response to senior technology managers wants.

AMD announced July 24 that it intends to acquire ATI for $5.4 billion in cash and stock. The move, which will make ATI an AMD business unit, will allow the chip maker to offer more tightly integrated processors and supporting chip sets for business PCs, as well as introduce new products, such as integrated processors.

AMD has made strides with businesses of late, particularly in the server space. There, its Opteron server chip has won over many IT managers. It has also won new business from Lenovo Group, which sources familiar with its plans say will deliver an AMD processor-based Think-Centre A60 desktop to large businesses in the second week of August. Yet AMD—whose goal is to serve at least one-third of the PC processor market in the future—says it still needs to do more for business PCs.

"Mobility and commercial are [the] most immediate areas for growth" for the combined AMD-ATI entity, Hector Ruiz, AMDs CEO, said during a July 24 conference call with analysts. "The one thing our customers were insisting on is we had to play a bigger role in the ecosystem of those products."

Customers have been asking AMD to tighten the ties between its processors and their supporting chip sets—which are now manufactured by several third parties—and take a more active role in the way the resulting systems are designed and tested, Ruiz said, speaking from New York, where AMD announced the deal.

For Lenovos part, its ThinkCentre A60 will be the first AMD-based desktop from a Tier 1 manufacturer to target large businesses in the United States. Lenovos own Lenovo 3000 line, along with Hewlett-Packards HP Compaq business desktops line, include AMD-based models—but they target small and midsize businesses. With ATI on board, AMD aims to increase the number of machines targeting big businesses.

/zimages/2/28571.gifCould AMDs purchase of ATI be beneficial for the Linux and Mac markets? Read more here.

To be sure, even while it operates as an AMD business unit, ATI will continue to offer its discrete graphics processors, as well as chip sets for PCs using AMD and Intel processors.

But AMD will tout a better marriage between its AMD processors and ATI chip sets. By working more closely, AMD processor designers and ATI chip-set designers will be able to improve product design as well as testing, AMD executives said.

In theory, the company will be able to tout increased stability and reliability for its product lines, two important factors that senior IT managers use when considering new PC purchases. "One of the things AMD can tout almost immediately is the stability message," said Roger Kay, president of EndPoint Technologies Associates, in Wayland, Mass. "The upside [of the deal is] that if AMD can get any traction at all in commercial, that represents a pretty good position."

Because the AMD-ATI deal isnt expected to close until the fourth quarter, the first such joint products wont come out until sometime in 2007, executives said.

Meanwhile, buying ATI could bring other advantages for AMD and its customers. The chip maker could also begin bundling its AMD processors with ATI chip sets, offering PC makers lower prices than if they bought the items separately, analysts said.

But perhaps the most striking developments of the deal, involving steps forward in technology, might not come to the surface immediately, AMD executives said.

Starting in 2008, AMD hopes to meld technologies from its AMD processors and ATI graphics chips to create new products.

One such product could be a PC-on-a-chip, a single piece of silicon that includes one or more individual processor cores with a graphics processing engine.

"The holy grail of integration for ATI and AMD is going to be an integrated processor—a combination of a graphics processor and a processor," said Dean McCarron, principal analyst at Mercury Research, in Cave Creek, Ariz. "I think that is, first and foremost, the most direct product result of this particular merger."

An integrated processor that could help PC makers build lower-cost commercial desktops using fewer chips is one potential market opportunity AMD could address, said Bruce Shaw, director of worldwide commercial marketing at AMD.

The integrated chip might not offer the highest level of performance for its day, Shaw admitted. However, "If you can get the cost down on the product itself, performance may not be the ultimate" factor when it comes to building a desktop, he said.

AMD could bundle the integrated chip with an ATI-designed chip set, allowing it to deliver lower prices to PC makers, while guaranteeing reliability and stability that business PC buyers demand, McCarron said.

Later, AMD might combine elements from its processors and ATIs graphics chips in other ways, creating hybrids of sorts for specific applications, AMD officials said.

/zimages/2/28571.gifCheck out eWEEK.coms for the latest news in desktop and notebook computing.