I was as startled as anyone to see last Friday’s news that Abu Dhabi’s Mubadala Development Company handed AMD $622M in exchange for 8.1% of the company. That puts AMD’s overall valuation at roughly $7.7B, slightly above what the current stock price would indicate.
That $622M infusion gives AMD some vital financial breathing room, given that it’s lost more than $1.6 billion so far this year. Add $5.3B in debt, and only $1.5B in cash on hand (now, presumably, $2.16B), the situation is not pretty.
The real heart of the matter, though, is not AMD’s financial situation. The company’s financial situation is directly the result of its execution in the market.
Let’s step back a few years, to AMD’s halcyon days. Back then, CTO Fred Weber was on a roll, after having architected AMD’s rise to performance prominence over archrival Intel with AMD’s Hammer processor family. K8 became known as the Athlon 64 and later, the Athlon 64 X2 as AMD shipped dual core versions. The native dual core X2 CPUs were the darling of PC performance enthusiasts everywhere, running rings around equivalent Intel processors in terms of performance while at the same time using less power and putting out lower heat.
Intel’s only response at the time, in terms of product, was to slap two very hot CPU dies into one package and call it a dual core CPU. On the one hand, they actually beat AMD to market with their dual core Smithfield product. But it was a very hot solution, and was an underperforming relative to what AMD was shipping.
AMD was watching this, and decided to roll the dice: its next generation CPU would be a “true quad core” processor, with all four cores on one semiconductor die. After all, it crushed Intel in terms of performance when Intel tried to put two dies on one package. Even if Barcelona, as the new architecture was dubbed, was late, AMD would still be able to put the hurt on Intel.
What AMD apparently wasn’t paying much attention to was this little product line called “Centrino.”
In truth, Centrino was a lot of marketing hot air—but very profitable marketing hot air. The whole platform approach obscured the fact that underlying Centrino was a pretty killer mobile CPU, the Pentium M. It was performance efficient, offering much higher instructions per clock cycle than Intel’s desktop CPU, and it was energy efficient, consuming relatively low power. At its original inception, the Pentium M was something of a stepchild inside of Intel, having been developed outside of Intel’s mainstream architectural design process.
But the success of Centrino and the Pentium M made the powers that be sit up and take notice. Intel rolled some dice of its own, and decided to turn the aircraft carrier around. It cancelled existing projects, like the Netburst-based Tejas CPU, and began architecting a new CPU based on the design principles of the Pentium M. All this was a huge vindication for Intel executive Mooly Eden and Intel’s Israeli design team.
But enough about Intel. The key point here is that Intel realized what it had in the Pentium M—though it took some time—while AMD didn’t seem to quite realize the threat. Intel was big, cumbersome and constantly talking about different architectures. For all AMD knew, Intel’s Conroe project would just be another underperforming Intel CPU.
To be fair, AMD’s resources are more limited than Intel’s, given the much smaller size of the company. Until recently, AMD has proven to be as efficient at husbanding its resources as its Athlon 64 X2 CPUs had been. So AMD focused on designing Barcelona, bringing up new fabs and churning out faster iterations of its existing CPU line—as you’d expect a CPU company to do.
Then like a high roller in Las Vegas, AMD returned to the craps table and made a huge bet: it bought Canadian graphics hardware company ATI Technologies.