Intel's Achronix Strategy

There have been several reports recently on Intel's agreement to build FPGA's for Achronix on their upcoming 22nm technology. As far as I know this is a first for Intel. Not only are they building someone else's designs on an Intel process, but they are building those devices on Intel's leading edge technology.

Intel makes the most money off of their leading edge process. In recent presentations Intel has made a big deal out of how quickly they are ramping their newest process technologies. Faster ramps mean earlier crossover from the old technology to the new technology. Driving towards earlier crossover means higher profit margins and shorter time to repay the development and retooling costs associated with moving to a new process node. So I have to ask: Why would Intel sacrifice any of their early leading edge capacity for what is essentially foundry work?

The articles I've seen have suggested 2 reasons. The first is that Intel is looking to offset some of the R&D costs of process development. The second is that Intel wants to get back into the Field Programable Gate Area (FPGA) game.

In my opinion, the idea that Intel is looking to offset R&D costs with this move is absolute rubbish. Anyone that is willing to take an objective look at this would come to the same conclusion. Let me give an example to demonstrate why I don't think this line of speculation is worth the pixels it takes to print it.

Suppose I can sell a product for $100 and it costs me $50 to make. Let's also say the design work costs me $1000 up front. So if I sell 1000 units, I make $50000 minus the $1000 for design work. I net a total of $49000.

In the foundry model, I save the $1000 design cost up front, I still spend $50000 to make the 1000 units, but then I can't sell them to the customer for $49000 because they want to make a profit as well. Recouping their design costs isn't sufficient. So let's say I can sell them for 70% of their market value. That gives me $35000 in profit.

The model here is grossly oversimplified, but it illustrates the point. Building my own designs I make $49000, and building product as a foundry I make $35000. That means I'm making significantly less on the foundry product, and last I checked, making less isn't going to help offset my development costs. Instead of helping me, it reduces my margins and increases the time it is going to take me to recoup my R&D investment. Remember, we are talking about Intel's leading edge technology here, not trying to fill fabs running and old technology and keep them profitable longer.

The second theory is that Intel wants to get back into the FPGA game. Intel once had an FPGA program and sold it. In the EE Times article a spokesman for Achronix was quoted as saying:

"If Intel wanted to be in the FPGA business they would be already. They certainly have the cash."

And he is right. If all Intel wanted was to be in the FPGA business, they would simply buy Achronix or a similar company.

I believe the author of the EE Times article comes close to explaining what Intel is doing when the author says:

The relationship with Achronix could be a precursor to Intel eventually combining programmable logic with its Atom cores on the same die to create a new type of device. Earlier this year both Xilinx and Actel Corp. announced products that combined their programmable logic technology with hard ARM processor cores.

In my opinion the author of the EE Times article isn't looking far enough ahead to see what Intel is really looking to accomplish. While Intel may well want to create a new device that combines Atom and FPGA circuitry, I believe there is a much larger scope to this announcement. This move is really about Intel's Atom SOC strategy, not just FPGA devices.

In order to be a real player in the SOC space (smartphones, autotainment systems, etc.) Intel needs to develop a robust SOC capability they don't currently have. Up to this point the SOC designs that I've seem Intel previewing are all in-house Intel designs. But many of the players in the SOC space have their own proprietary designs they build around the central processing core. To make that happen, Intel needs to learn how to build external designs on the Intel process.

But my reading leads me to believe that Intel's design rules are fairly restrictive when compared to the traditional foundries. Since we are talking SOC's here Intel can't just tweak the process for an individual customer. The external designs have to work well with the same process Intel is using to manufacture Atom. In order to work effectively with customers in this new space, Intel needs to learn how to work in conjunction with external design teams to get the designs laid out in a way that will take advantage of Intel's process capabilities and yield well.

I believe the Achronix move is actually a first step in Intel's SOC strategy. A strategy that will allow Intel's customers to design their unique features around an Atom core to make a truly unique product. If this strategy proves successful, Intel and their partners will be able to offer a distinct product with clear differentiation in the market place. This is how Intel intends to differentiate future Atom products from competing ARM products.

Intel and AMD Report Record 1st Quarter Revenues

What a difference a year makes. The start of 2010 ended what can only be considered a disastrous 2009, not just for semi-conductors, but for the market as a whole as we begin to recover from the worst recession in over 80 years. It is clear that Uncle Ben Bernanke's 0% interest rates are fueling the next great bubble to replace the real estate bubble which Greenspan induced as a result of the Dot-com bubble. Where this bubble will go is anyone's guess (My bet is on T-Bills and the Federal Government's record deficits.) Meaning we are experiencing a nominal recovery of increased spending, as opposed to a real recovery on sound fundamentals, but I digress. Regardless of the cause of the increased demand, businesses are doing everything they can to soak up as much of it as they can and Intel and AMD are no exception.

Both companies reported record 1st Quarter revenues. Coming off such a dreadful 2009 makes this even more impressive. Whether this is a result of a strengthening technology sector, the release of new products or the unleashing of pent up demand from consumers and businesses from last year (perhaps a combination of all), this was a great quarter for both companies no matter how you slice it.

INTC


Great numbers and results all around for Intel. Gross margins continue to improve to mind boggling levels. At this rate Intel will post the largest yearly profit in history. A few things that stand out from the report, strong growth in nearly every sector except for Atoms which were down significantly. Despite Intel's assurances that Atoms and Notebooks did not cannibalize each others sales, I can't help but see a correlation with last quarters drop in Atom sales with that of record mobile chip shipments. Whether this was "good" or not is hard to tell since both products are profitable, but it's a great hedge strategy for all market conditions. Outside of normal growth and expansion, the Atom's make for a great value segment in down markets and Notebooks are the perfect product for booms. Either way, Intel can take market share.

We also saw the release of Nehalem-EX for the MP server segment which replaces the much maligned Dunnington platform for a true competitor in this space to take on AMD in this segment in a way that has been lacking for some time. It may not have made a large impact on financials due to its late release in the quarter, but chips were shipped for revenue. In the mobile space, we saw the release of the Westmere family chip Clarkdale which likely drove the strong increase in mobile sales. Also, the conference call noted that OEM inventories were normal but Intel inventories were lean. Indicating the upside of last quarter was above Intel's internal estimations.

AMD


Gross margins are up to a healthy 47%, operational profits are reported at a strong $182M and a net profit of $257M. Considering this was a "seasonally down" Q1 makes this even more impressive. The only caveat is the inclusion of a $325M non-cash assessment due to "deconsolidation" with Global Foundries. Excluding this one-time gain will bring AMD's net profit to a narrow loss for the quarter. Which means they essentially broke even. If the market continues to improve, it's likely that AMD could even report a net profit for the calendar year in spite of one-time accounting tricks. Not only were CPU shipments strong, but GPU shipments increased sequentially due to a strong ATI lineup.

AMD didn't sit idly by with old products going into the new year. We saw the much anticipated release of Magny-Cours, the MCM 12-core server chip (2 x 6 core) to compete in the EP space which Gulftown had taken by storm. We also so a flurry of higher binned Phenom II's giving AMD a strong lineup in the mainstream segment. Overall, a very good quarter with the signs of finally breaking out of the continual slump of heavy losses.

ARM vs Atom: Intel's Newest Challenge

The ARM architecture offers several advantages when compared to Atom.

ARM has smaller die sizes than the Atom processors which gives ARM a cost advantage. Having been designed for use in space sensitive environments, the ARM core is smaller than the Atom equivalent. This is the case even though Atom is being manufactured on a more advanced process than most of the current ARM designs.

In addition, ARM is more highly integrated than Atom. Almost all ARM products for use in the mobile space are single chip SOC solutions. This offers a substantial size advantage over the current Atom solution which requires three chips and the upcoming solution (Moorestown) that is still a two chip solution. Atom won't offer a single chip solution prior to the advent of Medfield sometime in 2011. So Atom won't be able to match ARM for solution size or integration until somewhere between 1 and 2 years from now.

But the biggest advantage ARM holds right now is in power efficiency. Qualcom's Snapdragon processor is the poster child for ARMs high performance processors, so I'll use that as a reference point. The Snapdragon processor is reported to use 250-500mW under load at 10mW at idle. Atom's Moorestown, due out later this year, should use ~1000-750mW under load and ~35mW at idle. So ARM offers about a 2-3X power efficiency advantage over the Atom platform.

With all these disadvantages, one wonders what Atom can bring to the table.

First and foremost is sheer processing power. If you look at Intel's marketing around the LG GW990 from CES, you will see an emphasis on multi-tasking. ARM is closing the gap on responsiveness on single apps, but the x86 architecture that Atom is based on still seems to have more horsepower and allows you to do more things at once.

Another big advantage that Atom currently enjoys is the ability to run flash applications. However, Adobe is reportedly working with ARM to enable their processor designs to run flash applications. So this advantage is going to be short lived. It has helped Atom become the dominant netbook processor but it will not continue to drive future growth.

The last advantage that the Atom brings to the table is the ability to run Windows. By being able to run Windows, Atom brings a large software infrastructure to the table for any device it is installed on. But this advantage isn’t quite as big as it might seem at first glance.

The Atom processor was designed to be a “good enough” processor for basic PC tasks like browsing the internet, viewing video, etc. But it lacks the power to run large applications well. So while Atom may be capable of running x86 applications, the experience with many of them is poor. If the software doesn’t run well it is not much better than not running at all.

The use of Atom in small form factors further offsets the advantage of using existing software. Many of the current applications don’t fit these small form factors very well. This can be fixed, but requires that the code be modified to correct the problem. Having to modify the code for this purpose nullifies much of the advantage of being able to use the existing software.

Intel’s marketing along the software lines seems to have matured beyond the idea of basic software compatibility of late. They are placing a greater emphasis on cross platform portability. I believe that this is a more realistic assessment of the x86 advantage than focusing on the software because it focuses on one of the few real weaknesses of the ARM architecture.

ARM doesn’t manufacture chips, it sells licenses to use its architecture. Each licensee is free to modify the basic design to suit the licensee’s needs. This results in an ecosystem where the various implementations from different vendors may not be compatible with each other even though they are based on the same core architecture.

Systems built around the x86 architecture bring the guarantee of cross system compatibility. Not in the sense that you can move the software directly, but rather in the ability to link the systems together and transfer data between them. So by choosing Atom, you know you are choosing a device that will work and play well with your other devices.

In summary, ARM and Atom are rapidly converging to similar levels of computing power and energy efficiency. Within a few years I believe there will only be one key differentiator between the two architectures. The differentiator will be the ease with which you can move data between your various computing applications.

Due to the homogenous nature of the hardware infrastructure Intel is building I believe this gives them a substantial advantage. However, there is still a need for urgency on Intel’s part. If ARM becomes the entrenched incumbent architecture in this new space, it will take far longer for Intel to move Atom down into the smaller devices. I believe the x86 architecture, warts and all, will become the dominant architecture in personal computing devices. But if Intel doesn’t move quickly enough they will miss the initial growth curve and the resulting profits that come from riding that curve.

Edit: Cleaned up the spacing