Is it just me or has AMD just pulled off one of the most amazing semiconductor comebacks of the century? Let’s take a closer look.
Who doesn’t long for the days when Intel and AMD went head to head in the battle for microprocessor supremacy? Back then Intel, was still operating under the Andrew Grove mantra of “Only the Paranoid Survive” and ultimately pounded AMD into submission. The battle officially started when IBM required a second source for the IBM PC x86 chips Intel is now famous for.
Like Intel, the AMD founders also came from Fairchild and started AMD as a semiconductor second sourcing business for a variety of chips. It really was an epic semiconductor battle with Intel and AMD leap frogging down Moore’s Law. In fact, I remember buying motherboards with an AMD 40Mhz processor versus an Intel 36Mhz chip just to keep the second source dream alive.
Unfortunately, the Intel vs AMD battle officially came to an end in 2009 when AMD repeatedly failed to leap frog Intel and was forced to divest manufacturing giving birth to US based GlobalFoundries. Over the last 8 years fabless AMD has been very hard to watch with failure after failure at many different levels. But now all of that has changed with new management and the amazing Zen architecture. Or has it?
Zen was designed from the ground up by famed SoC architect Jim Keller. This was Jim’s second stint at AMD following his work at Apple that produced the first A4 and A5 SoCs for the iPhone and iPad launches. Jim returned to AMD in 2012 and left after Zen was taped out in 2015. Jim Keller and his core team now work for Tesla.
The first question you should be asking is: Why is Zen being released in 2017 when it taped out in 2015? Maybe the same reason why Jim Keller no longer works at AMD? How many spins can you do on a chip that size in two years? Two to three depending on how many masks were changed?
Fast forward to the most recent AMD investor call, where a ship date for Zen was finally announced causing AMD stock to jump once again. At the beginning of 2016 AMD traded for under $2 and is now trading for more than $12. Talk about an amazing comeback, absolutely.
Some semiconductor insiders however are calling it “AMD Delusional Disorder”. These delusions may seem believable at face value, and investors may appear normal as long as an outsider does not touch upon one of their delusional themes. Read the comments on articles critical of AMD for a more detailed description.
A recent delusional example is the Zen release strategy announced on the call that caused the stock to again rise:
“We’ll start by shipping Zen to boutique PC manufacturers and the channels that support Do-It-Yourself types.” In other words the “NOT INTEL” market.
The non delusional version is, “We could not get Zen into a major PC manufacturer such as HP, Dell, Acer, or Lenovo…”
On the manufacturing side, AMD has 14nm wafer agreements with Samsung and GlobalFoundries so there are no Zen capacity issues unless the chip is not yielding or it requires yet another spin.
The other interesting thing to note is that Intel does not seem to be paranoid of Zen at all. We will know more after the February 9[SUP]th[/SUP] analyst meeting but it seems that Intel will not accelerate their 10nm release schedule to compete with Zen nor did they mention potential margin erosion from a price war that AMD would lose.
Another problem for Zen is that Intel 14nm (13.4nm) was developed for and ramped by Intel CPU chips. Samsung 14nm (16.6nm) however was not developed for or ramped by Zen. Intel 14nm is also in its second generation with better design constraints resulting in a double digit performance increase and a cost reduction. GF 14nm however is first generation. Intel is also very close to their major customers (HP, Dell, Acer, Lenovo, etc….) and know what they are forecasting, Intel is probably not as close to “boutique PC manufacturers and the channels that support Do-It-Yourself types”.
On the bright side, GF 7nm is probably being developed with Zen in mind and will be one of the first chips to ramp. From what we know today GF 7nm (8.2nm) will arrive in 2019 while Intel 7nm (6.7nm) is expected in 2020. In the mean time however, GF 14nm Zen chips will be competing with Intel 10nm (9.5nm) chips starting in 2018.
Bottom line: AMD has zero chance of profitability before 7nm and at some point in time Wall Street will have to face financial facts and AMD stock will be back to single digits, my opinion.