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AMD's Meyer talks spin-off, Intel, small laptops

The chipmaker's chief executive, Dirk Meyer, talks about the company's competitiveness, Intel, and a new focus on processors for smaller, lighter laptops.

Advanced Micro Devices' CEO Dirk Meyer is confident about his company's ability to compete--especially with Intel--and believes a new focus on processors for smaller laptops (and possibly a Netbook chip) will be key.

AMD CEO Dirk Meyer
AMD CEO Dirk Meyer AMD

During a phone interview Thursday, Meyer also addressed the finalization of its deal to spin off its manufacturing operations. As planned, AMD will become a chip-design company and spin its manufacturing operations off to a new entity tentatively called The Foundry Company. AMD will own 34.2 percent of the new manufacturing company, while the Advanced Technology Investment Co. will own the rest. ATIC is an investment company wholly owned by the government of Abu Dhabi, which is part of the United Arab Emirates.

"We've completed all the prerequisites to closing the deal and we close the transaction no later than Monday (March 2)," he said.

One of the linchpins of the spin-off is the opening of a new manufacturing facility in Saratoga County, New York. "We still plan to break ground on that facility next summer. When we open up the doors it will be one of the most advanced semiconductor manufacturing facilities in the country," Meyer said.

Meyer explained what the spin-off means to AMD investors. "What AMD stockholders will own is AMD the product company. It will happen that AMD the product company will own an equity interest in The Foundry. However, The Foundry's operations will be funded off The Foundry Company balance sheet. And AMD won't have any obligations going forward to pony up anymore investments to fund The Foundry company operations," Meyer said.

The upshot is that the spin-off will save AMD money, allowing it to be more profitable. "In the past we've been burdened with the need to invest in silicon R&D and wafer fabs (plants). And this transaction gets us out from underneath both of those things. In the past, we've had to invest between one and two billion dollars a year in manufacturing capacity for wafer fabs. We don't have to do that anymore."

"This will bring a bunch of cash into the company and lighten our debt load," he said.

Intel, not surprisingly, sees things differently. It believes having full ownership of manufacturing operations makes it more competitive by allowing it to move quickly to next-generation manufacturing processes: a strategy that Intel has executed almost flawlessly in the past couple of years: moving from 65-nanometer to 45-nanometer and, later this year, to 32-nanometer. (Generally, the smaller the geometries, the faster and more power-efficient the chips are.)

And Intel CEO Paul Otellini mentioned yesterday at a Goldman Sach's technology conference that AMD may face issues when it "decouples" its design operations from the manufacturing side of the business.

Meyer disagrees. "The supposition is just wrong. That presumes we won't have a relationship with our foundry partners." (Foundry, in this case, is a generic term for manufacturing facility.) "Actually, we have that relationship with TSMC today, who builds our graphics parts." (TSMC is Taiwan Semiconductor Manufacturing Company.) "So, the supposition that we won't have the appropriate influence on technology isn't correct. What about Qualcomm, Nvidia, TI (Texas Instruments)...who don't own their own manufacturing assets? The idea of being a successful semiconductor product company and not owning the manufacturing assets isn't new."

So, how will AMD compete with Intel in the race to move to the next-generation manufacturing process? "We've never introduced products on the next node (manufacturing process) first in the industry. One, it's really expensive to do. And it has been a good business decision, frankly. And, given our scale, we don't receive the first copies of manufacturing tools. So, we have, by choice, introduced products six to twelve months after the first company in the business and that typically is Intel. We're not materially disadvantaged by doing so. Our product architectures have always left us very competitive. At the 65-nanometer generation, our products were competitive in the data center with Intel's 45 (nanometer)."

Meyer said AMD will begin its "ramp" to 32-nanometer in the middle of next year.

And what about AMD's ability to respond if the economy gets worse? "We embarked on some restructuring activities in the back half of last year. And when the economy turned south we had to go back and restructure further. We did so with a very sober view of the future. So our plans were not created on the assumption we were going to see a miraculous turnaround in the second half," he said. "Priority one is manage cash and make sure we maintain liquidity. Priority two is maintaining investment in the R&D pipeline. That will make sure we're an interesting company when things do turn around."

An emerging area of critical competitiveness for AMD is mobile processors. Before addressing specifics, Meyer said that consumers should look beyond benchmarks. (AMD mobile processors do not fare well against competing Intel chips in benchmarks). "Let's open the aperture a little bit. Let's think about what people actually do with PCs. And let's think about the experience in various usage scenarios and talk about how well the device responds in delivering that experience. If I'm going to transcode video or play a 3D game. Let's talk about what we actually want to do instead of some benchmark." Here, Meyer is saying that AMD's processors combined with its ATI graphics chips can process certain tasks more quickly than Intel processors alone.

And Netbooks? Does AMD, dare we say, now have a Netbook strategy (after renouncing the Netbook last year)? "I think a year from now people are not going to talk about a Netbook versus a notebook because the lines are going to be so blurred it's not going to make any difference anymore." He said AMD has reevaluated the small laptop space and intends to compete in small devices starting at the 10-inch diagonal screen size. "I hate to say Netbooks because a year from now people won't say Netbooks." And how low will AMD go? "You'll see our chips show up in devices down to the $399 price point."

This very-low-cost chip will be different than AMD's Yukon, aka the Athlon Neo Processor MV-4 (1.6GHz), which will be used in Hewlett-Packard's upcoming dv2 Pavilion ultraportable notebook. Meyer said AMD is working on a chip code-named "Ontario" that's "more purpose built for lower power, lower cost applications."

"So we've got a continuum of solutions going Yukon, Congo, Nile, Ontario...that will enable smaller, less expensive form factors. We're focusing on that ten-inch and above..10, 11.6 (diagonal screen size)--in there."

Though Meyer didn't get very specific, the single-core Yukon and the dual-core Congo (the latter coming later this year) appear to be targeted at larger screen sizes (like the 13-inch HP dv2 Pavilion) while Ontario is smaller form factors.