Replies to post #2870 on Advanced Micro Devices Inc (AMD)

[economaniac]

sgolds, to elaborate on what I wrote Joe about Opteron capacity. Figure an average price of $500 for opteron and $60 for AXP, $150 for Barton. I figure AMD gets about 200 good die/wafer on tbred or 120 for Barton. Take off $12 per chip for packaging Tbred and Barton and $30 for Opteron. Then a Tbred wafer is worth $9600 (200x48), a Barton wafer $16,200 and an opteron wafer $470x(yield/wafer). Then they need only 35 good Optera per wafer to make it the most profitable product and at 50per it is worth some 50% more than barton and way more than double what a tbred wafer brings.

So at current pricing AMD should be making as many optera as they might possibly need provided they can make them at all (it is conceivable that opteron production is a hit or miss affair where only a tiny fraction (<10%) of chips work, but that is not really a production process). There is no real point in cutting prices on Opteron, as many have pointed out the other costs of servers make processor price a pretty small part of the package so they won't make much headway just on the price of the chips. Total server chip sales per year are only about 10 million, so if AMD got 30% of that market they are only talking 700,000 per quarter which should be no more than 10,000 wafers (about 16% of capacity) and no more than 30% even with terrible yields. AMD has plenty of capacity to make all the Opterons the market might conceivably nuy and clear economic incentive to make Opteron before they make tbred or Barton. Their are three possible reasons to limit output and they don't reflect capacity constraint.

1. Completely underestimating demand. They don't want lots of unsold chips taking capacity away from tbred so they might make a mistake and run fewer than the market demands even with a reasonable cushion because of huge unexpected demand for Opteron. I don't think it will be that easy.

2. Concern about the impact of a recall. I think this one is fairly serious. AMD does not want Opteron to be too big a success right away cause they can't afford for a flaw to turn up on a large installed base. I doubt they want more than a few thousand out in the first month and a couple tens of thousands in the first quarter. I suspect that is part of the reason why A64 is waiting to fall. Even if they could make it they need to see Hammer in the wild for a while to be safe with a volume product.

3. Expectations of rapidly improving yields or binsplits. Why give up 5 or 6 or ten K7s per opteron now if the tradeoff will be just 2 or 3 in a month or so? If Opteron yields are stable and low you might as well bite the bullet and make the things (see analysis above) but there is little point in running lots of wafers to get a few 1.4 and 1.6 Ghz chips now if you can can yield plenty of 2-2.4 Ghz in a month or two.

Bottom line I don't see AMD shorting Opteron wafers because of capacity concerns. They might hold back for liability reasons or as a mistake in underestimating demand or being too optimistic about manufacturing improvement.

E

[jhalada]

sgolds,

don't forget that large numbers of wafers will be needed to build inventory for Athlon64 for end of year sales.

There is no reason to package any A64s if you are selling out Opterons. If AMD keeps selling out Opterons, A64 can be a low volume launch or postponed launch.

There is just no reason to be supply constrained on Opteron (unless the SOI just completely doesn't work). So basically, AMD first allocates wafers fir all the high end Opteron chips that can be sold and goes down from there.

I don't have any numbers to make a reasonable estimate of how many wafers will be needed for each processor but I am having a hard time believing that AMD will be able to produce enough Opterons this year to be market constrained.

Well, I gave you one ballpark number. Here is another. AMD allocates half its Dresden capacity 2500 wpw to Opteron, achieves 60% yield, or about 90 good die per wafer and produces 2.9 million Opterons per quarter, and achieves 100% market share and on top of that places 400,000 to inventory.

Now think about which one is within realm of possibilities, ability to produce this many chips or ability to sell this many chips.

If the demand is there for Opteron it makes no sense to forgo selling 1 $500 Opteron in favor of 2 or 3 $60 chips. There is no reason for Hector to leave revenue of $1.25 billion per quarter, even if it took 100% of the wafer starts to produce these 2.5M Opterons per quarter.

The obvious answer is that AMD is (and has been for long time) demand limited. Even at prices lower than Intel, AMD has hard time selling out the products, and Opteron is no different.

The reason why there are no more OEMs selling Opteron is not supply (well, some may be waiting to see proof that AMD can produce them, since it is a brand ne chip) but other reasons.

Joe