Multibillion-dollar chip battle heats up
AMD rise puts pressure on Intel
By David Kirkpatrick
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(FORTUNE.COM) -- The shift toward computing's next generation continues to generate drama. Sun Microsystems said Monday it would partner with chipmaker AMD on an aggressive effort to sell servers and workstations using AMD's 64-bit Opteron processors. It was the best news AMD has had in awhile, and shows that Sun continues its spunky fight for relevance, even as its central source of revenues, proprietary hardware, continues a long-term decline.
In a major piece about 64-bit computing I wrote in FORTUNE in February, I predicted that Sun and IBM would adopt AMD's chips for servers. Both now have, and have also established significant alliances with AMD. But Sun is making a bigger commitment than any major computer company yet to build computers using Opteron. One key breakthrough is the use of Opteron in workstations, which Sun didn't announce yesterday but was confirmed by company executives.
Finally AMD's innovative chip is beginning to break out. Says Subodh Bapat, chief technologist for the group that is adopting Opteron at Sun: "We think it will eventually be a very significant percentage of Sun's business, in volume and in revenue." But he explains that it will remain mostly toward the bottom end of the product line, which will continue to be dominated by higher-end servers based on Sun's own Sparc technology.
The reason 64-bit technology matters is simply that it is the future. As applications get more complex and the data organizations need to process gets more and more unwieldy, today's mainstream microprocessors from Intel will increasingly be incapable of doing the job. That's not only because they process data in chunks of 32-bits at a time rather than 64.
The new chips have another critical advantage over today's Pentium 4 or Xeon chips -- they can work with virtually unlimited amounts of memory. Intel's 32-bit chips, even under ideal circumstances, cannot digest more than four gigabytes of memory at a time. This doesn't matter much for desktop computing, but for servers and workstations that deal with large amounts of data it will be determinative.
This and other recent deals show that competition in microprocessors remains alive and well, despite Intel's dominance and its continuing financial success and market growth. IBM's sizzling Power4 chips have been chosen both by Microsoft for its next generation Xbox game machine as well as by Apple for its G5 computers.
Both companies talked long and hard with Intel before making their decisions. Intel is doing great with chips for laptops and other specific uses, as a recent Wall Street Journal front page piece describes. But at the high end, which the company resolutely wants to dominate, Intel still faces questions.
The Sun/AMD move puts further pressure on Intel to reconsider its own approach to 64-bit computing. All of Intel's chips, so to speak, are riding on its Itanium 2 architecture, a 64-bit computer design that differs from Opteron in one fundamental respect -- it requires all new software. AMD instead designed a 64-bit chip that, while less robust for certain enterprise applications, allows customers to simultaneously run older 32-bit applications. That so-called "backward compatibility" will probably turn out to be a major advantage in the market.
The move by IBM and now Sun to Opteron will seriously pressure Intel if it pushes the big fish of computing -- Dell -- to consider siding with AMD. Up until now Dell has been a minor player in 64-bit computing, selling just a few Itanium-based servers and focussing almost completely on machines based on Intel's Xeon 32-bit processors.
But if Sun makes any kind of dent in Dell's server sales with its new Opteron servers, which like Dell's can run the Linux operating system, Dell won't sit idly by. Sun says that with Opteron it will be able to sell machines that are at least as inexpensive as Dell's, that have the vaunted backward compatibility, and that also come with lots of Sun enterprise software, which Dell cannot match.
Meanwhile, Intel's Xeon has been more successful than anyone predicted. This past year, for the first time, more than half of all servers shipped worldwide used Intel processors. That's astonishing, considering that servers -- which used to be given names like "mainframe" and "minicomputer" -- were a category created and dominated by the great proprietary computer companies like IBM, HP, Sun and others. Each had its own unique way of building chips, most of which ran only that company's own unique version of the Unix operating system.
Now, with the growing penetration of Microsoft Windows into corporate computing and the simultaneous explosive growth of open-source Linux system software, the proprietary hold of those old-school giants has been broken. Windows and Linux both run great on Intel. But they also run great, and in some cases even better, on AMD's Opteron. Microsoft has a special version of Windows for Opteron that should finally be released in the next couple of months. Jim Allchin, who runs Microsoft's Windows group, told me last winter that he was amazed at how much it improved the performance of many applications, even those that had not been rewritten for 64-bits.
At Intel, spokesman Howard High says that Itanium is actually doing better than most people realize. The company will announce at its analyst meeting later this week that analysts' estimates of its sales "are off by an order of magnitude," he says. "This year and next are very big years for Itanium," says High, "because people will see it has strong interest and that real companies are implementing it for real work." Nice, for a product that initially shipped in 2001 (though it was originally slated for 1999). Better late than never, I guess.
But I pressed High on what Intel would do if Opteron continues to get traction. Would Intel, as rumormongers continue to predict, possibly launch a second front in the 64-bit war and start selling a backward-compatible chip to compete with Opteron? (Intel supposedly has such a project, named "Yamhill.") "I can't say we're going to do it and I can't say we'll never do it," he replied. "If our customers say they want that kind of capability, we'll look at it."
No matter how much people want to write off Sun, it continues to show signs of life. Also on Monday, it announced a major deal with a government-backed Chinese tech consortium to sell a complete desktop software package for up to 200 million Chinese PCs over the next few years. The software will include the Linux operating system, Sun's Star Office software (an alternative to Microsoft Office), the Mozilla web browser and "everything you need on your desktop besides games," says Sun spokesman Russ Castronovo.
Spunky Sun, for all its troubles, on one day gave new headaches to both Intel and Microsoft.
David Kirkpatrick is senior editor for Internet and technology for Fortune.com.