How AMD became a chip giant and leapfrogged Intel after years of playing catch-up

Advanced Micro Devices made past this twelvemonth erstwhile it surpassed Intel by marketplace headdress for the first clip ever. Intel has agelong held the pb successful the marketplace for machine processors, but AMD's ascent results from the institution branching retired into wholly caller sectors.

In 1 of the biggest semiconductor acquisitions successful history, AMD purchased adaptive spot institution Xilinx successful February for $49 billion. Now, AMD chips are successful 2 Tesla models, NASA’s Mars Perseverance onshore rover, 5G compartment towers and the world’s fastest supercomputer. 

“AMD is beating Intel connected each the metrics that matter, and until and unless Intel tin hole its manufacturing, they’ll proceed to bash that,” said Jay Goldberg, semiconductor advisor astatine D2D Advisory.

But a decennary ago, analysts had a precise antithetic outlook for AMD.

“It was astir a joke, right? Because for 4 decades they had these unthinkable show problems,” Goldberg said. “And that's changed.”

CNBC sat down with AMD CEO Lisa Su to perceive astir her company’s singular comeback, and immense bets connected caller types of chips successful the look of a PC slump, caller restrictions connected exports to China and shifting manufacture trends.

AMD was founded successful 1969 by 8 men, main among them Jerry Sanders. The famously colorful selling enforcement had precocious near Fairchild Semiconductor, which shares recognition for the invention of the integrated circuit.

“He was 1 of the champion salesmen that Silicon Valley had ever seen," said Stacy Rasgon, semiconductor expert astatine Bernstein Research. "Stories of lavish parties that they would throw. And there's 1 communicative astir him and his woman coming down the stairs of the turret astatine the enactment successful matching fur coats.”

He besides coined an infamous operation astir spot fabrication plants, oregon fabs.

“Jerry Sanders was precise celebrated for saying, ‘Real men person fabs,’ which evidently is simply a remark that is problematic connected a fig of levels and has mostly been disproven by history,” Goldberg said.

As exertion advances, making chips has go prohibitively expensive. It present takes billions of dollars and respective years to physique a fab. AMD present designs and tests chips and has nary fabs.

“When you deliberation astir what you request to bash to beryllium satellite people and design, it's a definite acceptable of skills," Su said. "And past what bash you request to bash to beryllium satellite people In manufacturing? It's a antithetic acceptable of skills and the concern exemplary is different, the superior exemplary is different.”

Back successful the '70s, AMD was pumping retired machine chips. By the '80s, it was a second-source supplier for Intel. After AMD and Intel parted ways, AMD reverse engineered Intel’s chips to marque its ain products that were compatible with Intel’s groundbreaking x86 software. Intel sued AMD, but a colony successful 1995 gave AMD the close to proceed designing x86 chips, making idiosyncratic machine pricing much competitory for extremity consumers.

In 2006, AMD bought large fabless spot institution ATI for $5.4 billion. Then successful 2009, AMD broke disconnected its manufacturing limb altogether, forming GlobalFoundries.

“That's erstwhile their execution truly started to instrumentality disconnected due to the fact that they nary longer had to interest astir the foundry broadside of things,” Goldberg said.

GlobalFoundries went nationalist in 2021 and remains a apical shaper of the little precocious chips recovered successful simpler components similar a car’s anti-lock brakes oregon heads-up display. But it stopped making leading-edge chips successful 2018. For those, AMD turned to Taiwan Semiconductor Manufacturing Co., which present makes each of AMD’s astir precocious chips.

AMD lone has large contention from 2 different companies erstwhile it comes to designing the astir precocious microprocessors: Nvidia successful graphics processing units, GPUs, and Intel successful cardinal processing units, CPUs.

While AMD controls acold little GPU and CPU marketplace stock than Nvidia and Intel, respectively, it’s made singular strides since moving distant from manufacturing and reducing superior expenditure. 

Meanwhile, Intel doubled down connected manufacturing past year, committing $20 cardinal for caller fabs successful Arizona and up to $100 cardinal successful Ohio, for what it says volition beryllium the world’s largest chip-making complex. But the projects are inactive years distant from coming online.

“Intel is conscionable not moving guardant accelerated enough," Goldberg said. "They've said they expect to proceed to suffer stock successful adjacent twelvemonth and I deliberation we'll spot that connected the lawsuit side. And that's helped retired AMD tremendously connected the information halfway side.”

AMD’s Zen enactment of CPUs, archetypal released successful 2017, is often seen arsenic the cardinal to the company's caller success. Su told CNBC it's her favourite product. It’s besides what analysts accidental saved AMD from adjacent bankruptcy.

“They were similar literally, similar astir apt six months distant from the borderline and someway they pulled retired of it," Rasgon said. "They person this Hail Mary connected this caller merchandise plan that they're inactive selling similar aboriginal generations of today, they telephone it Zen is their sanction for it. And it worked. It had a massively improved show and enabled them to stem the stock losses and yet crook them around.”

Among the Zen products, AMD’s EPYC household of CPUs made monumental leaps connected the information halfway side. Its latest, Genoa, was released earlier this month. AMD’s information halfway customers see Amazon Web Services, Google Cloud, Oracle, IBM and Microsoft Azure.

“If you looked astatine our concern 5 years ago, we were astir apt much than 80% - 90% successful the user markets and precise PC-centric and gaming-centric,” Su said. “As I thought astir what we wanted for the strategy of the company, we believed that for high-performance computing, truly the information halfway was the astir strategical portion of the business.”

AMD's gross much than tripled betwixt 2017 and 2021, increasing from $5.3 cardinal to implicit $16 billion. Intel's yearly gross implicit that stretched, meanwhile, accrued astir 25% from adjacent to $63 cardinal successful 2017 to $79 cardinal past year.

AMD’s occurrence astatine catching up to Intel’s technological advances is thing galore property to Su, who took implicit arsenic CEO successful 2014. AMD has much than tripled its worker number since then. Su was Fortune’s #2 Business Person of the Year successful 2020 and the recipient of 3 of the semiconductor industry’s apical honors. She besides serves connected President Joe Biden’s Council of Advisors connected Science connected Technology, which pushed hard for the caller passage of the CHIPS Act. It sets speech $52 cardinal for U.S. companies to manufacture chips domestically alternatively of overseas.

“It's a designation of conscionable however important semiconductors are to some economical prosperity arsenic good arsenic nationalist information successful the U.S.,” Su said.

With each the world’s astir precocious semiconductors presently made successful Asia, the spot shortage highlighted the problems of overseas dependency, particularly amid continued hostility betwixt China and Taiwan. Now, TSMC is gathering a $12 cardinal 5-nanometer spot fab extracurricular Phoenix.

“We're pleased with the enlargement successful Arizona," Su said. "We deliberation that's a large happening and we'd similar to spot it grow adjacent more.”

Earlier this month, the Biden medication enacted big caller bans connected semiconductor exports to China. AMD has astir 3,000 employees successful China and 25% of its income were to China past year. But Su says the gross interaction has been “very small.”

“When we look astatine the astir caller regulations, they're not importantly impacting our business," Su said. "It does impact immoderate of our highest-end chips that are utilized successful benignant of AI applications. And we weren't selling those into China.”

What is hurting AMD’s revenue, astatine slightest for now, is the PC slump. In its third-quarter net study earlier this month, AMD missed expectations, soon aft Intel warned of a soft 4th quarter. PC shipments were down astir 20% in the 3rd quarter, the steepest diminution successful much than 20 years.

“It's down a spot much than possibly we expected,” Su said. “There is simply a rhythm of correction which happens from clip to time, but we're precise focused connected the semipermanent roadworthy map.”

It’s not conscionable PC income that are slowing. The precise halfway of machine spot exertion advancement is changing. An manufacture regularisation called Moore’s Law has agelong dictated that the fig of resistors connected a spot should treble astir each 2 years.

“The process that we telephone Moore's Law inactive has astatine slightest different decennary to go, but there's definitely, it's slowing down,” Goldberg said. “Everybody benignant of utilized CPUs for everything, wide intent compute, but that's each slowed down. And truthful present it abruptly makes consciousness to bash much customized solutions.”

That’s wherefore AMD acquired Xilinx, known for its adaptive chips called Field-Programmable Gate Arrays, oregon FPGAs. Earlier this year, AMD besides bought unreality startup Pensando for $1.9 billion. 

“We tin quibble astir immoderate of the prices they paid for immoderate of these things and what the returns volition look like,” said Goldberg, adding that the acquisitions were yet a bully decision. “They're gathering a customized compute concern to assistance their customers plan their ain chips. It's a astute strategy.”

More and much large companies are designing their ain customized chips. Amazon has its ain Graviton processors for AWS. Google designs its ain AI chips for the Pixel telephone and a specific video spot for YouTube. Even John Deere is coming retired with its ain chips for autonomous tractors.

“If you truly look underneath what's happening successful the spot manufacture implicit the past 5 years, everybody needs much chips and you spot them everywhere, right?" Su said. "Particularly the maturation of the unreality has been specified a cardinal inclination implicit the past 5 years. And what that means is erstwhile you person precise precocious measurement maturation successful chips, you bash privation to bash much customization.”

Even basal spot architecture is astatine a modulation point. AMD and Intel chips are based connected the five-decade-old x86 architecture. Now ARM architecture chips are growing successful popularity, with companies similar Nvidia and Ampere making major promises astir processing Arm CPUs, and Apple switching from Intel to self-designed ARM processors.

“My presumption is it's truly not a statement betwixt x86 and Arm," Su said. "You're going to spot basically, these 2 are the astir important architectures retired determination successful the market. And what we've seen is it's truly astir what you bash with the compute.”

For now, analysts accidental AMD is successful a beardown presumption arsenic it diversifies alongside its halfway concern of x86 computing chips.

“AMD should fare overmuch amended successful 2023 arsenic we travel retired of the cycle, arsenic the show gains versus Intel commencement to go apparent, and arsenic they commencement to physique retired connected immoderate of these caller businesses,” Goldberg said.

Intel did not instantly respond to a petition for comment.