Pat commented that the new quad-core Barcelona from AMD (AMD) was “Too Little, Too Late when compared with Penryn”, and that at best it was a catch up effort by AMD.

An audience member brought up the importance of power dissipation and how that is the new denominator of performance- rather than dollar cost. Pat wasted no time talking about the improvements from the old Netburst architecture (yuck) and that the new quad core Penryn and associated chipsets dropped power from a single 110W core to four cores running at a total of 50W. Killing Netburst was the most important thing Intel did in this decade, in my opinion. Netburst is what led to the ascendancy of AMD, and it’s replacement led to it’s downfall.

Finally, in an observation that probably escaped 95% of the audience, he talked about the benefits of Hafnium, the new gate dialectric that is replacing the several decades old SiO2 (silicon dioxide). SiO2 thickness had dropped to 10 atomic layers and the move to hafnium drops gate leakage by a factor of 20. Given gate leakage was the #1 source of power dissipation, and SiO2 was 40 years old, this was a notable transition.

The question I wished I asked – does Virtualization threaten or complement Intel’s server chip business?

At the end of the entire ordeal, the senior TWC representative that was with us turned to us and asked us what this system could do. We explained, to which he responded with the most priceless of facial expressions. It was an expression that needed no explanation; his reaction asked the question “why on earth would you go through this when you can just rent an HD-DVR from us for $9 a month?”

The Anandtech review illustrates the complexity of the problem; most if not all of the issues involved hardware and network integration problems between Time Warner’s network and the HTPC. The problems were not the ones typically associated with integrating Microsoft (MSFT) software with generic OEM hardware.

It is clear that cable operators need to be equally incentivized to get 3rd party hardware up-and-running as quickly and efficiently as their own set top boxes and DVR’s. Otherwise, the 3rd party hardware model will never succeed. Given Cable’s reluctance to hand over control of their user interface to a 3rd party and forfeit any resulting indirect revenue streams (advertising, downloads, user viewing data) this is not a problem that is going to resolve itself.

One thing is clear, Microsoft has a potential winner with their Media Center software. The interface is universally seen as very user friendly and represents a quantum leap over the first generation of DVR’s such as Tivo (TIVO). Tivo has been stagnant while Microsoft has poured investment (albeit unprofitable) into this segment.

It remains to be seen if Microsoft will port this software to a dedicated hardware platform such as the Xbox360 and integrate the HDTV tuner. This would eliminate any potential hardware/software integration issues and deliver a great experience to a consumer. It appears to me that this is also the only way Microsoft will see any appreciable ROI on their Media Center investment.

Microsoft has already forged a roadmap with AT&T (T ) to use the Xbox360 as an IPTV tuner. It isn’t a big leap to see them work with Time Warner or Comcast (CMCSA) and modify the Xbox360 hardware to emulate a traditional set top box. This would be a winning product for everyone.

The real issue remains – in the not-too-distant future when I can download all of my content over a broadband connection, exactly what purpose will the traditional cable broadcast model serve?

• The iTV uses a standalone Nvidia (NVDA) GPU chip (GEFORCE GO 7300) normally targeted for mobile applications with 64Mb of dedicated GDDR3. While 18 months old (about 10 dog years ) it is capable of decent graphical performance with support for multiple pixel pipelines and shaders and anti-aliasing. This chip is also used to offload the weak CPU in order to provide solid H.264 decoding.
• The CPU is an Intel (INTC) processor of the low voltage mobile variety, something you would normally see in an ultra-mobile PC like an OQO. It is used in conjunction with an off-the-shelf mobile computing North and South bridge chipset and 256Mb of DRAM. The iTV is a full fledged mini-PC.
• Inside is the 40G, 2.5 inch hard drive that appears to be easily replaceable. 40Gb is a joke if you consider a future need for storing HD quality video- I expect folks will quickly hack in 120Gb drives. Apple will probably announce a new revision of ITV when iTunes finally supports HD quality video (just like Xbox 360 already does).

My Thoughts:

• The iTV is a great 1st generation example of how the “Third Screen” (see “Nyquist Predictions for 2007“, or migration of computing from the desktop to the laptop to the living room will be implemented in hardware. The emphasis is ultra-low-power and video, not necessarily computing horsepower and memory.
• While the current Nvidia device is an 18-month old design, it is an excellent example of how the “Third Screen” places a greater premium on graphics performance rather than CPU performance. This is why AMD (AMD) bought ATI. Apple’s partnership with Intel all but excluded AMD from this design, though I expect AMD to continue to make inroads, as they already have supplying IP for the XBOX360 and Nintendo (NTDOY.PK) Wii.
• I’m going to go out on a limb and compare the graphical power of the iTV to a Nintendo Wii. Both the iTV and the Wii have 64Mb of GDDR3 memory, both are in 90nm technology, and both have about the same release timeframe. Very little is known of the ATI Hollywood chipset used in the Wii, so this is speculation. 
• GDDR3 memory demand is only going to increase as the Third Screen gains in popularity. While the iTV has a wimpy graphics processor today, it will not be long until consumers demand ultra-slick interfaces and graphical features that higher end GPUs can deliver. This will require more texture memory, particularly at 1920×1080 full HD resolutions.
• The modest iTV hardware is general-purpose enough to equal the computing power of a 2-3 year old laptop, which means it is capable of doing pretty interesting stuff.
• While the iTV is a dumb, headless, media extender today, all of the hardware potential exists for this device to be a portal for web based computing. Apple will roll these features out over time.

Photos courtesy Anandtech. Author is long Nvidia.

Low power multicore architectures are going mainstream in general computing applications and are no longer solely the exotic domain of server computing.

With Sun and Intel broadening their relationship, I expect Sun to move completely away from internally developed silicon. I outlined why this would take place over a year ago (see Sun wants to Change the Planet), and the arguments are more valid today given the progress and commitment Intel made towards multicore architectures.

Schwartz’s blog all but indicates this move is underway:

Perhaps the most interesting part of the relationship (at least for enterprises) is this: we’re pairing up to do some collaborative engineering around larger systems (where larger implies greater than 4 socket…). Optimized for Solaris and Java, of course, and leveraging one another’s virtualization and performance technologies.

This is exactly the application their in-house Niagara is targeted. Schwartz is essentially saying Sun will work with Intel to utilize their silicon in high end systems

Apple Computer (AAPL) moved their entire hardware base over to x86. Remember how hard Apple pushed the RISC architecture and it’s technical supremacy? It appears that Sun, the last real holdout in non-x86 computing, is poised to capitulate as well.

Full Disclosure: I own none of the stocks mentioned.

• Web 2.0 as an investment theme peaks. Equities like Akamai (AKAM), Google (GOOG), suffer though their businesses continue to do well.
• Google (GOOG) makes a really big move into hardware. This is accomplished by close partnership with Samsung or Sony (SNE) who finally realizes it needs a software partner to sell hardware.
• The Third PC emerges, after the desktop and laptop in many homes, and its in the living room. This drives all sorts of new trends, from a focus on highly integrated chipsets to low power to new software companies.
• Sales of gaming platforms explode though most aren’t used for gaming as the general public recognizes that game machines serve additional purposes, particularly as a Third PC. They become the must-have high def accessory. The major players at the end of 2007 are Microsoft, Sony, Nintendo, and Apple (AAPL).
• AMD (AMD) successfully integrates ATI and positions itself as the leading provider of silicon for The Third PC, using the Nintendo Wii as the flag bearer. Markets agree.
• High Def explodes. A perfect storm of cheap DVD hardware, content, and carriers finally make it accessible to mainstream consumers.  Service providers Verizon (VZ), Comcast (CMCSA), Cablevision (CVC), etc. figure out that High Def subscribers are profit centers and catalyze adoption.
• Muni-Fi loses it’s luster. After a year of really good publicity and some isolated deployments the public forgets about Muni-Fi and it enters the “Trough of Disillusionment“. (Graphic Here)
• Cisco (CSCO) attracts negative publicity. People realize it’s lack of innovation and monopolistic behavior makes it the Microsoft of the communication hardware business. Market share peaks as customers purposely enable competition, and Chinese suppliers like Huawei and 3Com (COMS) benefit.
• The luster comes off US Cable and Telecom stocks as investors realize they have only begun to beat the living shit out of each other. Cable fares worse. Net Neutrality debates in the fall of 2006 turn into infrastructure subsidy debates by spring of 2008.
• Net Neutrality debates move to the wireless domain, which is where they should have started in the first place. Anti-trust rumblings are heard about Verizon and AT&T/Cingular (T ) locking hardware and complicating the use of unlocked phones. One of the Four cellcos offers an ‘almost unlimited’ data plan for $9.99.
• Tivo (TIVO) becomes increasingly irrelevant.
• China becomes the next investment meme as retail investors pour money into the country. Every company rushes to present their China strategy. Any investment with China attached to it get a premium. The 2008 Beijing Olympics become the must-have ticket for the glitterati.
• Medical Tech and Silicon Valley increasingly team up. Silicon medicine is the new buzzword.
• Lots of M&A in the Networking Component and Equipment business (Full disclosure: Key Nyquist investment theme)

And finally, the most useless prediction of all – the markets. I’m going to waffle here and say what they won’t do – The S&P500 and Nasdaq will close +/- 5% from where they are today. Key word- VOLATILITY.

If I missed a particular theme, let me know and I might take a shot at it.

Graphics acceleration is no longer for gaming freaks; the new version of Microsoft Vista contains advanced visual features dubbed “Aero” that demand more functionality than the standard video frame buffer can provide.

More importantly, the guts of Vista have been changed to allow programs to utilize heavy graphics without ‘unloading’ the windows Graphics Device Interface (GDI). This should encourage more graphics intensive features in everyday applications.

Intel (INTC) truly secured market dominance once it seized control of the support chipsets that surround its CPU’s. They realized that the PC experience and future performance gains would depend more on the coordination of a computer’s chipset ‘ecosystem’ (a word that Intel LOVES to use and I am SICK of hearing). They pursued development of graphic acceleration chipset only to the extent that they could comfortably fit into the existing North Bridge chip, now affectionately referred to as the GMCH. Intel has never made graphics acceleration a priority or a means of differentiation.

AMD has now decided to make that bet. By focusing on price, they have been little more than a nuisance to Intel in the consumer space. Controlling the graphics IP and more importantly, being able to integrate it into the AMD ‘ecosystem’ should provide a large competitive advantage in a niche market about to go mainstream.

This is a strategic opinion. I don’t follow ATI well enough to understand if the valuation was reasonable.

The biggest risk that AMD now faces is the loss of focus by the engineers at ATI. Every morning an ATI engineer would come to work and think – “How do I beat NVidia” (NVDA)? The level of competition between the two companies exemplified the heated competition associated with tech.

That energy will now need to be channeled in a different way- rather than just besting NVidia’s latest graphics benchmarks, they will need to change the game by integration with the CPU and chipset. The objective is to create a platform NVidia can’t compete with because they lack control of the system as a whole. If successful, both Nvidia and Intel have a big problem.

Intel now needs to take control of graphics acceleration and make it a priority within the PC ecosystem in order to remain competitive. Contrary to the speculation I am certain will start running the street today – Intel buys NVidia – Intel will develop this technology internally by handing a prized engineering development to an offshore center in Israel, India, China, etc.

Anyone remember Weitek? They used to make floating point co-processors for Intel based x86 systems, not unlike the way graphics chips are co-processors today. External FPU functions are long gone, integrated into the CPU itself. NVidia will need to emphasize the development of the chips surrounding the Graphics co-processors to avoid the same fate.

Graphic courtesy Engadget

Two independent reviewers have written opinions about the new Intel Core processors (see below)… both were previously solid AMD (AMD) supporters.

Intel has now seized a commanding lead in performance desktop processors. This is in addition to the spectacular technical success of Woodcrest in Server space – where AMD has caused the most financial damage.

The R&D guys have done their job and I think a reversal of market share loss in the server space is a slam dunk at this point. Putting more performance per watt into server processors directly translates into market share success. That’s pretty well accepted.

What remains to be seen is whether pure performance matters for the desktop world anymore. Knowing the clock speed of a CPU used to be a point of pride, much like the owner of a 60’s or 70’s era car could rattle off the displacement of the engine. Recently, CPU computing power has far outstripped a user’s capacity to consume it (outside of gaming and a few other applications).

Just as high capacity broadband (>10 Mbs) needs a killer app (no not bittorrent, something that is legal), Intel needs a new application that makes CPU power matter again. Otherwise, I think it’s going to come down to financials and which of the two companies can better survive a protracted pricing war. Rumors of the conflict were plentiful, but now we have hard pricing and performance data to evaluate. Standby for ‘Shock and Awe’

From ZDNet:

It’s noteworthy that the C2D E6600 2.4 GHz dual core Conroe which has a list price of $316 is able to beat the fastest AMD AM2-based FX-62 processor which costs around $1000. There have been rumors of large price drops on AMD processors but it will be interesting to see what AMD’s response will be.

Unfortunately there is only one option available to AMD.

Intel is really two separate businesses. A fabless R&D company that makes chips and a massive capital investment operations business (like an oil refiner or mining operation) that builds and operates fabs.

The desktop battle was being fought by who can better operate the refinery. The server war is being fought by running the better R&D operation. The bottom line is Intel’s problems have been with the first, not the second business. And those problems appear to be on the mend.

In the meantime, it is refreshing to see a company as large as Intel bury an antiquated architecture and start fresh due to the threat of competition. For a corollary story, read todays article in the WSJ about what happened to Airbus when they refused to break the mold for the A350.

Intel beat AMD not just through a better processor, but by controlling both the CPU and the chipsets surrounding it. Intel’s move into motherboard chipsets was easily the best new business they have entered in the last decade. This is the likely reason AMD is talking with ATI (ATYT) about an acquisition – AMD realizes they need to control the PC hardware ecosystem more effectively.

Review Excerpts:

AnandTech – Intel’s Core 2 Extreme & Core 2 Duo: The Empire Strikes Back

The architecture is called Core, processor family is Core 2, the product names are Core 2 Duo and Core 2 Extreme. In the past we’ve talked about its architecture and even previewed its performance, but today is the real deal. We’ve all been waiting for this day, the day Intel lifts the last remaining curtain on the chip that is designed to re-take the performance crown from AMD, to return Intel to its days of glory.

… what you see before you is not the power hungry, poor performing, non-competitive garbage (sorry guys, it’s the truth) that Intel has been shoving down our throats for the greater part of the past 5 years. No, you’re instead looking at the most impressive piece of silicon the world has ever seen, at the fastest desktop processor we’ve ever tested.

Tom’s Hardware Guide – Game Over? Core 2 Duo Knocks Out Athlon 64

First of all let me sort the facts: As soon as Core 2 Duo hits the market, it will…

* be the fastest x86 processor (both single and dual core models)
* make the Pentium D and all predecessors look like antiques
* be the clear choice for performance users despite its rather expensive price
* outperform the complete Athlon 64 family (X2 and FX) in all areas, including gaming, where AMD has traditionally been very strong
* consume less energy than other standard desktop processors
* transform the whole Intel platform from an energy-hungry beast to a reasonable solution that is competitive in terms of performance per Watt

It’s a great overview of the performance of Intel’s new Woodcrest Server chip, and how the Core architecture is improving the performance of their chips across the board. In my discussion of the New Four Horsemen, I also linked to an article comparing the Intel Core versus AMD’s K8 architecture.

Intel is not without troubles. But the idea that AMD is going to continue to take large share gains is absurd. AMD clearly took advantage of the horrific Xeon performance in the server space. Much of the Intel share loss and most of the profit hit was from losing this high margin business. Read the Anandtech articles and it’s clear to me that the days of easy share gain for AMD are over.

Add to the fact that one analyst is seeing the signatures of a nasty price-war developing and I think we are seeing what Andy Grove likes to call an inflection point.

Now they just need to fix their awful marketing.

The real loser here? Sun Microsystems (SUNW) and their build-their-own CPU strategy pulled from the playbook of virtually every computer company that went out of business in the last 20 years, something we pointed out six months ago.

In the semiconductor business, the clock re-starts every two years. You put yourself out of business or the other guy will. There is no permanant advantage. And the clock just restarted. Game on boys.

The most interesting one puts the recent market share decline in perspective. What surprised me was the big leap back in ‘95, when the Pentium branding pulled the rug out from under AMD (AMD) and Cyrix who had ‘cloned’ the i486 nomenclature. That was a masterful marketing move, second only to the best one in semiconductor history, Intel Inside.

What the graph doesn’t really reflect the solid share loss in server Microprocessor market share. AMD has thoroughly thumped Intel in this area. The other slides in the presentation talk about Woodcrest (new Server chipset) and how Intel plans to ramp to near 100% production by the end of the year. I’m interested in folk’s opinions on Woodcrest.

According to the WSJ, the shareholder meeting was a downright hostile environment.

From an unnamed shareholder at the meeting:

“I suggest that someone ought to be fired in Intel… My question is who?”

Intel needs the Pentium marketing mojo again. Check out this slide.

Does anyone have a clue what the hell all of these brands mean?

Your broker neglected to mention that the biblical Four Horsemen of the Apocalypse were steered by four riders – Conqueror, War, Famine and Death. I’ll leave it to my readers to pair them appropriately.

Today, I like to refer to Google (GOOG), Apple (AAPL), HP (HPQ), and AMD (AMD) as the new Four Horsemen of Web 2.0. Reading and listening to the media chatter about these companies induces an uncomfortable dot-com deja vu.

Bill Gates, CEO of Microsoft (MSFT) and Paul Ottellini, CEO of Intel Corp. (INTC) co-wrote an editorial in today’s WSJ. Clearly they are appealing to those who have fled their equities for the promises of Web 2.0.

Recently, we’ve read on the pages of The Wall Street Journal that we’ve reached the end of the personal computer era and that the open, broad industry approach that has enabled today’s rich computing experiences doesn’t apply to the world of digital devices.

The reality is a little different. The truth is that the model which has fueled the incredible popularity and affordability of the PC will continue to drive innovation and choice in the burgeoning area of personal devices such as cell phones, digital players and mobile PCs. As such, the PC is becoming more important and popular as a key enabler for these new digital scenarios in every corner of the world, from Indianapolis to Istanbul. If anything, it is, to paraphrase Churchill, perhaps the end of the beginning…

Gates and Otellini have a very valid point. While MP3 players, digital cameras, phones, and web based applications have stolen the show in the marketplace, all of them still rely on the PC as a digital hub. Nothing has emerged that will replace it. The only threat is the ‘thin-client’ web based application model, an idea that gets trotted out every few years and then is subsequently put back in the barn.

In addition to Intel and Microsoft, two other big-cap companies that have suffered as a result of this shift in perception are Dell Inc. (DELL) and Yahoo! Inc. (YHOO).

Competitively, all four of these companies are still forces to be reckoned with.

• Yahoo earned more money than Google in the trailing twelve months from a more diversified business model.
• Dell’s supply chain for electronics rivals Wal Mart’s in terms of efficiency and they will eventually succeed in their efforts to commoditize the consumer electronics space. The current market’s perception that PC’s are anything but commodities is a brief vacation from reality, and Dell is the best commodity producer out there. I believe the cost structure of Dell’s supply chain and web retailing model will beat HP’s.
• Intel will rip the throat out of AMD with their new low power designs for servers. They have a much bigger capital base to borrow from to build next generation fabs if (when?) money becomes more expensive. Otellini realizes the company has become too free-spending. AMD isn’t going away but the earnings multiple gap between the two is absurd.
• Microsoft has been cornered before and recovered. The Vista upgrade cycle will re-energize the cash machine. Over half of all Smartphones now run Windows Mobile 5.0 (Yes, more than Blackberry and Palm combined). Xbox 360 is looking to take share from Sony and has the best online service hands down. Meanwhile, Apple trundles along with a 5% market share in PC’s and 1/4th the valuation of Microsoft.

This is what the market cap vs. P/E multiple relationship looks like.

While the new ‘Four Horsemen’ may be the preferred growth engines of Web 2.0, I think these four out-of-favor companies represent a better investment vehicle for the next five years. Those with more exotic tastes can hedge by selling AMD, AAPL, HPQ, GOOG short while going long INTC, MSFT, DELL, and YHOO. This is a more market neutral strategy.

Inspiration and some data: USA TODAY

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