How AMD is resurrecting itself as a formidable rival to Intel

AMD's Zen chips, an x86 licensing strategy, and world-class GPUs could be keys for the company to be the competitor it once was

The rivalry between AMD and Intel peaked during the first decade of the 2000s, when the companies consistently challenged each other with a stream of chip innovations.

Since then, AMD lost its way, and today it barely registers as a threat to Intel. But the competitive landscape could start changing as early as next year.

Intel's x86 chips are installed in most PCs and servers, and AMD has been losing market share for years. AMD's chip technology has fallen behind Intel's after some ill-advised architectural changes, acquisitions, and manufacturing problems.

Intel's x86 processor market share was 87.7 per cent the fourth quarter of 2015, growing from 86.3 per cent a year earlier. AMD held just a 12.1 per cent share, falling from 13.6 per cent, according to Mercury Research.

But AMD has made some smart moves recently. It decided to cut its reliance on the declining PC market in 2013, something Intel finally acknowledged this week while cutting 12,000 jobs. AMD also has emphasized custom chips and hit paydirt with specialized processors for PlayStation 4 and Xbox One.

AMD is now poised to threaten Intel's market dominance. Only time will tell if AMD will be successful, but here are some technologies and business decisions AMD is relying on to better compete with Intel.

Licensing x86 architecture

It's possible we'll see PCs and servers using AMD-based chips not made by company, with AMD now licensing its top-line chip architecture. The long-running two-horse x86 race could then include more players, a development bound to hurt Intel more than AMD. Licensing is an easy way for AMD to expand the installed base of its processor technology while generating licensing revenue.

AMD this week licensed its upcoming Zen server chip architecture to THATIC (Tianjin Haiguang Advanced Technology Investment Co. Ltd.), a consortium of public and private Chinese companies, as part of a joint venture.

Lead in graphics

AMD has a valuable asset that Intel doesn't possess: the world-class Radeon and FirePro GPUs. Graphics processors are hot, with sales of gaming PCs growing in an otherwise slumping market. Intel wants to focus on gaming but only has a good CPU. AMD still has to compete with Nvidia in GPUs, but the company has a combination of hardware technologies that put it in a better position than Intel in virtual reality and gaming.

Versatile CPU assets

If you want an ARM chip for PCs or servers, AMD can make it. If you want x86, AMD has that, too. AMD officials have stressed the importance of versatility many times over the last two years. AMD's business relies on x86, but the company has stocked up on ARM technology, which could explode into servers and embedded devices in the coming years. Intel makes only x86 chips and doesn't have its sights on ARM.

Zen CPU

AMD is placing a lot of faith in its upcoming Zen x86 CPU -- if it fails, it could take the company down with it. But Zen could be equalizer AMD needs to compete with Intel in CPUs, and it could perhaps attract some enthusiasts over from the Intel camp. AMD claims Zen delivers a 40 percent performance improvement per clock cycle, which is higher than the single-digit gains delivered by recent x86 chips. The first Zen chips for enthusiast desktops will ship later this year.

Servers

The time is ripe for AMD to grow in the server market, where Intel's superior Xeon chips have destroyed AMD's Opteron processors. AMD once held a double-digit market share, but then came problems with the faulty and poorly constructed Bulldozer architecture. AMD's server strategy is now in shambles, and it is relying on the Zen chips for what it calls a "reentry" into the server market. The company will initially target Zen chips at hyperscale servers, then at other systems.

Chinese market

AMD is chasing the booming Chinese server market by licensing its upcoming x86 chip to THATIC. That frees up cash-strapped AMD from committing resources to selling chips in the country. AMD could also use the licensing strategy to sell more PC chips in China, where the company has a committed following among home PC builders.

Custom chips

AMD had to find a new place to sell its processors with PC shipments falling, so it focused on products like gaming consoles, gambling machines, ATMs, and automobiles, all of which require custom processors. The console makers are already coming back to AMD for more processors. AMD is now taking on only larger custom-chip orders that will bring in considerable revenue.

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