AMD's 64-Bit Gambit

Imagine it's early 2005. Resellers who have made major commitments to commodity servers based on AMD's hot-selling Opteron--the hybrid processor that runs both 32- and 64-bit software--are now wondering if they wouldn't be better off covering their bets by supporting new 64-bit Xeon parts and platform enhancements starting to roll out in force from Intel.

If you're AMD chairman Hector Ruiz, you've got only one response to Intel's competitive parry: Bring it on.

"If I'm a VAR, I want to sign on with the guys who conceived this from day one to be a long-term strategy, not a defensive strategy," Ruiz says. "The

additional competition will just strengthen the [64-bit] ecosystem, and it's a great time for VARs to get involved."

Ruiz has reasons to appear cocky. With his AMD64 architecture and its flagship Opteron CPU, he beat Intel to the punch in creating the category of 32/64-bit processors powered by 64-bit instruction-set extensions.

Then he convinced Tier-1 vendors IBM, Hewlett-Packard and Sun to snap up Opteron for use in enterprise-class servers--a vote of approval that has, in turn, sowed serious demand further down the reseller food chain.

"That has put a stamp of credibility on the platform that's difficult sometimes for the channel to provide on its own," says Gary Bixler, the AMD executive Ruiz has charged with managing the Opteron brand.

Moving forward, though, with Intel no longer content to play catch-up, the next act for Ruiz and Bixler may be tougher.

Consider that Intel's recently launched Xeon is fitted with its own set of 64-bit instruction-set extensions. Intel is also reportedly readying additional architectural enhancements, which could make Xeon more attractive to VARs in a head-to-head price/performance battle with Opteron.

So what's a VAR supposed to do?

"There are two schools of thought," says Ann Fried, chairman of Microway, a Plymouth, Mass.-based systems builder that makes both AMD and Intel servers. "One is that Opteron has a pretty solid foothold. Another is that if it says "Intel' on it, people will buy it. So my reaction is one of ambivalence."

"Now that Intel has answered AMD, how the chips are going to fall is anybody's guess," she adds. "But you've got to say it's going to impact AMD's market share because of people's loyalty to Intel."

For VARs, this latest battle between AMD and Intel is a good news, bad news story. Resellers who have put all their chips in AMD's corner might be forced to support Intel's technology if customers demand it. For Intel-centric VARs, though, the new Xeon plugs a major gap. As for resellers who build both companies' boxes, they may simply have to adjust their product mix.

"Certain apps will be best for Opteron, others for the new Xeon," Fried says.

Without a crystal ball, though, it's difficult to divine precisely what the early 2005 VAR landscape will look like.

"Intel is keeping up and is responding appropriately," says James Cunningham, server sales engineer at Bass Computers, a Houston-based systems builder that markets both AMD- and Intel-based machines. "But AMD is making all the right moves."

While VARs can change their system mix to go with the chip flow, one thing that'll be hard to do is compete against big-foot, Tier-1 vendors. With HP, IBM and Sun already on board the Opteron bandwagon, it's good new for resellers that Dell has to date demurred on AMD, deciding instead to remain an Intel-only house.

"[AMD is] the big hope of all of us systems builders," agrees Shawn Harty, president of NTSI, a Lowell, Mass.-based provider of workstation solutions that is firmly in the AMD camp. "We really can't compete with Dell in an Intel market. We need a solution that's higher-end and customizable, and that's where Opteron fits in."

Certainly AMD would be happy to sell Opterons to Dell, but it recognizes that VARs don't concur. The way Bixler sees it, the channel is "in disbelief" that Dell hasn't jumped in with Opteron.

"This is the biggest opportunity that Dell has ever missed," he says. "For the first time in a long time--if not ever--the channel can deliver something that Dell can't."

Dell Rumor?

But whether that will remain so is anybody's guess. In June, Tai Nguyen, a semiconductor analyst at Bala Cynwyd, Pa.-based Susquehanna Financial Group in San Francisco, issued a research report saying Dell was poised to introduce Opteron boxes. His prediction, which spread throughout the industry like wildfire, was firmly denied by Dell.

Nguyen is standing by his report. "They've [Dell] gone out to ODMs [original device manufacturers] in Taiwan and had motherboards made for the server market," he says. He predicts Dell will publicly adopt Opteron in the fourth quarter of this year.

Just as firmly, however, Dell says the report is erroneous, noting that it has recently introduced workstations based on the new Intel 64-bit Xeon and will soon debut new servers based on that part.

"We have plans for systems based on Nancona [the code-name for the new 64-bit Xeon]," a Dell spokesperson says. "We have no plans to introduce Opteron systems."

But AMD's Ruiz isn't giving up hope. "We still feel like we need to continue working with them, because I believe that it's in the best interest of their customers for Dell to offer that solution," he says. "And we don't give up."

Aware of Intel's tremendous marketing heft--and the fact that Opteron no longer has the 32/64 hybrid arena all to itself, AMD and its VARs are moving swiftly to capitalize on their current momentum and snare new converts.

That's the tack NTSI is taking in serving its base of scientific customers. "We've already doubled our sales for the first half of this year," Harty adds. "We're hoping we'll get a strong increase for the second half, too."

For the most part, VARs know they've got to hammer away at the idea they can deliver something that the Tier-1 vendors can't. Microway's Fried, for one, says she has seen time and again that their sheer size sometimes works against them.

"There are many customers, particularly in SMBs and universities, that would much rather deal with a Tier-2 vendor," she says. "They don't want to go with a Tier-1. We understand how to be responsive in a very specific way."

There's another stumbling block, though. Servers are anything but a quick sell. They're a cautious buy, and potential customers usually perform detailed evaluations before they take the plunge.

"Given how new Opteron is and how it's a different architecture, it has taken a lot of seeding," says Kevin Knox, AMD's director of worldwide enterprise business development. "People want to try this stuff out before they go ahead and place orders."

To grease the skids, AMD has put in place co-op marketing programs under which it assists its VARs by providing loaner systems for customer accounts.

Some of those resellers are happy with the help they're getting. But others wonder whether AMD's cutbacks in late 2002--during which it pared hundred of jobs and later took a restructuring charge of $313 million--have impacted its efforts to support its partners.

Microway, for example, is ecstatic with what it has seen. "We get great support," Fried says.

Miami-based systems builder Honor International, which makes both Opteron and Pentium 4 machines, is also pleased.

"They're good in the sense that they've come in and explained the technology to us," says president Ray Rueda. "They've provided samples and seed systems."

In contrast, Sam Chu, CEO of Polywell Computers, a San Francisco-based systems builder, says customers are enthusiastic about Opteron, but he hasn't seen much support from AMD.

And Harty of NTSI, who remains a big advocate ("our traditional base of customers is just dying to buy more," he says), nevertheless gives AMD poor marks for support.

"The reality is we have one sales rep who covers the whole Eastern region up in Boston here," he says. "They had a big reduction in staff 12 months ago."

For AMD's part, Ruiz says he's committed to correcting any shortfalls. "Anytime anyone feels that way, we're incredibly disappointed," he says. "I wouldn't hesitate a second to put whatever resources were necessary to cover any perceived service issues."