CRN Interview: Hector Ruiz, AMD

Editor in Chief Michael Vizard and Senior Editor Edward F. Moltzen spoke with Advanced Micro Devices Chairman, President and CEO Hector Ruiz about the company's future technology direction and channel commitment. Below is an excerpt from the interview.

CRN: Opteron has done some interesting things on the price/performance side of the server equation. Could you enlighten us a little bit more about what's going to happen in terms of price/performance in the server market for this year and next?

Ruiz: When we put together a strategy to become relevant in the enterprise and in the server space, we developed a road map around our strategy for AMD 64 with Opteron as the server product. That's technology on the road map that's clearly aggressive and intense as you look ahead, which we've shown the customer, and part of that road map includes a pretty aggressive migration to a multi-core product beginning next year. But we believe that from the moment that Opteron was created with on-board memory controller and hypertransport technology--all of it known as DirectConnect technology--that really enabled us to [provide] the premier multicore, server CPUs. The intent was to make a significant--not minor, but significant--change to the price/performance equation in the server space. We believe one of the reasons that there has not been as rapid an adoption of people going from two [processors] to four [processors] is there has been a cost, price/-performance issue. People would rather buy two [two-processor servers] rather than one [four-processor server] and our product, we believe, can make a dramatic change to that equation.

CRN: Then why would it be better for people to buy one than two?

Ruiz: Well, that's a price/performance issue. And so we listen to the IT professionals and it gives them a lot of flexibility for a very low cost. They can scale up when they need to four [processors] when they need four. And when they don't, they've got a very powerful machine. Because the cost equation is so heavily skewed in their favor, there's really a benefit from adding performance when you need it.

CRN: So I can scale, essentially, either vertically or horizontally, and it's up to me without having to lock into one particular hardware look and feel or architecture?

Ruiz: The way we kind of like to say it is that we put the customer in control of how he wants to use the processing power.

CRN: Recently you've signed up a number of first-tier vendors for the Opteron. What do you think is going to be the balance going forward between the first tier and the traditional white-box/custom-system guys as it relates to Opteron?

Ruiz: I believe that [for] tier-one people--[Hewlett-Packard], Sun [Microsystems] and IBM--that it's really in their best interest to have a very healthy system integrator market and system integrator participation because it helps make technology available and, in a way, it's sort of an ecosystem that works to everyone's benefit. So I believe that the system integrator market and the white-box space will continue to be a very important and the HPs, IBMs and Suns of the world will continue to encourage them.

CRN: What's the mix now of Opteron systems that are being shipped through tier-one vs. Opteron systems that are being shipped through everyone else, like the custom-systems folks?

Ruiz: I think it's geared toward the tier-one vendors because that's how we started. But the system integrator and custom-system [channel] is growing very rapidly. And my expectation [is that] right now we're in the early stages of the ramp. But my expectation also is that it will, over time, approximate a more balanced situation.

CRN: Do you think it makes it easier for the second-tier guys to sell, once the first-tier guys start embracing Opteron?

Ruiz: I think there is some truth to that. I think that once the market has validated--and I think the tier-ones are the fastest way to do it--a particular technology, then some of the system integrators can focus on the value proposition for their particular [customers] and be able to address some of the very narrow segments that they go after.

CRN: Intel recently came out and said they were going to do 64-bit. Can you articulate the fundamental differences in the end-user approach vs. Intel's approach?

Ruiz: Our competitors' strategy appears to be extending the older architecture, which we call the seventh-generation computer, and extending it to be able to have 64-bit extensions available to that architecture. Our approach is an eighth-generation processor, meaning the Hammer architecture, K8, and as a result there are significant architectural differences--micro architectural differences--that I believe is what gives us tremendous price/performance advantage. As a result of theirs being an extension to an older architecture, they don't have on-board memory controller, or hypertransport technology or the DirectConnect architecture. That's really what I think brings a tremendous capability to our technology. ...

CRN: Intel, with its Itanium platform, has been displacing RISC-based systems to the extent that they've been sold to this point. Opteron-based systems have supplanted, for the most part, Xeon-based systems or they are incremental increases in server capacity. No. 1, do you see that as the case? And No. 2, if it is, how long is it going to track that way before there is some sort of a change?

Ruiz: It's all about technology that changes so rapidly. Remember that Itanium is a 10-plus-year-old conception. And, as a result, it was conceived at a time when the difference between RISC and CISC was significant enough to actually make meaningful comparisons. But technology gets changed so much that today, when you actually do many instructions per second and you've learned to optimize performance, the comparisons are not as significant. So what I think is happening is Itanium has been relegated to be considered for fairly high-end applications where it competes against UltraSPARC or the Power4 Architecture of IBM. But when it comes to the volume server space where other operating systems are incredibly pervasive in the industry--the extension of 64-bit computing the x86 architecture--it's pretty compelling. And I don't think people are thinking, 'Should I replace RISC with this, or CISC with that?' The thinking is, 'How can I get the most out of this investment?' When you step back and look at what is happening it is clear to me--maybe not to everyone else, but it is clear to me--that we just obsoleted all 32-bit applications only in terms of hardware. Because if you are going to buy a computer today, what would compel you to buy one that is only 32 bits when you can get a better price/performance with one that is compatible with 64-bit?

CRN: Do you worry that you're going to extend out the lifetime and cycle of products because if I buy a 64-bit server from you guys, or even a client for that matter, that machinery will last longer going forward than it would have if it was just a standard 32-bit system?

Ruiz: I think that's possible. Frankly, from where we are today, according to independent research data, at the end of the first quarter we were at 4 percent of the server market. I think we have a lot of room to grow before we have to worry whether the replacement cycle is too long.

CRN: What applications do you think are going to drive 64-bit on the desktop and the notebook side? If I'm a white-box builder, where should I be focusing my effort in that market?

Ruiz: Because of the nature of the beast, it starts with the things that are very high-performance-demanding. And by performance, I don't mean just speed of computation, but the ability to handle classic and what we call cinematic computing. And, by definition, that means people in gaming, early adopters. Those are places where it's pretty exciting for them to do. And I think what you're going to see from our software partners is that as they get more into the ecosystem of 64-bit computing, that's going to lead them to develop more small-business applications, home-office applications that are very intense in handling data, very intense in graphics and very intense in broadband communications. So I see this as the next wave of consumer PCs out, beginning toward the end of this year and moving faster over the next couple of years.

CRN: Do you see an opportunity to build out digital home systems where there's an AMD server and an AMD client, and includes the gaming system and includes the security systems and an AMD infrastructure around the home?

Ruiz: It turns out to be a combination of things in the technology that makes the Opteron technology pretty ideal for that. And that is the cool and quiet technology that's in the machine. And from everything we've seen in talking to partners and customers, it is the ideal machine for home purpose, and that [provides] an opportunity for our customers and ourselves to be able to participate in what I think is going to be a very interesting segment of the market.

CRN: How much time and energy do you personally spend on AMD channel strategy and working with the second-tier manufacturers, and how much compensation of the AMD executives is tied to success in that marketplace?

Ruiz: What you call a second tier, channel, system integrators--today they make up a huge portion of our business. In terms relative to our competitor, they make up a bigger portion of our business. So they are a very precious part of our business. We pay a lot of attention to it. We have a team that's totally dedicated [to the channel]. I would say roughly half of our sales and marketing effort is devoted to supporting this segment. So, by definition, I spend a significant amount of time making sure we continue to nurture and support this very important segment. And it's not only important in the U.S., it's incredibly important outside the U.S., too.

CRN: Looking toward the rest of the year into 2005 how is AMD squared away in terms of allocation for system builders, in terms of supply, all the pipeline stuff that in the past has hurt AMD on occasion?

Ruiz: We've learned like all good companies do, and we have become more intimate with our channel. We have become more partnerlike with our channel so we, together with them, go to market with guys that really move product. ... They are thrilled with the changes we've made because they thrive, as you probably know, on velocity. And they are able to move product fast. If you look at our inventory at the end of the first quarter in the channel, it continues to be borderline .... I mean, it's really low and we're happy with the way we are managing that. I think what we have put together--what we have put in place--is a business process to ensure our channel partners are really intimately linked with [us] and we manage that very carefully. There's been a much broader reach of product mix than we've ever had--all the way from value products in the PC space to high-end solutions in the server space.

CRN: Do you foresee Dell is going to be using your stuff any time soon? There's a school of thought that says, 'The longer it takes Dell to get up on AMD, the better off they are.'

Ruiz: I think Dell is a great company, and [when] Opteron gets to the success point I believe it can, that it will be at that part of the curve that it will be very compelling for Dell to start offering systems with it.

CRN: For the guys in the tier two, that means if they start selling systems today based on Opteron they're going to have a good year-minimum head start on Dell because if Dell started tomorrow it would take them a year to get something together.

Ruiz: But don't forget that today's system builders have had a great success in the PC space with our products just by Dell being such a big player in the PC space. The system guys don't have to compete.

CRN: What do you project in terms of growth in mobile for AMD, and do you have any additional branding plans for your mobile and wireless offerings?

Ruiz: First of all, we agree that going forward, the segment in the client side that offers the most growth right now is in mobile and portable computing. What needs to be determined is what exact shape and form that's going to take. For example, we've learned that as we do our own research that in many of the Fortune 500 deployments people are interested in mobile computing where they work. ... So the market is segmented into two big chunks. One is called desktop replacement--almost desktop look-alikes other than the fact you can close the lid and take it to a meeting with you. And the second is for people who are really mobile, like me, for example, who travel a lot. So we're trying to analyze that. And the bet we're making is that--since our goal in life right now is to enable migration to 64-bit computing--as we introduce mobile products based on 64-bit computing they are the best--the best value and the best performance, the best price point going forward. And you know we are putting our energy and effort to ensure our introductions in the mobile space based on our AMD 64 really are world-class. In the second half of this year we're going to introduce some Athlon 64 in thin and light versions, and as we ramp 90 nm we're going to be able to have a broader array of products. But, again, our energy is focused on the 64-bit part of it.

CRN: Is the notion of the product brand starting to fall apart a little bit? When I talk to people, they are buying the system vendor and they are buying the core processor whether it's AMD or Intel and they don't talk as much about whether it's a ProLiant this or a Dell-labeled box. They are more tuned to the processor, the memory and the core components of it than they are the actual product name. So is there a fundamental shift happening there?

Ruiz: I think people in the IT world who focus on enterprise spending are focusing on price/performance and a reliable partner. And the likes of HP, IBM and Sun and, of course, quality system integrators, people are looking really carefully at it. But what they are really looking at is price/performance and the consumption of power. And those are the things we hear more and more from people. And we think we play a good role.

CRN: Do you think those things will hold up as the economy changes, or are people going to say, 'Now that the economy is changing, we'll go the other way?'

Ruiz: I really don't think so. I really believe this is a paradigm shift, as they say. And I don't think we're going to go back to the inefficient IT spend of the past where only 20 [percent to] 30 percent of the computer spend was in the enterprise. I think people are really concerned about efficiency [and] utilization. That's why I think our technology will be key in the future. They are very interested in the cost of the energy. When you have 10,000 servers in the room and the difference between one box and the other is 20 watts per box, you can do the math and that's a huge amount of power, a huge amount of cost. And I really believe this is here to stay.

CRN: So is there a little bit of serendipity benefit coming to you guys because you're bringing on this new processor architecture at the same time people are starting to rearchitect around server blades in the data center and they are starting to drive to Linux? Are you also benefiting not just from price/performance, but from these broad macro trends that are really helping people analyze everything they are doing in one go and they are considering AMD and Intel.

Ruiz: I think some of the trends like the blade server direction, the concern over power consumption, all of that is playing well with our products. If that is serendipity, I'll take it.

CRN: Are you benefiting from your relationship with IBM, Sun and HP and the technology they can provide or the intellectual property they can provide to AMD? How has it benefited you, beyond just extra shipments?

Ruiz: The relationship with Sun is broad and deep, it's not just being a supplier of CPUs to them. That relationship is really going to lead to ... technology ... across a whole breadth of server space, software, etc. We just started. It's brand new. But, definitely, it's a broad and deep relationship. The relationship with IBM is really strong on the technology side, as you know. We have established a joint technology lab where we are looking at technology of the future. And the HP relationship, HP is a customer that's purely focused on what I call the total cost of the enterprise where they see Opteron as more than just an alternative to another supplier but really as a way to achieve price/performance that they couldn't otherwise make.

CRN: Are you in any discussion now with the folks from Apple? Have they been actively evaluating your processor?

Ruiz: I'm not aware of anything going on with Apple.

CRN: The Microsoft relationship--can we expect anything new with Microsoft between now and the beginning of next year?

Ruiz: We have more than ever a very interesting relationship with that particular software partner. In terms of new, how can I answer that question other than to tell you we will be working on strategies and plans to move to 64-bit computing. We'll be talking more about that later.

CRN: Through the downturn, AMD had to shed a number of positions. You had to ratchet things down a little bit. Now that you've entered into significant growth--at least in the numbers--are you positioned for growth? Are you going to have to add head count?

Ruiz: Yes. You know, it's an interesting question because what's happened on the manufacturing side is our productivity gains have been--and I believe will continue to be--strong, therefore the need to add a lot of resources is not going to be that clear. The combination of technology migration and improvements in capacity, I think, are going to position us very strongly to continue to do that and, therefore, modest resources [will be] added into that space. On the other hand, on the design side, to be able to design circuits there is a tremendous challenge where we will have to add over the next three years significant resources so that we can take advantage of the growth we've created and try to proliferate the number of products we are offering.

CRN: In terms of your marketing efforts going forward this year, can you tell us about your channel spend on marketing issues? Can you give us a sense of how much that's going to increase or whether it's going to increase? Can you give some quantitative measure or description?

Ruiz: We have plans to grow. We will grow our marketing and support of the channel I would say significantly. ... People think [the market is] going to grow in excess of 20 percent this year [and] we expect we will outgrow the market. That is our plan. We expect the market and sales support of the channel will be in comparison to that--up, but not the same, but significantly up. We are putting more effort today, this year, 2004, in nurturing and developing a relationship in the channel than we've had in a long, long time. We have the broadest product mix than we've ever had in the history of the company.