During the Consumer Electronics Show in Las Vegas last week, we picked up an intriguing rumor circulating among a few C-Level executives that Intel Corp. is pondering the acquisition of AMD.

Given Intel’s acrimonious history vs. AMD in the CPU market, common sense says this is an unlikely marriage. Most analysts we reached dismissed it outright.

But seen from the perspective of CES — a colossal tech extravaganza that attracts an audience that embraces technologists, investors, management consultants and speculators — Intel-AMD merger speculation had a certain ring of truth. At the very least, it was a great topic for idle conversation.

CES this year exposed a stark contrast between the two old rivals.

  1. This year, Intel, which hasn’t yet named a new CEO, surrendered the most coveted keynote speech, on Monday night, to LG. (Clearly, the company didn’t want to pay for it).
  2. AMD’s CEO Lisa Su delivered a knock-out keynote on Wednesday morning at CES.
  3. Su discussed AMD processors for three different markets — notebook, desktop and data centers — all designed and manufactured at the 7-nm process node. The first 7-nm chip will become available next month. In contrast, Intel unveiled a 10-nm PC processor at its CES press conference.

Differences between a headless Intel and an AMD under Su’s strong leadership were obvious. Technology analysts, used to seeing AMD as perennial underdog to Intel, were impressed by AMD’s alpha-dog performance. “I think this was a landmark event,” Kevin Krewell, a principal analyst at Tirias Research, told EE Times. “It was quite dramatic for AMD to usurp the leadership role from Intel.”

Lisa Su, CES

Lisa Su on stage at CES 2019. (Source: CTA)

Changing semiconductor landscape

Asked about the potential of an Intel-AMD merger, Krewell told us to “file it under fiction.” He noted, “It would give Intel complete dominance of PCs and servers and be considered anticompetitive.” Jon Peddie, President of Jon Peddie Research, also told us, “Not in a million trillion light years.”

Both noted that the U.S. Federal Trade Commission (FTC) would never allow it.

However, one CEO who teased the Intel-AMD deal begged to differ. “The semiconductor market today is no longer limited to CPUs for PCs,” he said. With Nvidia’s strength in GPUs for AIs and data centers, the Intel vs. AMD duo play is no longer monopolizing the market.

More importantly, given the rise of system vendors like Apple, which now designs its own chips, the semiconductor landscape is becoming increasingly diverse and fragmented. Google, Facebook and Amazon, who also design their own chips, are part of the trend.

Intel wants Lisa Su

One thing we must understand, though, is that people in the industry love to speculate on potential mergers and acquisitions.

Kathleen Maher, vice president at Jon Peddie Research and the editor-in-chief of JPR's TechWatch Report, told us, “Obviously, the idea of Intel acquiring AMD is something that bubbles up from time to time, as does the idea of Nvidia acquiring AMD. But in that [latter] case, forget the FTC, Europe would have a cow (or whatever).”

However, even those who don’t buy the Intel-AMD rumor are open to the suggestion that Intel wants Lisa Su more than it wants AMD.

In her Wednesday keynote, Su dazzled her audience. Maher, who agreed with Su’s rave reviews, said, “She is always very good. More important, I think, is that the wider tech world got a look at her and sat up and took notice.”

Su’s CES keynote had the feel of a tipping point. A star was born. She even impressed people who have known her for many years.

Peddie told us, “Love her. I’ve known her for 20 years from when she was at the IBM workstation group in Austin. She’s smart as hell and has turned AMD around (look at the share price) and has all the troops motivated.”

Krewell said, Intel “could try to hire Lisa Su, but that would be hard as well.”

Many industry observers think Intel is too hard a company to manage for anyone who hasn’t grown up in its culture. Peddie said, “It’s a damn tough job. Almost no one qualified inside wants it.” He added, “Finding someone from outside (highly unlikely) is tough — would you take someone from GE or IBM? Look at how that almost ruined AMD ten years ago, and Apple before that.”

He added the gender equality factor. Peddie doesn’t believe Intel has done enough to elevate women. The result is too-small a pool of female executives to choose from.

Maher is one analyst who believes Su could run Intel. Referring to Su, she said, “She's got a hot hand. The AMD troops like her quite a bit, but I also think she's ruthless enough to run Intel.”

Cost of having no CEO

The industry wonders why Intel is taking so long to name a new CEO, after Brian Krzanich’s abrupt resignation last June.

The cost of such a leadership void is high for any company. It’s even more critical at a $62.8 billion company.

Last month, Northland Capital Markets’ analyst Gus Richard lowered his rating for Intel stock to “Underperform” from “Market Perform.” He predicts Intel’s 2019 sales will be negatively affected by lower demand from data centers and market-share losses to AMD.

Barron’s quoted Richard’s research memo:

Intel has lost the leadership in process technology, its key differentiation, and it is losing momentum...We continue to be more pessimistic about Intel gross margins as its competitive position is eroding and yields for 10nm are likely to depress gross margin in 2H:19.

Intel has lost the leadership in process technology, its key differentiation, and it is losing momentum...We continue to be more pessimistic about Intel gross margins as its competitive position is eroding and yields for 10nm are likely to depress gross margin in 2H:19.

Of course, for anyone following the semiconductor industry, Intel’s lag in chip-manufacturing technology isn’t news.

Maher noted, “Intel's slip and AMD's advance resulted from calculated risks taken by both companies.” She added, “The laws of physics are pretty tough and both companies are aware that the fight just gets tougher… this is why both companies are adopting the chiplet approach.”

As Maher pointed out, the move to 7nm technology was certainly a calculated risk AMD’s Su took.

Originally, AMD — with a long-standing relationship with Globalfoundries — reportedly had plans to use both TSMC and GlobalFoundries to build 7nm chips for CPUs and graphics. Working with the two foundries at the same time could, in theory, build a dual option for AMD, while putting AMD in a better negotiating position.

With Globalfoundries’ sudden announcement last summer not to pursue the leading-edge process node technology, AMD lost half its partners. But it managed to turn this negative to its advantage. Rather than spreading its engineering resources over two process nodes at competing foundries, AMD put all its eggs in TSMC’s basket.

With all AMD 7nm products now being built at TSMC, TSMC has risen to meet AMD’s high expectations, allowing it to compete with Intel.

AMD’s big bet on 7nm process technology gives the company a leadership position over Intel and performance parity with GPU-rival Nvidia.

Obviously, what Intel wants from AMD isn’t a 7nm process technology. “AMD got that from TSMC and Intel could never accept using TSMC for their prime CPUs,” Peddie noted.

Lisa Su, 7nm

Lisa Su during AMD keynote says that 2019 is the year when 'big bets' AMD made will pay off. (Source: CTA)

But could Intel use Su’s smarts and chutzpah? Perhaps.

As Maher told us, this isn’t Intel’s first stumble. “Intel has fallen behind before -- most obviously in the 64-bit transition, but also in process transitions, which led to the tick-tock strategy from Intel.”

The 64 billion-dollar question is: Would Intel have had to weather this storm if it had had a strong hand at the helm?

CPU, GPU, AI landscape

With data centers and AI applications that did not exist on the market a few decades ago, key players in the chip industry are diversifying.

Still many industry analysts view Intel, Nvidia and AMD as the big three vendors in the CPU/GPU market.

Peddie sees AMD gaining market share on Nvidia and Intel. “Quarter-to-quarter, there are wiggles.” He observed, “Nvidia did a knock-out presentation at CES too, and I expect them to take back a little market share. For one reason, Nvidia had a clean sweep of EVERY notebook OEM, AMD got five or six. Nvidia had a clean sweep of EVERY desktop PC, AMD got two or three.”

In his view, AMD doesn’t have anything Intel wants or needs. “Intel has already pirated all the GPU people it wanted from AMD.” Indeed, in late 2017, Raja Koduri, AMD's then senior vice president and chief architect of the AMD Radeon Technologies Group (RTG), left AMD and joined Intel.

In Maher’s view, in terms of market share, “AMD has plenty of running room. AMD is in a great position with solid CPU and GPU technology.”

On the other hand, she believes Intel “has struggled mightily with creating a competitive GPU.” She said, “They're crowing about their latest GPU, the Xe and they've got Koduri, AMD's former GPU chief on their team. But if this chip isn't a killer, Intel does become more vulnerable.”

As for AI, Maher noted, “Intel has spent buckets of money on AI — that's going to be an interesting front. AMD is a step or two behind.”

What makes this emerging AI battle among the Intel/Nvidia/AMD trio interesting is “Nvidia’s position,” said Maher. Nvidia is insisting that “the GPU can do it all,” she said. “That sure sounds like Intel a few years ago, when it claimed CPU uber alles.”

The Intel-AMD merger rumor that swirled among C-level executives at CES might be just the predictable tech speculation that happens when industry types gather. But one thing’s for sure: CES last week put the weakening of Intel in plain sight, for everyone to see.