AMD’s enterprise foray

AMD wants a slice of the Middle East’s enterprise pie. The arrival of the Opteron processor signals a viable entry into the lucrative enterprise market. However, it remains to be seen if AMD will succeed in a market that is dominated by CPU heavyweight Intel.

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By  Shankar Sharma Published  May 26, 2005

|~||~||~|It is fair to say that Intel is to the chip market what Microsoft is to the software market. Intel CPUs are as globally ubiquitous as Coca-Cola or McDonald’s and it is virtually impossible to evade an enterprise IT department anywhere in the world that is not using some form of Intel technology. With one company holding such a stranglehold in the marketplace, coupled with the fact that there is a paucity of chip manufactures in general, the arrival of a challenger poses some interesting questions.

AMD already boasts a strong market share in the consumer desktop market and it intends to keep that market share. As far as entering the enterprise market through Opteron — originally codenamed ‘hammer’ — the company kick started the process in 1999. It took almost four years to make it happen. Today, vendors such as IBM, Fujitsu Siemens and Sun Microsystems among others have already signed up for Opteron. AMD claims the partnerships are solid and long-term, as the vendor’s enterprise program manager for the EMEA region, Dr Ulrich Knechtel explains: “They all wanted to form strong and long-term partnership with AMD.”

From tier-one vendors’ point of view, the partnership is not only a case of taking the Opteron processor and building a box; it is also about delivering an end-to-end solution. Knechtel cites the support of both IBM and Microsoft for the 64-bit architecture of the new operating system, with the former also announcing that it wants to use AMD CPUs in developing servers. Sun is targeting industry standard servers based on AMD Opteron. In addition, AMD has also teamed up with HP. “This was in many ways a very strong offer for us because HP has, in many cases, the largest market share for industry-standard servers. It also has the broadest range of servers right now,” he adds.

One of the key reasons so many vendors are adopting AMD technology — for servers in particular — is the fact that the Opteron technology is performance improved. Added to the fact that it is open-sourced and therefore does not involve the customer paying any extra money, it represents a value for money. “With the Opteron, AMD has reached a position to really target the enterprise customers,” Knechtel says. “We have the commitment from ISVs [independent software vendors] starting at the basic level.” He also says with AMD having compilers available through partners, as well as the support of apps vendors that are committed to the architecture, enables the company to make a bold entry into the enterprise arena.

Tarek Heiba, the recently appointed regional manager for AMD, shares Knechter’s optimism. Heiba believes the company’s focus on helping original equipment manufacturers (OEMs) develop solutions to best serve customer needs has seen an increase in the implementation of AMD processor-based solutions in the enterprise segment of the Middle Eastern market. “OEMs have been quite keen to leverage our global relationships to help add value to their partners' offerings in the region,” he states. “Our relationship with software vendors has been stronger since we were the first to introduce true 64-bit processors that enhanced their application offerings,” he adds.

Heiba underlines that AMD’s strategy is “global” and “customer-centric.” He says the company will continue to develop solutions to meet the specific computing needs of various industry sectors, highlighting flexibility and less power consumption as the major advantages of purchasing AMD products over its competitors. The latter feature, AMD believes, is its trump card. “If you look at an IT department that is running 500 merits of dual-processor machines, can you imagine the savings you will have if you can save about one third of your power cosumption per processor.” envisages Heiba. “Calculate that on the architecture of 500 CPUs. It is not only that you have to pay for your power, it is more that you have limitations on your air-conditioning and UPS dimensions— and these cost a lot of money.”

This in essence means scalability, which in turn means that an enterprise is going to get better price and performance per watt from its hardware; hence the total cost of ownership (TCO) is lower. Heiba alludes to public benchmarks available for reference and invites skeptics to test the technology themselves. “We can arrange with our OEM partners to provide them with demo systems that end users can try prior to buying our [technology].” The developed architecture also accrues the benefit of enabling end users to reduce — or even eliminate in some cases — proprietary hardware.

However, AMD concedes that entering the enterprise space with a new product requires a Herculean effort, but insists the company has a strategic vision. The vendor says the effort to establish AMD as a brand and erase fear and doubts from end users has made the industry take notice. The company can invite customers — particularly in Europe — to the processor plants in Germany, and convince them that AMD can solve their problems.

Although Europe accounts for approximately 60% of AMD’s business outside the US, the company regards the Middle East as a crucial target market due to its rapidly growing IT sector. “I personally have been here [Dubai] four times within the last 12 months and things are changing so fast,” points out Knechter. “People here [Middle East] do not talk about investments — they invest. This is why AMD is committed to this particular market,” he adds.

AMD has an office in Dubai and it interprets the physical presence as the interface between itself and end customers in conjunction with software vendors, ensuring that everything can be delivered within this triangle. Furthermore, AMD is exploring business opportunities in lucrative verticals such as oil & gas, finance and telecommunications sectors. From AMD’s point of view, it is clear that a strategy is in place and plans are afoot to execute it.

As for Intel, the vendor is not worried about AMD’s foray into the enterprise market, focusing instead on how it can consolidate and strengthen its position as the leader in the enterprise market regionally as well as globally. Ferhad Patel, who is the market development manager for the Intel Middle East, says his organisation will continue to do what it does best— develop best-of-breed technologies. “Our whole philosophy is ‘beyond’ performance.”

Patel says Intel is closely looking at latest trends in order to customise its products and services to enterprise customers. These include virtualisation; input/output (IO) acceleration technology and storage transfer to avoid bottleneck. The chip giant plans to announce dual-core CPUs for more mainstream platforms over the coming months, while its server environment is expected to see the latest release of Itanium later this year.

Although end users in some cases may have to invest in a whole new architecture to support this, Patel insists that Intel has been working hard to ease the transition towards dual-core technology. “We have had to transition carefully in the view of separating a whole new dual-core next year,” he concedes. However, he says that even without dual-core, there are strong reasons behind end users’ decisions to purchase Intel CPUs. Patel points out the availability, reliability and serviceability of Intel products as sufficiently compelling reasons to use the technology.

As for the Middle East market, Intel says it is working closely with multinational allies, the OEM vendors including IBM and Dell and end users. Business development managers are working closely with customers to help and support them with technical requirements and, when necessary, bring Intel help from outside the country to ensure optimum service. The vendor says this is standard practice, which would be carried out regardless of new competition in the market place. “Whether we have competitors in the market or not, it is up to us to add value,” explains Patel. “From the feedback we’ve been receiving, customers are beginning to realise this,” he adds.

Intel’s broad alliance with vendors or ‘ecosystem’ as the company refers to it, is helping it strengthen its leadership not only in the Middle East, but also around the globe. Patel maintains that there will be no ‘knee-jerk’ reaction from Intel, which does not wish to become embroiled in a price war. “Customers demand a premium quality product or brand that they are more familiar with,” he asserts.

With the Middle East enterprise market growing at pace, Intel is keen to make sure that partners do not fight for the market space. The purpose behind the ecosystem, according to Intel, is about allowing regional enterprises to grow and encourage software vendors to develop new solutions. Intel understands that some of its OEM partners work with AMD as well, and it is comfortable with it.

One vendor, which uses both Intel and AMD chips it its products is HP. Product manager for the company’s industry standard servers for the Middle East region, Ryan D’Souza, says his organisation understands that AMD’s entry into the enterprise market is a relatively recent development, but believes it is a welcome addition — particularly from the end user’s perspective. “HP took it from a customer perspective as to whether they’d see AMD fitting into their specific environments,” he notes. “It was basically the response of the customers that led to the development of AMD-based servers.”

HP worked with enterprise customers to ascertain whether they could envisage a place for AMD-based servers in their environment. Based on the feedback the company received, HP opted to make AMD technology available on server platforms in order to offer the best possible choice in terms of platforms. “Enterprise customers would be keen to have the ability to make a choice depending on what their environment demands,” D’Souza elucidates.

The vendor did not foresee any difficulty in expanding its portfolio range in order to incorporate AMD alongside Intel products. D’Souza says there is no conflict of interests in working with two competing chip manufacturers. “The manageability is the same on both systems. There is a growing acceptance of AMD servers at the enterprise level, so AMD is not limited to any niche segment,” he explains.

However, D’Souza concedes that customers remain loyal to Intel often for practical reasons. An end user who has settled on a specific infrastructure would prefer to keep it consistent because manageability in a heterogeneous environment could see the deployment of servers hindered by the introduction of a different technology. “On the other hand,
it may be a matter of time before AMD makes inroads into Intel’s dominance.”

HP does not believe that Intel is taking its market leader status for granted. The vendor points out the chip giant has been introducing new technologies into the market regularly, with AMD in some areas merely keeping in step. HP says the two rivals offer different packages, which have different strengths and AMD is addressing the needs of a new market, besides increasing competition among OEMs.

Sun Microsystems, however, is one vendor that has made a distinct shift from Intel and teamed up with AMD. “We felt that working with AMD was a lot easier and a lot more of a strategic relationship,” says Graham Porter, marketing manager for Sun Microsystems Middle East and North Africa.

Sun started working with AMD in 2004. The two vendors are undergoing research and product development together, as well as planning out a future roadmap. Sun believes the AMD product line provides end users with a scaleable and cheaper structure. “If you have got a 100 boxes in a grid, and it is US$2,000 a box; put 100 of those boxes together and for US$200,000 you’ve got a large performing producer,” Porter summarises.

Furthermore, the company has been disillusioned with Intel’s Itanium product, which it claims is not meeting end user demands as much as expected. “We felt that trying to put everything on one vendor’s platform and trying to base everything on one processor was not the way to go forward,” he adds.

Porter believes that AMD has shaken off the perception of it playing continuous ‘catch-up’ with Intel with the Opteron, and believes the chip manufacturer has stolen a march in the 64-bit market space. He also points out that end users are finding compatibility problems with Intel’s Itanium product and they will find the AMD alternative more attractive. “Customers do not like being told what to do. They also do not like product incompatibility issues.”

Independent analysts have also been scrutinising AMD’s endeavour to break into the enterprise market. Omar Sahib, who is a senior PC analyst at IDC, says the Middle East is still in an ‘embryo’ stage with room for expansion. Sahib, nevertheless, admits that Intel’s strong presence in the region and a well-established distribution model will present a challenge for AMD to dislodge the status quo. He also cites the fact that Intel runs several initiatives with local IT associations and government bodies.

Sahib also has reservations as to AMD possessing the necessary clout to pose a serious challenge for Intel. Despite the former appointing a regional distributor, establishing a local office and appointing new executives to head its operations, he believes the company still needs to establish a clear roadmap to take on its competitor the region. “Intel on the other hand would continue to fight for its dominance in the market and capture more end-users under its umbrella,” he argues.

The analyst house says global changes tend to have a ‘ripple effect’ in the Middle East. AMD’s immediate tactic is to tie-up with a number of A-brand PC and server vendors to focus on the local market. As far as AMD paving the way for other chip manufacturers to enter the enterprise market, the situation is at present unclear. However, the Middle East enterprise market is large enough to cope with increased competition among chip vendors.

It is too early to tell whether or not AMD can pose a serious challenge to Intel’s hegemony, though Sun Microsystems believes the vendor’s new product is more in tune with end user needs. Intel on the other hand, remains focused on delivering enterprise class offerings to consolidate and strengthen its leader status, using its broad ‘ecosystem’ of vendors and regional business development managers.

The new challenger needs time to make inroads into Intel’s dominance of the enterprise market. The key, it seems, is which of the two vendors is more successful in presenting more viable alternatives to address the specific needs of enterprise end users who are becoming increasingly savvy as to what products are available and whose broad alliance of vendor partners is more effective in achieving this.||**||

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