AMD-ATI Acquisition Interview July 24, 2006

Introduction

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FiringSquad: When was this deal first proposed and who approached who first?

Jon Carvill: Talks began late last year, and we approached ATI.

Chris Evenden: Can I elaborate on that? I wouldn’t want you to think that we’d just sleep with anyone (everyone laughs). In terms of going over the timeline, well the ATI board was in the middle of a major strategic review of where the company was going and how to get there. It’s actually occurred over the last 12 months actually. And our overarching goals were to remain number one or number two in all of our technology markets, so the board was looking at ways to maintain those goals.

So the board looked at it, and we could see that we had a clear runway up to two years out and then after that we were looking at ways we could keep growing and growing, and so the board looked at all the options, and we were actually looking at AMD as one of those options and it seemed to be the right one, and then next thing you know they approached us so it worked out perfectly.

FiringSquad: How is the new board of executives going to look?

Jon Carvill: Well what we can tell you is what we announced in the release today and that is that Dave Orton is going to run the ATI division and he’s going to report to the office of the CEO, which is Hector Ruiz and Dirk Meyer and the other major change beyond that is that Rick Hegberg who is the VP of worldwide sales at ATI is going to become the VP of worldwide sales for the new company, and he’s going to report to Henri Richard, who is our chief marketing and sales officer.

FiringSquad: Leaving the two companies with independent management is good in the sense that both ATI and AMD have been doing well independently. Changing things around could cause problems. On the other hand, economies of scale require integrated management, etc. What’s your plan?

Jon Carvill: Well what we’ve done in this case is Dave Orton and Bob Rivet our chief financial officer are really going to need some time to work on integration. So we’re not really saying too much at this time on what’s going to happen with that integration because the deal still has to close within the next 90 days so there’s not too much we can disclose right now. But really what we can say about those two gentleman is that they’re going to be looking at making that integration go as smooth as possible across all the teams on all levels. So we’ll disclose more information on that as we move forward, but we really can’t go into much more detail than that right now.

FiringSquad: So is the new company going to be run like two parts of a conglomerate, or a single entity? Is ATI going to remain as a brand name?

Jon Carvill: Once again, you are going to see more information on that as we move forward in the next couple of months but right now it would be really premature to start talking about what our branding plans are.

CrossFire support on Intel and other partners

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FiringSquad: How will this affect ATI’s relationship with Intel? ATI’s RD600 CrossFire chipset for Core 2 is in its final stages of development and is set to hit the market in just a couple of months. Will this project be canned or does ATI still plan on releasing RD600 for Core 2?


The whole company, well the new company wants to give as much choice to its customers as possible, so if you want an Intel CPU with an ATI GPU then great, we’ll be happy with that. If you want an AMD CPU with an NVIDIA GPU then we’ll be very happy with that as well. Basically we want them all to compete equally and make sure that we give the best product to our customers. So really the onus is on Intel to show that they want to provide choice to their customers as well. If they want to allow a choice, then we’ll certainly continue to serve that market.

FiringSquad: Does ATI plan to continue to provide CrossFire support for use in Intel’s own chipsets?

Chris Evenden: Yes, we plan to continue that absolutely.

FiringSquad: What will ATI do to maintain their strong relationship with Apple?

Chris Evenden: I don’t see how the announcement would affect our relationship with Apple.

FiringSquad: How will this affect Xileon and ATI’s handset products?

Chris Evenden: In the short term they won’t be affected at all. Longer term though being part of a larger company gives us the opportunity to invest more in those products which is something we definitely want to do, so we’ll see them growing more.

Also there’s a bunch of technologies that AMD has that will be very attractive for that market, for instance AMD has a shedload of application processors, and they have low power technologies, they have, I forget the name of the company that AMD bought but they’re actually known for their low power

Jon Carvill: Geode

Chris Evenden: Yes Geode, so there’s all sorts of technologies they’ve got there waiting to be discovered so there’s huge potential for synergies in terms of leveraging technologies that already exist within the organization.

FiringSquad: How does AMD plan to leverage this merger?

Jon Carvill: Well, there’s a number of ways for us. Clearly we have complementary products, so that brings up a lot of opportunities for us in a couple of key areas.

Mobile computing is obviously one where ATI has tremendous products and a real leadership position. We’re in a position [AMD] on our side that it’s an area where we’re really seeking to grow aggressively and this acquisition is very complementary to us doing that. On the commercial appliance side is another area where we’re looking to grow very aggressively. We plan on delivering some really great low-power high performance solutions for the commercial side of the business so that’s another area that’s very complementary with what ATI does.

The consumer digital area is one where we just starting doing with AMD Live and ATI is a real leader here they’ve got great products like All-In-Wonder and also with respect to what their doing with handsets and the DTV side of the business and the game consoles as well. So these are all areas where AMD really has no presence so we’ve got a great opportunity to leverage that expertise.

The last area is the emerging markets, the emerging markets around the world are areas like India, China, Latin America, parts of Eastern Europe, these are all areas where AMD and ATI’s strengths complement each other really nice when it comes to the emerging markets out there.

FiringSquad: So you brought up mobile, you’re really hoping to put together a package to take on Intel’s Centrino platform?

Jon Carvill: Yeah, we want to be able to package really high performance, low power CPU with a high performance low power chipset and a really high performance low power GPU for mobile, that’s really ATI’s hallmark. As a former mobile guy there [at ATI], we’ve got technologies like DLCS (Dynamic Lane Count Switching) for PCI Express which takes a 16x PCI Express down to just 1x for power reduction. ATI’s got a lot of technologies in the mobile space, the mobile discrete graphics space that noone has been able to replicate. ATI’s always had a leadership position in mobile graphics, and that for AMD will be really complimentary with where we want to go in mobile.

Manufacturing/Maintaining AMDs partnerships

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FiringSquad: Why purchase ATI over another manufacturer such as SiS or VIA that also have a lot of experience with platforms?


FiringSquad: One feature AMD has touted in the past is their “open ecosystem” of partners. What will AMD do to proactively maintain strong relationships with 3rd party manufacturers such as NVIDIA, SiS, and VIA?

Jon Carvill: We’re going to continue to take a very open approach. You certainly saw a lot of discussion on Torrenza, which is a strategy that’s going to rely on us opening up our architecture to third party innovation. AMD’s approach has always been to open things up so that other vendors can come in and make money on our platform and that won’t change. Ultimately we want to make high performance microprocessors, we want to make high performance graphics processors, or media processors and chipsets. We want to give our customers choice. At the end of the day the customers really have the final say on what they want to choose to use, so whether that’s an AMD solution or a third party such as NVIDIA, VIA, or SiS. So really nothing has changed with our approach, the philosophy is still the same.

FiringSquad: How will you guys deal with the Culture Clash? The principles behind each company are aligned, but the challenge of mega-mergers ends up being the small things (i.e. employee benefits, “who’s in charge”, the distribution channels).

Chris Evenden: I don’t believe there is a culture clash. There’s no culture clash. If you see Dave (ATI’s CEO) and Dirk (AMD’s President and COO) together they’re like two peas in a pod. Of course, Jon’s probably in a better position to answer that question having worked at ATI for a couple of years.

Jon Carvill: Having worked with both cultures firsthand I can say that they’re very complementary from the engineering level up, it really is about collaboration, collaboration to drive innovation and that really extends throughout the organization. I just think that with this merger we have an opportunity to leverage each others respective strengths to drive that innovation one step further and that’s the really exciting part. But from a cultural standpoint, I think in my opinion we’re very complementary and hopefully very collaborative.

FiringSquad: Are any AMD fabs capable of producing ATI GPUs? Are there any plans to manufacture ATI GPUs and chipsets in any of AMD’s fabs?

Jon Carvill: Well I think Dirk explained it best on the call this morning. You know really with our fabs, our focus is on microprocessor production. You’ve seen our announcements with our new facilities, Fab 38, our focus is on microprocessor production and to make sure that we run those fabs at max efficiency and to make sure that production capacity is where it needs to be for us. We also have a relationship with Chartered where we can scale our production up and down as required and we’ve got some great experience working with third-party foundries. For ATI they’ve got a really great relationship with TSMC and UMC so we plan to continue to manage those relationships going forward.

So what Dirk said this morning is that for the next couple of years it’s going to be business as-is and beyond that we’re going to take the necessary steps to make sure that we’re filling our fabs with AMD products and ultimately we want to have that flex capacity available so that we can scale up or down based on customer demand.

Torrenza/CPU-GPU Hybrid

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FiringSquad: How will this announcement affect your Torrenza initiative, specifically as it relates to hardware manufacturers in the gaming space? Do you feel a manufacturer like AGEIA or NVIDIA may be less willing to participate as a result?

Jon Carvill: Well that’s something that you’re really going to have to ask them. I really can’t answer that question for them. But from our perspective nothing’s changed on Torrenza, we still plan on opening up our architecture and allowing third parties to come in and innovate and to deliver solutions that provide unique propositions for the customer. So you really have to talk to AGEIA or NVIDIA to get their view on things but our approach hasn’t changed and they’ll be welcome to participate with Torrenza.

FiringSquad: One slide in your strategic vision presentation mentions four different platforms a general purpose platform, a data-centric platform, graphics-centric, and media-centric platforms. The general purpose and media-centric platforms appear to depict the combination of the CPU and GPU on the same die, while the graphics-centric platform depicts four GPUs. Can you go over this slide in a little more detail with us and perhaps provide a little more insight on where you plan on going with this?

The future

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FiringSquad: The graphics industry moves so much faster than the CPU industry, where new GPUs are typically released every 6-9 months. Would a unified CPU/GPU be able to keep up with this pace or does AMD see this pace slowing down?

Jon Carvill: Though this merger, AMD and ATI have the ability to leverage each other’s respective strengths in manufacturing for competitive advantage. AMD benefits from ATI’s skills and expertise in aggressive product transitions. ATI in turn benefits from AMD’s expertise in world class manufacturing processes and systems.

FiringSquad: What will consumers be able to buy in 3 years that they wouldn’t have been able to if the merger had not gone through?

Jon Carvill: It’s really hard to talk about what we’re expecting three years out. There’s some details in the press release specific to where we want to be on the platform side but the focus is on the four main areas that we discussed. So that’s creating open customer-centric platforms in the commercial market, in the mobile market, our consumer digital entertainment, and then for emerging markets. That’s really where the focus is going to be and how we can innovate on those four main markets specifically. That was really the pillar that really helped drive this deal through, that we see some real opportunities for the two companies to innovate in ways that have never been done before in the industry. It’s hard to predict what’s going to happen in the next four years but I would say that those are the four main areas that you’re going to see some incredibly cool things come down the pipe.

FiringSquad: Whenever you’re dealing with a merger of this size, it has the potential to cut down choices, but you guys seem to think this will actually expand choices is that correct and could you elaborate on why you feel this way?

Jon Carvill: That’s a fair statement and from an open, customer-centric approach ultimately what we believe is that customers are going to have as much choice as they have now and they’re actually going to have another choice because this merger will create another choice from a platform standpoint. So it’s more choice for customers and allowing them to customize a solution that’s unique to their needs.

FiringSquad: Are there any possible anti-trust concerns for this merger at this time?

Chris Evenden: Well as a result of this merger there will still be two graphics companies and two processor companies. Anyone competing in the same industry as Intel, you know you have a hard time complaining about the market power when you’re in the same industry as Intel. So if you were to propose that ATI and AMD merging together was anti-competitive then you’d have to expect that Intel would be broken up first.

Jon Carvill: And ultimately from a monopoly perspective, ATI-AMD is nowhere near that, so from our standpoint, we don’t expect to have any issues there.

FiringSquad: Will we see AMD continue on ATI's road to promoting a Crossfire solution for PC game hardware physics effects?


FiringSquad: Intel has developed their own solution for integrated graphics but game developers like Epic's Mark Rein feel such a solution hurts game companies with their underpowered graphical solutions. With this AMD-ATI merger, will we see the company develop and promote a more powerful integrated graphical solution?

Chris Evenden: Well the merger will really allow us to innovate on the PC platform some more so we should be able to. Like I said earlier there will always be a range of graphics performance on the PCs, there will be integrated graphics forever on PCs because there are certain users who want that. But you know people have been telling us for a decade that integrated graphics is good enough, when are you going out of business? We’ve been hearing that literally for about a decade from people.

Jon Carvill: It all comes down to what kind of user you are, you know Brandon I’ve worked with you on enough motherboards from a Radeon Xpress standpoint that you know you can play a lot of entry level games at a reasonable frame rate but the reality is that if you’re a hardcore gamer or you’re just a gamer in general you’ll probably want something more.

Chris Evenden: I’m playing Oblivion at the moment myself.

NVIDIA/Intel response

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FiringSquad: What is NVIDIA’s official reaction to the proposed merger between AMD and ATI?

Derek Perez: We look at today’s news as a positive for the company and there’s a couple of reasons why. Ultimately this leaves us as the only GPU and platform company that will be able to support both AMD and Intel. That’s huge. There’s no other GPU company, no other chipset company that’s going to come close to what we’re offering and that puts us in a really good position right off the bat. If you look at those two pieces of business, GPU and platform technology we’ve got four strong brands, SLI, GeForce, Quadro, and nForce which we’re all right now winning versus ATI everywhere across the board and I think you guys will agree with that.

So if you think about it, it’s kind of like ATI’s thrown in the towel right? Getting beat on both ends, looking for a way out, a little bit like 3dfx a few years back.

We’ll continue to work with AMD on the processor side, they’re a very valued processor partner, we’ve been working with them for a few years, so we’ll continue to work with them on nForce. And of course this has an interesting affect where we can look at this as an opportunity to accelerate our technology to market and kind of extend that lead over ATI. By now being the only GPU provider to be able to work with Intel and AMD gives us an incredible opportunity. So in a nutshell that’s kind of how we look at it.

One of the things that I said to John, you know it’s funny that right now in the PC industry’s most competitive landscape you’ve got this complex merger which can be a distraction for two of the biggest, you know the two biggest number two players in the market. So it will be interesting to see how that goes for them.

FiringSquad: Did you guys have any plans for Torrenza prior to this announcement that have now been affected by the merger?

Derek Perez: No I don’t think any of our product support plans have been changed by this merger, not right now. So when it comes out we’ll support it, but not much has changed on the product side in the past 24 hours.

FiringSquad: One thing ATI has touted as a result of this merger is that their GPU development may actually benefit from this merger, as they’ll have access to AMD’s engineering and manufacturing facilities. What do you make of this assertion and could this lead to NVIDIA perhaps working with IBM again at some point in the near future?

Derek Perez: The question is when? I think the AMD engineers are a bit tied up right now trying to figure out how to repond to Conroe and Woodcrest, and AMD won't have any n-1 capacity for at least two years.
Next up we asked Intel the follow question:

FiringSquad: Now that ATI and AMD have announced that they are indeed merging we were wondering if Intel planned to continue offering CrossFire support in their 975X chipset as well as any other upcoming chipsets in the future? We were also wondering if Intel plans to renew ATI’s chipset license, we would assume that if the AMD merger does go through at the end of this year their bus license would be revoked correct?

Dan Snyder, Intel: We will study the transaction but have no comment at this time about any possible impact it might have on our agreements with ATI.

Dan also reiterated that their official position will “likely be beefed up in the coming days as we look closer at the transaction”, so we’ll just have to wait a few days longer before Intel gives their side of the story.

Game devs reaction

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Brian Sullivan: CEO Iron Lore Studios (Titan Quest)
I am in Japan on vacation right now, but my quick thought is it is probably not a good idea - it seems like there will be less competition since you may not be able to select the CPU / GPU combination you might really want, as they may make some of thier CPUs only work with thier GPU, or vise versa. I would also expect a closer alignment of Intel and nVidea.

The bigger questions might be how will their support of the console industry in the future influence the PC industry, and how will Dell and other PC manufacturers deal with the merger.


Morten Brodersen: CEO Third Wave Games (War World: Tactical Combat)
PC hardware industry: If AMD-ATI decides to build high-speed extensions to the AMD CPU's (or support chips) that enables ATI GPU's to run much faster using AMD CPU's then it may give AMD-ATI a strategic advantage in the high-end PC games hardware space. And it may force NVIDIA to work with Intel to create a competitive alternative. This would basically split the market into two camps: AMD-ATI and Intel-NVIDIA (even if Intel and NVIDIA doesn't merge).

PC game industry: I don't think it will make any difference. Developers use the DirectX/OpenGL API's to program the graphics chips and ATI/NVIDIA will have to support these API's no matter what they do.



Eric Peterson: President Vicious Cycle Software (Vicious Engine)
Since we barely do PC product anymore, I am probably not the best guy to ask. We develop on PCs for all of our games, but I don’t see this merger really affecting that. Hopefully, ATI still manufactures the high end cards, and doesn’t go the Intel way by putting lower end spec chips into machines. People still need the option of being able to go high end if they want to.

Randy Pitchford: President Geabox Software (Brothers In Arms)
ATi makes the kinds of video parts that video gamers like – including powerful high-end graphics processors and options ranging from lower-cost varieties to linking GPU cards together. If AMD can offer integrated graphics that are as cost-effective, but higher performance than Intel’s offerings, there is a great opportunity for AMD to earn some market share. My hope is that this consolidation will help introduce better competition in the integrated graphics market (which currently is what most GPU’s are!). Better competition with integrated GPU’s could motivate an improvement of performance and features on all the integrated video parts that, in today’s market, most computer customers find themselves owning. One can fear the flip side, of course – that in order to compete, the integrated graphics offered by AMD and ATi will be forced to become as low-end as their competitor. I tend to be optimistic – I like to think that the competition will improve the quality of integrated graphics.

Feagus Urquhart: Co-founder Obsidian Entertainment (Neverwinter Nights 2)
It has seemed over the past couple of years that the PC Processor market has moved much more slowly. I am pretty sure we bought a Dell computer that had a 3.6GHz processor in it about two years ago. Processors with higher clocks are available and Dual Core of course, but the impact on playing a game doesn't seem to be huge. Now leaps have occured on the graphic card side over the last 2 years. Back then we were just buying NVidia 6800 GT's and were still using a lot of ATI 9800 pro's. Now with the ATI X1900 and the NVidia 7900 series, the graphics cards are doing way more.

So with my limited understanding of the the semi-processor industry, it would seem that AMD is buying a company that has been showing growth in technological power which could help the semi-stagnating PC processor market.

As for making games, I think the win could be if an AMD/ATI merger could create motherboards or graphic cards that give the average person more graphical power. One of our challenges is when we have to make our games work on a ATI X300 or NVidia 6200 and then look amazing on AtI X1900 XT's and NVidia 7900GTXs. The breadth of the difference in power is huge and it makes us not only just figure out ways to reduce the quanity of things that the cards have to process, but have art creation pipelines that spit out entirely different versions of the same assets so they can work on a wide variety of cards. If we could focus that energy just on the creation of things rather than the using of it, our games could have that much more in them.

Conclusion/Game devs (cont’d)

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Brad Wardell: CEO of Stardock (Galactic Civilizations 2)
I think it will put more pressure on Intel and nVidia to at least work together more closely on implementing new game-related features into their chipsets.


Michael Lewis; CEO Combat Studios (Battlefield 2 Tour of Duty)
I think that the AMD ATI merger will adversely affect the PC gaming
industry because it will reduce the incentive for AMD to provide optimal
support for NVIDIA graphics cards. I can understand the need for the
merger from AMD's perspective: they're facing a tough market since Intel
has a graphics accelerator division, and they want to move into the
mobile market. This move, however, could hurt consumers, who depend on
broad support. It will also put NVIDIA in hot water since they will
face potential exclusion from AMD's market coupled with the difficult
competition Intel is giving them. If ATI merges with AMD, consumers,
particularly PC gamers, will ultimately lose out.

If AMD stops providing quality support for NVIDIA cards it will
adversely hurt developers as well since it may force them to jury rig
their own sollutions without close support from the hardware
manufacturers themselves. The chipset manufacturer-developer
relationship is critical for ensuring consumers are supplied with the
best configured games possible, and if that is jepordized gamers and
developers will both suffer.

Summary