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Advanced Micro Devices
The Future of IPF

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By NYCBanker
October 5, 2004

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What is the long-term future of IPF and will Intel/HP ever recover their investment?

IMO IPF will never amount to much more than a niche architecture, because it failed in precisely the area it needed to succeed -- cost. IPF was one of the most expensive CPUs ever developed. Though estimates differ, everyone agrees that its development has cost in the billions.

The Itanium development unit, jointly funded by Intel and HP, has soaked up $US5 billion ( October 2002)


Mr. House, Intel's chief of corporate strategy in the early 1990s, worries that Intel will never get back the $1 billion to $2 billion that analysts estimate Itanium has cost so far. (May 2001)

In addition to high R&D costs, the chip suffers from high manufacturing costs due to its enormous die size. Furthermore, IPF's low volumes don't allow for the accrual of any benefits from economies of scale.

So why exactly would anyone buy an Itanium2? It is certainly not cheaper to produce (though it may be cheaper to buy due to subsidies by the manufacturer � but this is not sustainable in the long run), it lacks the installed software base enjoyed by its RISC competitors and it has a limited ecosystem. The main justification for buying Itanium2 had been that it offered the best performance of any chip on the market -- that is until the latest spin of the Power5. With the introduction of the new chip by IBM, IPF is left without any differentiating factor on which to base its appeal.

Given that fewer than 250,000 IPF chips have shipped since inception, it might be that with the introduction of Nocona, Intel would choose to scrap the whole project.

Intel CEO Craig Barrett on Tuesday said that more than 110,000 Itanium chips have shipped since the processor's introduction ( February 2004)


Intel will ship 100,000 Itanics in 2004 (September 2004)

That is, if it were not for HP. HP has co-invested in IPF development and tied the future of their enterprise computing division to the Itanium architecture. Currently HP represent more than 80% of market for Itanium based chips -- though even they realize the inevitability of the niche status of IPF and have withdrawn it from the workstation market. Will this shrinking of the ecosystem cause IPF to be further shunned, causing a vicious circle that leads to its ultimate demise? I don't know, but I suspect that it will not be viewed as a positive by prospective customers.

Will Intel ever see a positive ROI on their IPF investment? It is highly unlikely. At current revenue run rates, adjusting for the costs of goods sold, Intel has no hope of ever recovering even the principal amount invested, let alone the time value of money (i.e. interest).
 
"This will end up being one of the world's worst investments, I'm afraid," predicts David House, a former Intel official who is now chief executive of Allegro Networks, a network-equipment start-up. (May 2001)

Will HP see a return on investment? Maybe. HP earns hardware, software and recurring maintenance revenues from IPF based systems. However, for them to be successful they will have to vastly increase sales of systems based on IPF.


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