INNOBLOG

Microsoft's new operating system, Vista, promises much-heralded enhancements in things like parental controls, media features and search capabilities. It also boasts a new graphics-intensive user interface called Aero. If you dont have a fairly new computer with a powerful Graphical Processing Unit (GPU), you will be downgraded to a stripped-down interface without the latest bells and whistles.

This means that in addition to the traditional question of what CPU to buy to run a new operating system, consumers upgrading to Vista Premium with Aero will now have to focus on what GPU they need as well. This has interesting strategic implications for chip makers.

ATI, one of the two major graphic card makers, has designed new technology specifically for Vista; AMD, looking to develop new growth as a CPU-maker, purchased ATI last year.

Widely known as the number two player in PC CPUs, AMD now has a chance to change the game. It is integrating ATIs graphic capabilities with its own CPU onto a single chip, called Fusion. By reducing the number of chips needed in a computer, AMD aims to dramatically cut PC costs while delivering an advanced graphics offering that is likely good enough for mainstream Vista Aero consumers, but unlikely to woo the most demanding gaming users. The WSJ reports that Fusion will be especially popular in emerging markets where eager customers want to upgrade but lack purchasing power.

The major risk in AMDs acquisition is that as an integrated company, ATI is unlikely to continue working closely with Intel, which has moved to improve its own graphics offerings and is bolstering its relationship with ATIs competitor, Nvidia. However, with the opportunities for increased efficiencies and advanced Vista graphics support on a single chip, Fusion is the right move for AMD to remain competitive in the consumer space.

See "AMD Readies For Vista Graphics. Red Herring. January 29, 2007
"Did Vista influence AMD-ATI fusion? Daily News and Analysis. October 28, 2006
"AMD Plans New Class of Multifunction Chips by '09. Wall Street Journal. October 25, 2006