AMD: A Dog Chasing Its Tail

AMD (AMD) continued to disappoint investors in the forth quarter (see 'AMD: Is The Worst Over?'), losing $1.77 billion in that single quarter. AMD's problem stems from its management team's inability to differentiate the company in the microprocessor marketplace - both mainstream and embedded microprocessors. Their inability to forecast and manage product run rates will plague the company with continued poor financial performance. They cannot spend themselves to health with acquisitions without executing on the vision that the acquisition brings. They have yet to utilize the value that ATI brings to AMD.

The problem with AMD is common in many technology companies: they develop great technology, but they do not understand what their customers want and how to communicate the value to their customers. The process is called marketing, and AMD does not understand it in any division. The CEO and COO talk like engineers, not businessmen. That was fine in the early days of Silicon Valley. But now consumers want to know why they should buy a computer with and AMD microprocessor over Intel (INTC) not that their 45 nm process is finally up to snuff.

AMD has done well in the server market, where savvy consumers realize the price/performance value of purchasing server blades with AMD processors. Well informed IT managers know AMD processors perform better, use less power, and are less costly than their Intel counterparts. This market is technical and understands the tech-speak that AMD spews. The problem is that this market segment is becoming a commodity business with Intel and AMD continually one-upping each other. Revenue is good, but margins are eroding.

AMD has not differentiated itself well in the PC market. The acquisition of ATI was supposed to release a slew of innovative designs that would propel AMD past Intel... or at least keep them equal. ATI continues to innovate in the graphic processor and board market, but the integrated microprocessor and graphic processor designs are lacking. Their announcements at CES are proof that they are not realizing the potential of integrating ATI into AMD. Financially, ATI is now pulling down AMD.

AMD must look to other market segments than PC and servers. They have an embedded processor division with multiple product lines that highly overlap. For several years this division has been running at a loss because of poor vision and financial management. The embedded processor market could be a bright spot in AMD's future if it had the right leadership to focus it on specific market segments and follow through in developing a complete ecosystem for it. Not only are they competing against Intel in this market but also Freescale (FSL), TI (TXN), Marvell (MRVL), Infineon (IFX), Qualcomm (QCOM), and a few others. If it uses a little marketing prowess to find a segment of the market and utilize its technological expertise to disrupt it, then it could see some success. A new class of open mobile devices is emerging where AMD/ATI could show some leadership.

The bottom line is that AMD cannot continue to compete head-to-head with Intel. It has to differentiate itself as a company. Intel has much more breadth than AMD, so it can survive any price and technology war with AMD. For AMD to improve its financial situation it should take the following steps:

1. Enable a management team that understands how to deliver value in the server, PC, mobile device, consumer electronic, and embedded processor market segments.
2. Learn how to market and serve each market segment.
3. Leverage the technical expertise of AMD and ATI to develop disruptive products.
4. Stop worrying about Intel and worry about AMD.

AMD has some great talent in the company that can achieve some great things if only it could get rid of the stagnation. I see it following in the footsteps of Motorola (MOT), which is no surprise - since many of the AMD executives came from Motorola.

Disclosure: None

Comments

[Tom B:]

Embedded chips and graphics chips are the markets where AMD can compete. They should just give up on CPU's.

2008 Feb 06 01:51 PM

[plantman:]

Hey guys, check out the new "SPIDER" integrated chipsets from AMD! I think AMD has overcome its problems with the release of the Barcelona" platforms and started integrating the "true" AMD quadcore chipsets and its ATI graphics processors. In fact, albiet the 45nm structure, the "Phenom" is a true and superior quadcor processor to Intel's 4in1 quadcore processor. Also, AMD new LCD processors are at the cutting edge of the video processors. Actually, your asumptions that AMD management is just a bunch of engineers and not looking to the future markets could not br further off! For more information please go to the AMD homepage.

As always, I am reminded that competition is the driving force behind inovation. Or, are we all afraid of the upcoming lawsuit against Intel for its monopolistic practices.

Let the markets decide!

2008 Feb 06 03:14 PM

[TA:]

'AMD has done well in the server market, where savvy consumers realize the price/performance value of purchasing server blades with AMD processors. Well informed IT managers know AMD processors perform better, use less power, and are less costly than their Intel counterparts. '

That's not true and hasn't been true since the Core2Duo was introduced. There was a time before that but it's long gone. Intel's dual and quad cores are superoir in everyway to AMDs chips AND they use less energy. The latest chips just released may have finally caught up, I don't know but it hasn't been that way for almost 2 years.

AMD lost huge on the server side just as they were winning because Intel produced a killer product and completely caught AMD off guard.

2008 Feb 06 08:38 PM

[Michael L:]

AMD was leapfrogged by the core 2 duo and has been losing ground ever since.

" "Phenom" is a true and superior quadcor processor to Intel's
4in1 quadcore processor."

Hmmm. I don't think so. If you look at any performance measurement, Intel blows them away.

2008 Feb 07 09:47 AM

[Tech:]

have you met AMD before publishing this crap?
AMD is discussing with its customers everydays but it seems not enough with some blogs authors !

2008 Feb 08 05:20 AM

[User 149347:]

First, I would argue AMD has high consumer market share. Enterprise is the high-margin weak link; Intel regularly forces them out.

Second, your advice to management isn’t very specific. Of course disruptive products and market intelligence would help, but AMD isn’t running a lemonade stand.

Third, if they develop a high-margin niche I guarantee an 800lb gorilla enters the market. Niches don’t fill fabs.

For shits and giggles, plot the financial performance of Intel-only shops (i.e. Dell) against dual-supplied companies (i.e. HP) over the last five years. The conclusions are shocking.

2008 Feb 08 10:00 AM

[Smart1:]

You might want to use Apple instead of Dell for that comparison......I think the HP growth vs Dell is a function of other things (not processors).

2008 Feb 09 01:40 PM

[CPU watchtower:]

The article has everything backwards. AMD came closer to breakeven but does not have great technology. Margins have improved in its most recently completed quarter.

Here is the correct story. A couple of years ago, AMD led. Now AMD is trailing the competition in technology, performance, and power dissipation. At this time, AMD has been forced into the low-end computer market. The problem seems to be that AMD does not know how to improve its quad core processors to make them more competitive. What is holding back the clock rate? What is leading to more power dissipation? So far AMD has not demonstrated the engineering expertise to address these issues.

2008 Feb 11 02:10 PM

[CPU watchtower:]

Marketing is secondary. Historically, AMD's stock runs the highest when AMD has a superior product, and falls in the gutter when AMD has a lagging product.

Jerry Sanders says it's all about the product. He says if AMD doesn't have a great product, engineered properly, then AMD has no future. He goes on to say everybody should do everything they can so that AMD engineers are the most productive.

youtube.com/watch?v=oo...

2008 Feb 11 09:25 PM

[b3rkut:]

"Their inability to forecast and manage product run rates" etc.

how do you know this??

2008 Feb 12 09:21 AM