AMD (NASDAQ: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 (NASDAQ: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 (NYSE:FSL), TI (NYSE:TXN), Marvell (NASDAQ:MRVL), Infineon (IFX), Qualcomm (NASDAQ: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:
- Enable a management team that understands how to deliver value in the server, PC, mobile device, consumer electronic, and embedded processor market segments.
- Learn how to market and serve each market segment.
- Leverage the technical expertise of AMD and ATI to develop disruptive products.
- 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.