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5 Things AMD Needs To Do To Save Itself


Posted by Alexander Wolfe, Jul 18, 2008 02:20 PM

Pity poor AMD. The scrappy semiconductor vendor has cut a particularly impressive product swath since 2003, when it launched its Opteron server processor and followed up with worthy dual- and quad-core architectures. But the financial rewards haven't been commensurate with AMD's technical prowess, and yesterday Dirk Meyer was named CEO. Here's what he needs to do to get AMD back on the beam.

The problem in wrapping one's blogging arms around the AMD situation is the disconnect between the company's fine products and its poorly performing business side. Usually when a company does this badly for this long -- six consecutive quarters of losses -- there's something fundamentally wrong with what it's making. Not so with AMD. Its processors are good. More important, their existence has historically served as counterweight which keeps Intel honest, at least in the eyes of the latter's customers.

Mostly, AMD's problems have stemmed from its inability to be content as a small No. 2 player, and its burning desire to be Intel's equal (in size and revenue; I would argue they've done a decent job as far as technology equivalence is concerned).

It seems AMD has bagged that strategy, which reached its apex with the $5.4-billion acquisition of graphics chip-maker ATI in 2006. Since then, AMD has spun off Spansion, its flash memory operation. It's also shed staff and sought capital (an 8.1% stake went to Abu Dhabi last fall.)

Amid all that, AMD still posted second-quarter revenue of $1.35 billion. (Sure, its 2Q loss was $1.19 billion, but it's burdened with all sorts of write-offs. The point is, there's demand out there for AMD chips.)

OK, so now to the point of my post. Here are the five things new CEO Dirk Meyer needs to do:

  • Emphasize multisocket servers. Play to your strength, Dirk. As I wrote in AMD's Quad Opteron Firing On All Cores, customers love what they can do with your Opteron systems, particularly the high-end, multisocket servers.

    Sure, this isn't a commodity market, but it's an area where there are eager customers, your partners are actually reasonably happy with you, you're competitive -- and will remain so for the foreseeable future -- and you can make a profit. What's not to like?

  • Stop talking about the "platform" strategy. I don't want to be spouting off like a know-nothing blogger, but it certainly seems to me that AMD has been slightly ahead of its time in attempting to connect graphics processing tightly into the embrace of the main processing engine. Platforms are a good strategy to talk up to OEMs -- the folks who are your front-line customers. However, you'd be surprised (or maybe you wouldn't) how many consumers don't even understand what your main product does. Talking about graphics just confuses them. (These are the same folks who used to think that AOL was "the Internet.")

    The time will come soon when graphics processing isn't just integrated on-board, but on the processor itself. Which means consumers will need to know about it even less than they do now. Better to focus your branding efforts on your bread and butter.

  • Continue to slim down. I'm not adding anything to the discussion here, only pointing out the obvious, which is what you're doing already.

  • Ditch low-end desktops. This is probably the most worthy of all my suggestions. Channel-stuffing and selling low-end commodity parts is a losing game. The other guy does it not so much to make money, but as part of a well-thought-out strategy under which fabs are sequentially downshifted from state-of-the-art to cheap parts, as they're amortized. It keeps things humming, kind of like how GM used to crank out cars it didn't make much money on, because it was cheaper to keep the line running than to shut the factory down.

    The old rationale, that you needed to play here because you had to have a full lineup to be taken seriously, no longer applies. So stick to servers, with Opteron, and high-end gaming desktops, with the Phenom parts.

  • Stay away from MIDs. Meyer is quoted as saying he's intent on staying away from the Mobile Internet Device market. These are the handheld Web-browsing devices built around lighter-weight processors like Intel's Atom chip. It's good that Meyer is avoiding the MID market, because there's little profit involved, and there's also the little fact that consumers aren't gonna buy MIDs when they can get iPhones instead. On the other hand, Meyer has indicated he wants to play in the subnotebook market, where $400 lightweights like the Asus Eee are currently all the rage. Must to avoid, Dirk. No profit there, either.

    However, this begs the question: What does AMD do with its Turion mobile-processor line? I have no insight into how Turion is faring, business-wise. So possibly it makes sense to re-tune Turion as a mobile part intended for subnotebooks. In which case, as far as my suggestion goes, never mind.

    There you have it. What do you think? Please leave your comments below or e-mail them to me directly at alex@alexwolfe.net.



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