5 Key Challenges For AMD's New CEO

Rory Read steps to the helm as the chipmaker confronts serious trouble in the turbulent mobile processor market.

Robert Strohmeyer, Contributor

August 29, 2011

4 Min Read

As former Lenovo president and COO Rory Read takes to his new role as CEO of chipmaker AMD, he'll find plenty of challenges. The company faces increasing market pressure from competitor Intel, the Goliath of the semiconductor industry. Meanwhile, AMD's past is fraught with operational issues that have hampered its ability to make critical strategic moves.

InformationWeek spoke with chip industry analyst Tom R. Halfhill of the Linley Group, who outlined the five most pressing challenges Read will face at AMD.

Product Delays: Historically, AMD has had trouble launching its chips on time, and that has cost the company dearly in its ongoing struggle to compete with Intel, according to Halfhill. The most recent and dramatic product delay for AMD was delivery of its combination CPU-graphics Fusion processors. "When they acquired ATI and announced they were going to merge the CPU and GPU on one chip, they gave a date which was about two years ago," said Halfhill. "If they had been able to deliver that product on time, they would have got a big jump on Intel." Unfortunately for AMD, Intel took advantage of delays in Fusion's development and caught up.

"AMD's a pretty good example of Murphy's law," Halfhill remarked, pointing to a multitude of troubles that have led to past delivery delays, from management problems and design issues to manufacturing glitches. "Read might be the right kind of CEO to get things in order," Halfhill said. "He has a reputation for being a good operations man."

Foundry Frustrations: AMD made a strategic decision to spin off its chip manufacturing with the creation of GlobalFoundries in 2009. The move may have made business sense in that it streamlined AMD's internal operations, but it leaves the company at the mercy of outside organizations to deliver its products.

"In a sense that's one less thing to worry about, but on the other hand, now their fortunes are in the hands of the people who are running GlobalFoundries," said Halfhill. "It's not a very forgiving industry. One little glitch in manufacturing can screw you up for a year."

Mobile Chips: Shipping delays for AMD's Fusion product line put the company at a significant disadvantage in the mobile market. "It's been pretty widely reported that [former AMD CEO] Dirk Meyer was pushed out because the board didn't feel he was pushing in the direction of mobile computing fast enough," said Halfhill. "So presumably, Rory Read has been assigned the mission of getting AMD competitive in mobile systems."

While it's clear that mobile devices represent the most important growth sector for technology right now, Halfhill points to the fact that Intel--a much bigger company than AMD--is having trouble breaking in there. "AMD just came out with its Bobcat product line, which competes with Intel's Atom processors, but they need something even lower-power than that if they want to get into really small mobile devices," Halfhill said.

Server Strategy: The growth of the mobile market is increasing demand for server-side computing power, which means server chips will remain an important focus for AMD. Halfhill points to recent remarks from multiple Intel executives that the company sells a server for every 122 tablets in the marketplace and another for every 600 smartphones.

"The point they're making is that the smartphone market isn't just smartphones," said Halfhill. "When you have a lot of smartphones out there, you need more servers that serve up the stuff that the smartphones are downloading." So, in essence, the growth of cloud computing in response to mobile innovation represents both a challenge and an opportunity for AMD, and timely delivery of its 16-core Opteron processors will be critical to the company's success in that arena.

"The main thing AMD has to do is keep pace with Intel in terms of multi-core integration," Halfhill said. "Intel is putting more and more cores on a chip, and it's going to be very difficult for AMD to keep up."

Security Integration: Intel's acquisition of McAfee poses a significant challenge to AMD, as it gives Intel the ability to integrate security software directly into the CPU. Halfhill views this as a critical issue for AMD, and one that the company will need to respond to quickly.

Unfortunately, says Halfhill, the chip industry doesn't work like many other sectors where being smaller affords a chipmaker increased agility. Instead, being smaller just makes it that much harder to align all of the design, supply-side, and manufacturing elements to produce new technology quickly. "We have to wait and see how AMD catches up," said Halfhill.

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