AMD Company: Strategy and SWOT Analysis Research Paper

Advanced Micro Devices (AMD), the worlds’ second-largest supplier of microprocessor chips works with the stated corporate values¹ like;

• Innovation: For providing real solutions for real customer problems that exist in the real world today.
• Vision: The Company says, “Our passion for what we do compels us to keep looking for the next opportunity to succeed”.
• Execution: For ensuring that the company meets the customers’ needs today and tomorrow. AMD invests in state-of-the-art technology research many years in advance of first commercial use.

Today we are experiencing the IT revolution in all walks of life. Be it the way travel, eat, sleep, read, write or do other routine activities, the imprint of technological advancements in general and IT, in particular, makes us feel the importance of a company like AMD.

Strengths

• Strong Research and Development Wing: AMD has been aggressively pursuing research and developmental activities in such a way that innovation is given precedence over technology change. The company takes pride in the fact that they are not for² ‘technology for technology’s sake. Instead, the company prefers to bring out a product that is innovative and more useful for the customers. The mission statement of its Research and Advanced Development (RAD) Laboratories is, ‘to drive, foster, and support innovation in research and advanced development to increase AMD’s growth and profitability. Research and Development are not only required to remain with the times, but it also provides an opportunity to the company to go in for product differentiation.
• Consolidating its hold in the PC and Microprocessor market: AMD is a late entrant in the business as compared to Intel, its main competitor in many markets worldwide, yet it has been able to catch hold of sizeable market space in much less time. AMD ranks second in PC and server microprocessors holding on to a market share of 13 percent of the global microprocessor market (Datamonitor, 2008). With its range of brands like AMD Phenom, AMD Athlon, AMD Opteron, AMD Turion, ATI Radeon, AMD Chipsets, ATI FirePro, ATI TV Wonder the company has effectively diversified into a range of products (AMD, 2008).
• Strategic Partnership with reputed companies: Strategic tie-up with well-known companies helps not only consolidating the market but also helps in portraying a company as an acceptable and well-known brand. AMD has been collaborating with brands like IBM, Microsoft, and HP (Datamonitor, 2008). Such agreements are found helpful even when research and developmental activities are carried out by any of these companies. For marketing and sales, the packaging of an HP product with MS-Vista having AMD quad-core inside helps all the three companies in good measure, provided all three companies prove complementary to each other’s requirements and stronger points.

Weaknesses

• Weak Financials: For the last couple of months, many companies around the world are trying to get over the recessionary trends. AMD too is reeling under some testing times. The company has not been able to come out with positive financial figures for quite some time now. Such declining trends have been continuing since 2005. Even during the third quarter of 2008, AMD reported a net loss of $67 million, or $0.11 per share³. This will certainly put the company in a tight situation as far as profit margins and operating margins are concerned. Today brand equity also helps companies in breaking even. Though AMD is a reputed and well-known brand, yet as compared to Intel, its brand identity is quite low. If we take a look at the world around us, we can easily figure out the distinctive emphasis on advertising techniques in reaching out to the customer. All this requires further investments, which again is bound to affect the profit and loss account of the company.
• Dependence on few customers for larger volumes: Having strategic tie-ups with some companies, AMD seems to have become dependent on some companies for a large percentage of its volume. For example, in the year 2007, about 40 percent of its revenues came from the top five customers. Such dependence sometimes actually might reduce the leverage that the company holds. Under such circumstances, the buyer will make the fullest use of its powers to extract the lowest prices thus exposing AMD to greater business risk. Similarly, if the buyers form a cartel, then it would be doubly difficult for AMD to sustain the business.
• Declining Revenues from Key Markets: the US and Europe are the key markets for AMD, but during the financial year 2007, revenues from the US market declined by about 45 percent while that from the European market declined by 6.5 percent. Such declining trends are a poor reflection on the company for not aggressively pursuing emerging markets like Asia and Africa. With recessionary trends setting in almost all the markets across the globe, the company is bound to suffer some more setbacks in the coming years.

Opportunities

• Emphasis on Gaming: Sometime back, AMD came out with “The Future is Fusion” campaign focusing on the unique ability of the company to display leadership in innovation, customer collaboration, and industry impact. Such emphasis on Fusion will help gaming enthusiasts in experiencing a fusion of technologies, for a real-life experience. With several companies trying to catch hold of the booming gaming market, both online and offline, AMD is bound to find many more customers in near future. The company has also put up a ‘game forum’ for gaming enthusiasts to exchange ideas and send in feedback to the company⁴. With the launch of ‘Asset Smart’, the company has initiated efforts to strengthen the balance sheet together with world-class design leadership in processing and graphics⁵. The size of the market promises to be large enough in due course if the market of the first half is any indication. The US video game industry has been able to generate $8.3 billion in sales during the first half of 2008, which is 36 percent higher than the corresponding period in 2007.
• Promising Quad-Core Series: AMD launched Quad-Core AMD Opteron in the second half of 2007. The quad-core comprises four processors on a single chip of silicon. This is supposed to ensure⁶ ‘a new era in the server processor market in terms of performance, virtualization, energy-efficiency and investment protection’. It is worthwhile here to mention that couple of years back when AMD challenge Intel to a ‘dual-core server duel’. Intel declined to take up the challenge, which helped AMD in projecting itself as the leader in innovative technologies (Brown, 2005).
• Operations in India and China: AMD has started strengthening its operations in faster-developing economies like India and China. The AMD India Engineering Centre (IEC), in Bangalore (India), is being developed as a center of excellence for advanced VLSI design and software development in the South East Asian region. Similarly, having started its operations in China 4-5 years back, AMD is in the process of consolidating its China operations in the country. The multi-billion markets in India and China are bound to provide the company a new lease of life.
• Increasing Demand for PCs the World-over: As per the projections carried out by AMD, the global semiconductor sales are set to see growth from $277Billion in 2008 to $321Billion in 2010. With such projections, a good section of the market is certain to go to AMD. To take a bigger share of this market, the intensity of competition is also increasing between AMD and Intel. AMD has filed a lawsuit against Intel, for trying to make wrongful use of its dominant role in the market. The company says, “Intel’s abusive, illegal monopolistic behavior is preventing businesses and consumers alike from choosing freely between AMD and Intel products”.

Threats

• Tough Competition from Intel: With shrinking profit margins and availability of many other alternatives like Hitachi, STM, NEC, etc. the competition with Intel is indeed showing up. While Intel has a bigger presence over a wider area around the globe, AMD is bound to face a tough challenge, which in turn will result in price wars, thus reducing the operating and profit margins of AMD.
• Increasing Emphasis on Green Business: ‘AMD Green’ is the initiative undertaken by the company to come out with products keeping in mind the health and safety stewardship commitments leading to energy efficiency and environment protection. But with tightening international standards, the adherence to these standards is becoming increasingly demanding both in terms of cost and resources. Investing in Greener technology requires far more costly than ordinary technologies. With financials already under pressure, AMD is bound to suffer further losses on account of this additional burden.
• Imbalance in Demand Vs Supply: In the recent past, to outdo each other the main competitor’s Intel and AMD have injected far more capacity than is required to fulfill the demand of the existing market. This has created an imbalance in the supply and demand rule. With Intel having more market share, and better control over its suppliers and distributors, such overcapacity might adversely impact the prospect of AMD in the long run.

References

1. AMD (2008). Web.
2. Datamonitor (2008). Advanced Micro Devices, Inc.-Company Profile. Datamonitor USA, New York.
3. Brown, Rich (2005). ‘Dual-core desktop CPU bout: AMD vs. Intel’. Web.