AMD in the Field of Semiconductor Industry Research Paper

Introduction

Semiconductor industry is one of the profitable industries today and, as predicted, in future. An industry with this kind of rapid change presents several challenges for companies like AMD, namely production costs, and monopolies. The key question are: What are the main factors of success? What is the role of innovation and technological improvements in company strategy? Production and technology are the primary driving factors of this industry. At the beginning of 21 century, AMD looks for ways to deliver customer satisfaction at a lower cost, smaller size, and higher speed. AMD is profitable corporation but it will require changes in strategic policies to remain an industry leader.

General Environment Dimensions and Industry Analysis

The main factors affected general environment involves technological changes and globalization of markets and technology, improve political and economic conditions in the Third World Countries. AMD gains competitive advantage by conceiving new ways of conducting activities, employing new procedures, technologies, inputs or channels of distribution (Spemcer 2004). New technology and organizational management system open new opportunities for AMD. Technological innovations and creativity in production can be regarded as business philosophy of AMD. AMD competes in semiconductor industry including graphics cards and processors. The dominant characteristics of semiconductor industry include: high potential to growth and profitability; promotion to other segments; improvement of product range. The technological advances are aimed to maximize security of customers and fasten the process of informational interchange. Innovations and rapid technological change are the main drivers affected the industry. Low cost production, low price of the end products and high quality are the main criteria for the industry players. International expansion and global strategy is to aim at a particular target market. One of the main functions of global and international promotional activity is of course to influence the perceptions of the consumer. AMD maintain policy of product standardization in order to sell them around the world under the same brand (Johnson and Scholes 77; 2004).

Five Porter’s Model

‘Barriers to entry’ include economies of scales; EU policy, brand identity and cost advantage. ‘Supplier power’ does not have a great impact on the company but there is a threat of forward integration, and impact of inputs on cost differentiation. ‘Threats of substitutes’ are less possible because AMD is an industry leader monitoring technological changes and innovations. Buyers are apt to use low cost product proposed by AMD. Buyers’ power is affected by large volume of buyers, strong brand image and price sensitivity. New entrants to an industry raise the level of competition, thereby reducing its attractiveness. AMD has competitors, but they do not have a great influence on the company’s revenue. Semiconductor industry is very attractive because it is expected to grow during the next two decades (Burgelman et al 147-148).

Competition

The competitive success factors are technological leadership and product strategy. In contrast to its direct competitors, AMD concentrates on Intel-compatible microprocessors and flash memory. Increased competition on the international arena threatens profitability of such giants as AMD. In this case, AMD develops multidimensional strategy to cover three competitive segments: local (national), international and global. This strategy involves brand positioning, market segmentation, strategic alliances and value pricing strategy. AMD gains competitive advantage by conceiving new ways of conducting activities, employing new procedures, technologies, inputs or channels of distribution. Managing the organization is therefore not just about managing functions, but managing linkages between those functions. More will be said about the integration of various facets of the value chain in the discussion on implementation strategies (Burgelman et al 47).

The main competitor of AMD is Intel. Intel is an expert and leader because its marketing challenge is to position service offerings as the high quality, high value-add alternative. Rivalry is fierce because there are several market leaders including Intel. In general, Intel is well-positioned to take on this important leadership role. It has the resources and certainly has the technological capability. The blend of controllable marketing variables required producing the response wanted in the target market. The mix includes new products, prices, promotion, advertising, field sales and distribu­tion. The mission of Intel is to deliver high quality products and innovate, foreshadow customers’ expectations and demand. Creates its strategies in order to compete with AMD and gain its leadership position. This company invests heavily in R&D and technological innovations. The biggest problem for AMD is a constant need to innovate and react to market changes and fierce competition (Hitt et al 87).

New Leadership and Innovations

A New leader, Hector Ruiz, has brought new corporate vision and market strategies for global leadership. On the one hand, unique technology management employed by AMD is aimed to coordinate production process with all levels of the organizational structure including their interaction and performance. Hector Ruiz became a CEO AMD lost its leadership position because of inadequate market strategies and decisions. The balance of power has undoubtedly shifted to traditional management who now has more choice over how it conducts relationships with their employees and process (Burgelman et al 34). Innovation in production technologies and computerized system of supply chain is the main opportunity for AMD. Strategic decisions are focused on “compatibility and open standards” which help the company to sustain its leadership position and compete with Intel. Hector Ruiz comments:

“At AMD, we long ago made a strategic decision to use compatibility and open standards as a design objective because we see the best path to the future grounded in the best of the past. We believe in preserving our customers’ data from platform to platform and application to application.” (Ruiz 2003).

The strengths of AMD are a strong brand image and customers’ loyalty, global activity and leadership position. In relation to competitors, AMD provides comparable buyer value but perform the activities more efficiently so as to attain a cost advantage, or perform the activities in a unique way which raises the value to the con­sumer and thus allows them to command a premium price. Another important feature of AMD is the non-price competition which takes form of branding, advertising, promotion, and additional services to customers and product innovation (Hitt et al 103).

The main weaknesses include high labor and energy costs. Economic recessions and industry declines affect AMD and its market performance. Constraints of global economic environment include legal barriers and European law. Many European countries restrict access to those goods which do not meet their requirements. This means that products can be barred access on the grounds that they infringe local rules on health, safety and environmental protection. AMD designed and developed all the products in order to meet international standards and local requirements (Hitt et al 196). Operating on a pan-European basis involves AMD addressing the issue of cultural difference and conse­quently developing a balance between standardization and adaptation.

The business unit level strategies for Opteron chip is anticipating changes in demand and technologies. According to Wasson (2007):

“AMD is introducing another innovation of sorts with Barcelona in the form of a new power rating, dubbed ACP for “average CPU power.” Differences in describing a processor’s maximum power and thermal envelope, known as Thermal Design Power, have long been a source of contention between Intel and AMD.”

The importance of this strategy is that changing patterns of demand and more sophisticated tastes are expected over time and AMD should be in the marketplace ready to supply them. In addition to being cheaper, AMD may prefer assembly because it allows most of the production, value added, and technology.

AMD became a market leader with its product Opteron. “Opteron was the first mainstream server chip on the market that processed data in 64-bit chunks, compared with the less efficient 32-bit approach” (Flynn, 2008). Also, the strategy can be named an open innovation strategy aimed to “further differentiate AMD’s offerings, while also enabling customers to get technology to market faster” (Flynn 2006). Taking into account current situation, it is possible to say that AMD has to develop a completely new vision of its marketing system based on global strategies. Thus, the main risks include increased competition and constant technological change. Specification in AMD is determined as a result of an organization’s pol­icy, which in turn resulted from decisions on its market policy, which in turn resulted from its consideration of the market or customer needs, requirements, and the activ­ities of competitors (Burgelman et al 76).

For AMD, strategic benefit can therefore be gained through the integration and coherence of the organizational, market and new product strategies. This integration process can be achieved by the generation and sharing of a common ‘vision’. This vision, a form of strategic knowledge positions and guides future work, enables all functions to pull in the same direction, while operating reflectively and creatively. This shared vision can be reinforced through familiarity with a shared set of values that underpin all of the activities in the organization.

Works Cited

Burgelman, R.A., Christensen, C.M., Wheelwright, S.C. Strategic Management of Technology and Innovation. McGraw-Hill/Irwin; 4 edition, 2003.

Flynn, J. 2006. AMD battles to thwart a new assault by Intel. Herald Tribune. Online.

Hitt, M.A., Ireland, R.D., Hoskisson, R.E. Strategic Management. South-Western College Pub; 7 edition, 2006.

Johnson, G., Scholes, K. 1998, Exploring Corporate Strategy. Hemel Hempstead: Prentice Hall.

Ruiz, H. 2003. Web.

Spemcer, W. New Challenges for U.S. Semiconductor Industry. 2004. Web.

Wasson, S. AMD’s quad-core Opteron 2300 processors. 2007.