Amd

Elsa Pairaud

Professional Management Skills Assessment

Paris – ISEG SUP 2E – November 4, 2010

Professional Management Skills Assessment

AMD: A Customer-Centric Approach to Innovation

2

Table of Contents

Introduction ....................................................................................................................... page 3

AMD’s past and prospective growth ............................................................................... page 5

Differentiating to increase market shares ....................................................................... page 9

Conclusion and recommendations.................................................................................. page 12

Bibliography ..................................................................................................................... page 13

Appendixes ...................................................................................................................... page 15

3

Introduction

The twentieth century was characterized by many essential innovations that changed the

face of the world and the way people deal with each others.

Television, personal computers, Internet, therefore contributed to make the world global.

Information available anywhere, at anytime and to anybody facilitates exchanges at an

increased rapidity. As David C. Thomas and Kerr Inkson say, “there are seven billion people

in the world from myriad different cultures, but we live in a village where events taking place

ten thousand miles away seem as close as events happening in the next street”1.

The ascension of personal computers, from the first pre-IBM PC in the seventies to the

recent invasion of notebooks on the market, can surely be considered as the most significant

innovation of the last decades. According to a study carried out by the Computer Industry

Almanac Inc., “worldwide PCs in-use has grown from 98 million units in 1990 to over 1.2

billion systems in 2008 and is projected to reach 1.9 billion units in 2014”2.

If the first microcomputer using a microprocessor (Intel 8008) was released in 1972 with

90,000 units sold, the first Personal Computer was actually created in 1975 and included the

monitor, the keyboard and the number pad. It was consequently considered as a fully

assembled PC. The demand for Personal Computers was immediately incredibly high, and

could not stop growing throughout the years: from less than 50,000 units sold in 1975, “the

PC industry has grown to unit sales of over 280 million units in 2009”2.

Such an innovation was possible thanks to the creation, in the fields of microelectronics, of

both the integrated circuit (developed in 1959), and the microprocessor (developed in 1971).

The first innovation enabled the miniaturization of computer circuits, whereas the size of the

computer’s central processing unit (or CPU, processor) could be reduced to the size of a

single silicon chip thanks to the microprocessor.

Components of a Personal Computer are called computer hardware. This hardware will then

be the base for the computer’s operating system and multiple software applications that will

perform functions programmed by the user.

As shown in figure 1 in appendix, the hardware of a modern Personal Computer is composed

of several elements. Featured in the motherboard, the CPU is one of the most essential parts

of the computer’s hardware and is considered as the machine’s brain. The CPU indeed

receives and processes each and every data sent by the Random Access Memory. In order

for the CPU to be able to process those data, its instructions have to be codified to

understand different types of software programming such as C, C++ or Java. There are

1 Working Globally, Second Edition. By David C. Thomas and Kerr Inkson. Published by Berrett-Koehler

Publishers in 2009. Chapter 1 page 5. 2 Computer Industry Almanac Inc. is a company that publishes market research reports for the PC and Internet

industry. Data here were published in the yearly adapted report “Worldwide PC market”, available at

http://www.c-i-a.com/worldwideuseexec.htm. Accessed on October the 5th

, 2010.

4

different types of CPUs on the market, each of them being programmed differently. Power

PC for Mac and x86 for PC are some examples of available CPUs. Those different CPUs are

manufactured by several companies such as Intel and AMD, as we will see in this report. First

microprocessors were created in the United States, in the Silicon Valey, by Ted Hoff at Intel

Corporation3.

Since CPUs are able to process many different data and answer to much diversified

instructions, the potential for developing their architecture and for increasing their

performance is rather important. So, the competition on this field is rather fierce.

We can consequently say that microprocessors are essential components of Personal

Computers and that the development of computer industry is partly linked to innovations in

this field.

In this report, we will therefore focus on AMD’s current and future situation on the

processors market. We will first study AMD’s prospective growth: Could the company’s

success in servers be leveraged to other segments? Then, we will analyze the competition

with Intel: will Intel’s new product plans hamper AMD’s growth plans? Finally, after

analyzing AMD’s positioning with the Power Campaign, we will see how the company tries to

build a competitive advantage thanks to a customer-centric approach: will it yield

commercially viable innovations that are dramatically different than those Intel will develop?

3 From the website The Great Idea Finder, available at

http://www.ideafinder.com/history/inventions/compersonal.htm. Accessed on October the 5th

, 2010.

5

1. AMD’s past and prospective growth

Since its early beginnings in California in 1969, Advanced Micro Devices, known as AMD, has

been developing computer processors for both consumer and commercial markets. AMD’s

business consists in manufacturing semiconductors, and its strategic business units are

varied: from microprocessors to motherboard chipsets and graphic processors, all designed

for servers, workstations and personal computers.

In the field of microprocessors, AMD develops products based on the x86 architecture. The

company is currently the second largest global supplier for such products behind Intel4.

If AMD was first a licensed second-source manufacturer of Intel’s processors thanks to a

contract with the leader, the Californian firm then developed its own solutions (with the K5

processor, launched in 1996) and signed partnerships with several PC manufacturers like

IBM. The reason for this success was probably AMD’s positioning, consisting in delivering

low-price alternatives to Intel’s products.

But because of entry barriers and competition, increasing market shares and generating

profits has not been easy for AMD throughout the years.

On such a technical market, it appears that the Key Factors to Success are as follows:

4 Business PME website, available at http://www.businesspme.com/articles/informatique/30/amd.html.

Accessed on October the 6th

, 2010.

1 core business

• Manufacturing semiconductors

2 SBUs• Microprocessors

• Graphic cards

3 main markets

• Computing

• Graphic applications

• General Public Electronics

6

Thanks to its progressive ability to master those factors, AMD managed to raise its market

shares to around 15% in 2009, while Intel’s shares amount to around 80%5.

AMD’s success truly started in 2003 when the company developed 64bits extensions

(replacing 32bit computing). This technology was first launched with the processor Opteron,

which was server-oriented. Athlon64 then brought Opteron to Personal Computers’

architecture. One of Opteron’s core advantages was that it was compatible with previous

32bit architectures. Contrary to Intel’s Itanium, it could therefore support existing software.

But developing an efficient microprocessor is not enough to enable gaining market shares. It

is actually essential to make sure PC manufacturers will build platforms for this specific

microprocessor.

However, AMD did not at this time benefit from particularly high quality brand awareness.

As Henri Richard, executive vice president at AMD in 2007 says, “we lacked credibility and

had no history in the segment. We couldn’t be a player in the server market without the

support of the tier-one OEMs that controlled it”6.

This is the reason why AMD decided to focus on a go-to-market strategy, aiming at building

agreements with OEM (original equipment manufacturers) to build platforms with AMD

microprocessors inside. This strategy was named MAID, for Microsoft, AMD, IBM and Dell,

the current market leader. Many barriers existed with those manufacturers, mostly because

of Intel’s leading position on the market. Thanks to its “Intel Inside” campaign, Intel was

indeed known by both manufacturers and end users, and its image was everywhere on the

5 AMD, Intel post solid Q3 results; now for the hard part. Accessed on Connect:

http://proquest.umi.com/pqdweb?did=1972135541&sid=11&Fmt=3&clientId=63894&RQT=309&VName=PQD

Accessed on October the 6th

, 2010 6 From “AMD; A customer-centric approach to innovation” by Elie Ofek and Lauren Barley, published on

January 31, 2007. Page 6, page 4, page 8, page 10.

Microprocessors

market

Technological know-how in

processors development

Financial capacity to

invest in R&D

Partnerships with PC

manufacturers

7

computing market (ads, Intel Inside logo...). Thanks to this marketing campaign, Intel

managed to “persuade end-users of the processor’s importance in the computer purchase

decision”6. It was consequently rather difficult for AMD to tackle such a dominated market.

Nevertheless, thanks to better performance at a lower price, AMD managed to tackle several

research labs and universities. This first step enabled AMD to build serious brand awareness

for Opteron. Thanks to a diversified offer in performance, Operon soon tackled each part of

the market: the Opteron 100 (one processor) and the Opteron 200 (two processors) for a

volume strategy with OEMs’ desktop series and the Opteron 800 (four processors) for niche

markets such as research labs. Opteron could therefore be considered as a very

comprehensive offer.

The next step was to convince Microsoft. The company indeed “showed little inclination to

create an operating system for Opteron, which would cost hundreds of millions of dollars to

develop. Microsoft had already designed an operating system for [Intel’s] Itanium and was

working on Vista”6. But AMD’s strategy was to bring diversity on a market where Intel had no

sustainable competitor. Competing with Linux, Microsoft was aware of the need for lower

prices. This is the reason why AMD, with its price-reducing strategy, appeared to be the best

alternative to Intel’s products.

“End users and OEMs understand competition is a good thing. All they were waiting for was a

credible alternative in servers. [AMD] brought much more – we brought a fantastic opportunity

for the market to break free”.

Henri Richard6

The next step was to convince OEM’s to use Opteron. If they were first frightened by 64bit

(where they ready?), AMD managed to communicate on Opteron’s advantage: it was

compatible with 32bit architecture and gives a great path to the future of 64bit computing.

As a result, in 2004, both Sun and HP were using Opteron-based server platforms. Dell joined

in 2006.

Then, AMD had to think about continuing to innovate. Could its success in servers with

Opteron be leveraged to other strategic segments such as corporate desktops and

notebooks?

During the past ten years, those two last segments experienced a sharp growth. As you can

see on the figure 2 in appendix, built from data featured on the report about Worldwide PC

market by Computer Industry Almanac this year, the market is considerably changing. As we

can see, Server segment, that AMD tackled with Opteron, is steadily growing but remains

quite insignificant compared to Desktop PCs and Mobile PCs. The mobile PC segment gathers

all laptop, notebook, netbook and emerging tablet PCs. Those markets consequently

represent very large opportunities for processors developers such as Intel and AMD.

The server segment was indeed rather small in volume and could not offer satisfying growth

perspectives, especially compared to desktop and mobile segments. With Athlon64, the

company had already offered a product on such a market, but its market shares remained

8

rather low. Actually, this market, gathering corporate desktops and

notebooks, was at this time totally dominated with Intel thanks to its “Intel

Inside” strategy. In the early 2000s, almost every PC featured this logo, which

made end-users believe that choosing a computer also relied on choosing a

processor. But comparing processors is not really relevant, since their

performance depends on their architectures. Most of the time consumers

only using PCs for Internet, simple games and office automation software are not sensible to a

change in processors.

What opportunities to grow for AMD?

First, it seems that the server segment, on which AMD is already well established, will

continue to grow steadily partly because of home PC servers. According to the report

published by Computer Industry Almanac, those home PC servers will enable to coordinate

several PC activities inside the house.

Then, mobile devices will be the most attractive segment in the next decade. Thanks to their

easy portability, they will become extra supports for professionals and the second PC for

home users and travelers.

On the market of notebook PCs, AMD introduced in 2005 the AMD Turion™ 64 mobile

technology. In the meanwhile, the firm also developed the first dual-core technology on the

desktop segment with AMD Athlon™ 64 X 2 dual-core processor7.

In the segment of mobile devices, AMD is actually throwing its hat into the ring as shows the

figure 3 in appendix.

As a result, it could be interesting for AMD to strengthen its position on the rather stable

server market, and to invest sharply in the mobile PC market, which represents the most

interesting prospective growth.

7 Data coming from AMD’s corporate website, available at http://www.amd.com/us/aboutamd/corporate-

information/Pages/timeline.aspx. Accessed on October the 7th

, 2010.

Intel Inside logo

(www.intel.com)

9

2. Differentiating to increase market shares

To tackle the mobile segment, AMD has to take up several challenges. There is no doubt that

the company has the capacity to develop processors that are as efficient as its competitors’.

Consequently, it not so much on the product itself that the difference has to be made.

Indeed, latest innovations for both Intel and AMD have proved that the companies were

able to challenge computing evolutions, with notebooks and netbooks, and that their

technological know-how was not to be questioned.

As a result, we can consider that apart from being constantly aware of the environment’s

changes and required innovations, AMD’s strategy has to focus on three main axes:

1. Developing the network with PC manufacturers

All along the years, AMD tried to build strong partnerships with OEMs to ensure its

microprocessors will be implemented in PCs architectures. In order to convince those

partners, AMD developed the world’s first dual-, quadric-, 8- and 12-core x86 processors.

Those platforms were offering significant advantages in data center use, delivering high

performance and power efficiency. Thanks to high research on performance-per-dollar and

performance-per-watt, AMD appears to be the best solution on a power consumption point

of view. Delivering higher performance with similar power consumption at a lower price

seems to be AMD’s core competence. The company therefore has to communicate on those

competences to increase its number of partners among PC manufacturers, research labs, to

make them use its processors.

Implementing a customer-centric

approach to differentiate from Intel and to insist on AMD's specific

positioning

Improving the brand awareness

among OEMs

Improving the brand

awareness among end-

users

10

2. Improving brand awareness among end-users and general public.

Intel’s strength was to make its brand visible everywhere and to ensure of its brand’s

adoption among manufacturers. It has been enabling the company to acquire a leading

position on the market for several years.

This is the reason why AMD has to answer by implementing an adapted marketing

campaign. Actually, the company tried to a few years ago, with its “Power Campaign”. This

campaign, designed for IT decision-makers, promoted ecology concerns in the field of

microprocessors. According to Henri Richard, “today, people buy IT technology without

considering the amount of power it consumes”Erreur ! Signet non défini.. In a world where

concerns about power consumption and energy savings are becoming more and more

essential, IT decision-makers cannot ignore those issues anymore, and have to be “power

consumption-friendly” to comply with managers’ and legal frames’ expectations. This is the

reason why such a positioning was rather smart from AMD. Concerning companies, the

Power Campaign was totally justified because they must more and more think about their

power consumption. But are end-users as concerned about those issues? If it is obvious that

such concerns have their importance, it should not be the only specification on which AMD

should communicate, because end users by a computer for the service it will provide, and

not for its hardware.

The point here is to simplify the PC buying experience thanks to the introduction of a new

technology supposed to highlight the experience the PC will provide instead of focusing on

technical specificities of hardware components. This new technology is called VISION

technology. This innovation enables the consumer to choose a computer regarding how he

wants to use it.

Competing with Intel’s Centrino, this new technology confirms AMD’s consideration about

consumers not focusing on components specifications but on the way they will use their

equipment. This strategy makes AMD closer to consumers’ needs and expectations.

Figures 4 and 5 in appendix present this Vision technology.

AMD’s positioning with Vision is a success because it focuses on consumers’ experience and

provides a comprehensive architecture at a lower cost. As a proof for a succeeded

positioning, many PC manufacturers such as Acer, ASUS, Dell, HP, Lenovo, MSI and Toshiba

already confirmed that they would launch PCs equipped with this platform8.

Such a step confirms AMD’s new strategy consisting on resorting to a customer-centric

approach.

8 Information coming from the article AMD Vision Technology : vers des PC portables plus performants et

moins chers published in May 2010 on the website ITRnews.com available at

http://www.itrnews.com/articles/105252/amd-vision-technology-vers-pc-portables-plus-performants-moins-

chers.html. Accessed on October the 7th

, 2010.

11

3. Implementing a customer-centric approach to differentiate

For Hector Ruiz, COE of AMD in 2007, a customer-centric strategy consists in “solving a

customer problem or address a specific need”9. It is about listening carefully to what

customers say about the product, how they would improve it.

Actually, what must be understood by “customer-centric approach” is the fact that

customers are not just at the end of the value chain of a company. Customers are rather

“the vital core element without which the business would not exist”, as explained in the

report “Customer-Centric approach”, a project published by Anirudh Singhania, CEO of

Softnet Solutions (available at http://www.softnetsolutions.com/cca.pdf).

Obviously, the core focus of a company is to generate profits. But if we think about how

profits are generated, we surely notice that customers are the ones who are willing (or not)

to pay for the products the company offers. In this way, they are the one that generate

profits of a business. And, if all profits come from customers, it appears to be logical to focus

on this source of profits. Integrating customers’ concerns all along the

production/development process therefore enables to ensure the product or service suits

customers’ expectations and will gather all elements to experience a success.

As we can see in figure 6 in appendix, a customer-centric organization is totally set up

around the customer.

In the facts, such an approach can consist in opening architectures, such as AMD’s Torrenza

project that opens Opteron’s architecture. AMD’s customer-centric approach helped the

company to make customers loyal, to improve its brand awareness and to developed

products that are more adapted to the market’s latest evolutions. To sum up, we can

consider that “AMD has the resolve to fulfill customers’ needs and expectations”10

. In a

company where satisfying consumers is not enough anymore, and where delighting

customers is a daily challenge, we can be sure that AMD has all the tools to fight against Intel

in a more and more challenging environment.

9 From “AMD; A customer-centric approach to innovation” by Elie Ofek and Lauren Barley, published on

January 31, 2007. Page 13 10

Dennis Fisher and Jeffrey Burt, “AMD Processor Chief : Commercial Space, here we come” eweek.com,

January 2006, available at http://www.eweek.com/article2/0,1895,1907684,00.asp, accessed on October the

7th

, 2010.

12

Conclusions and recommendations

If AMD first used to be considered as Intel’s follower on the microprocessors market, it is

now obvious that the company has developed all necessary tools to challenge the long-time

leader. AMD’s ability to constantly innovate was the key element for the company’s

development all along the years. Being the first one to develop dual-, quadric-, 8- and 12-

core x86 processors enabled AMD to position itself as an interesting alternative to Intel’s

products. The market indeed used to be monopolized by Intel, and OEMs could therefore

not take advantage of a competing market. To be more and more efficient and to offer the

best alternative to users, OEMs indeed have to take advantage of a lower bargaining power

of suppliers. As a consequence, increasing the number of suppliers on the market can only

be positive to them. And AMD soon understood the game. Its platforms were offering

significant advantages, delivering high performance and power efficiency. Delivering higher

performance with similar power consumption at a lower price therefore seems to be AMD’s

core competence.

Taking advantage of its success on the servers’ market with Opteron, AMD leveraged this

success to the two other segments: corporate desktops and notebooks. AMD was also strong

in understanding that end-users’s buying behavior: they are not focusing on performance

and hardware specifications, but more on the experience the machine will enable them to

live. Thanks to its efficient customer-centric approach, that could be defined as a way of

doing business while focusing on creating a positive customer experience. AMD’s VISION

Technology therefore provides improved performance and battery life, consequently

offering higher quality and higher quantity.

It therefore seems that AMD chose to focus on servers (with a low growth rate) and on

Personal Computers with its VISION Technology, experiencing an interesting growth.

But several challenges are actually growing: Tablets like Ipad do not feature

microprocessors, and AMD’s market shares in mobile devices remains very low.

In order to deal with those challenges, several opportunities are to be thought about. A

partnership with the company Oracle, developing hardware and software, seems to be

possible and would enable AMD to benefit from a higher cash flow and Oracle to compete

on the servers’ segment thanks to Opteron11

.

In order to face those new challenges, AMD also has to tackle new markets. With its low

prices strategy, the company indeed has an interesting competitive advantage for emerging

markets such as China and South America. In such markets, the equipment rate is still rather

low and consumers are very price-focused. AMD therefore has chances to experience a

sharp and rapid growth.

11

From the article AMD parle de l’hypothèse d’un rachat, available at http://www.presence-

pc.com/actualite/Opteron-40921/ and accessed on October the 23rd

, 2010.

13

Bibliography

� Books and reports

Working Globally, 2nd

Edition.

By David C. Thomas and Kerr Inkson.

Published by Berrett-Koehler Publishers

2009

Chapter 1 page 5

Customer-Centric approach

Published by Anirudh Singhania, CEO of Softnet

Solutions, available at

http://www.softnetsolutions.com/cca.pdf

AMD; A customer-centric approach to

innovation

By Elie Ofek and Lauren Barley

2007

� Websites and articles

Definitions of a processor, to better understand the market, was found on two websites:

Cuk.ch is a Swiss Weblog featuring news and tests concerning computing items

Available at http://www.cuk.ch/articles/3008

Wikipedia, for the article on Personal Computer

Available at http://en.wikipedia.org/wiki/File:Personal_computer,_exploded_5.svg

Computer Industry Almanac Inc. is a company that publishes market research reports for the PC and

Internet industry. Website available at http://www.c-i-a.com/worldwideuseexec.htm.

The Great Idea Finder, available at

http://www.ideafinder.com/history/inventions/compersonal.htm

Business PME available at

http://www.businesspme.com/articles/informatique/30/amd.html

AMD’s corporate website available at

http://www.amd.com/us/aboutamd/corporate-information/Pages/timeline.aspx

AMD Vision Technology : vers des PC portables plus performants et moins chers

Published in May 2010 on the website ITRnews.com available at

http://www.itrnews.com/articles/105252/amd-vision-technology-vers-pc-portables-plus-

performants-moins-chers.html

AMD Processor Chief: Commercial Space, here we come

By Dennis Fisher and Jeffrey Burt, in January 2006. Available at

http://www.eweek.com/article2/0,1895,1907684,00.asp

AMD parle de l’hypothèse d’un rachat

By David Cidera, in October 2010. Available at

http://www.presence-pc.com/actualite/Opteron-40921/

14

AMD renforce ses parts de marché CPU mobiles

Published on August, 2010 on the website Tom’s Hardware, available at

http://www.presence-pc.com/actualite/CPU-marche-40399/

AMD VISION: quatre logos pour concurrencer le Centrino d’Intel

Published on September 2009, on the website Laptop Spirit available at

http://www.laptopspirit.fr/51526/amd-vision-4-logos-pour-pc-portables-afin-de-concurrencer-le-

centrino-d%E2%80%99intel.html

� Resources on ProQuest

AMD, Intel post solid Q3 results; now for the hard part

http://proquest.umi.com/pqdweb?did=1972135541&sid=11&Fmt=3&clientId=63894&RQT=309&VN

ame=PQD

Figure

A computer features: a monitor (1), a motherboard (2), a CPU or processor (3), the Random Access Memory, or

RAM (4), some expansion cards (5), the power supply (6), an optical disc drive (7), a hard disc drive (8), a

keyboard (9) and a mouse (10).

12

Source: picture from Wikipedia. Available at

http://en.wikipedia.org/wiki/File:Personal_computer,_exploded_5.svg

15

Appendi

Figure 1 - Hardware of a modern Personal Computer12

monitor (1), a motherboard (2), a CPU or processor (3), the Random Access Memory, or

RAM (4), some expansion cards (5), the power supply (6), an optical disc drive (7), a hard disc drive (8), a

: picture from Wikipedia. Available at

http://en.wikipedia.org/wiki/File:Personal_computer,_exploded_5.svg. Accessed on October the 5

Appendixes

monitor (1), a motherboard (2), a CPU or processor (3), the Random Access Memory, or

RAM (4), some expansion cards (5), the power supply (6), an optical disc drive (7), a hard disc drive (8), a

. Accessed on October the 5th

, 2010.

16

Figure 2 - Worldwide PC sales from 1990 to 2014 (forecast)13

Figure 3 – Intel and AMD market shares in the first quarter

of 2010 (in %) and AMD’s evolution since first quarter14

13

Computer Industry Almanac Inc. is a company that publishes market research reports for the PC and Internet

industry. Data here were published in the yearly adapted report “Worldwide PC market”, available at

http://www.c-i-a.com/worldwideuseexec.htm. Accessed on October the 7th

, 2010 14

Data from the article AMD renforce ses parts de marché CPU mobiles published on August, 2010 on the

website Tom’s Hardware available at http://www.presence-pc.com/actualite/CPU-marche-40399/. Accessed

on October the 7th

, 2010.

0

50

100

150

200

250

300

1990 1995 2000 2005 2008 2010 2014

Worlwide PC Server sales

Worldwide Desktop PC sales

Wordwide Mobile PC sales

0

20

40

60

80

100

Desktop

PC

Mobile PC Servers

Intel

AMDAMD

+1.6%

AMD

- 0.7%

AMD

- 3.3%

17

Figure 4 - AMD's VISION Technology15

Figure 5 - AMD's VISION Technology explanation15

15

Form the article “AMD Vision: quatre logos pour concurrencer le Centrino d’Intel” published on September

2009, on the website Laptop Spirit available at http://www.laptopspirit.fr/51526/amd-vision-4-logos-pour-pc-

portables-afin-de-concurrencer-le-centrino-d%E2%80%99intel.html. Accessed on October the 7th

, 2010.

18

Figure 6 - Organization of a Customer-Centric company16

16

From the report “Customer-Centric approach”, a project published by Anirudh Singhania, CEO of Softnet

Solutions (available at http://www.softnetsolutions.com/cca.pdf).