DIVERSIFICATION AND GLOBAL POSITION 3

Advanced Micro Devices, Inc. is ranked as the as the world’s second largest PC chipmaker with a market share of just 17%, far behind Intel Corp. with 81% of the market (Buckman and Williams 2001, 1). However, in 2000 AMD’s sales jumped 63% to $4.6 billion, producing $983 million in net income and its first profitable year since 1995 (Streetwalker 2001, 1).

AMD owns engineering, manufacturing, warehousing and administrative facilities where it produces not only PC chips but also microprocessors, memory circuits, logic circuits, flash memory devices, telecommunication products and embedded processors (Moody’s 2000, 2520). The company’s headquarters and research and development site are located in Sunnyvale, CA, while the wafer manufacturing plants are located in Austin, TX and Dresden, Germany. The test and assembly facilities are located in Bangkok, Thailand and Penang, Malaysia. The company has also established production at the Singapore’s test and assembly facility as well as an analysis and design plant in Suzhou, China. In addition, a new plant in Japan, a joint venture of AMD and Fujitsu, called AMD Fujitsu Semiconductor Ltd. or FASB, will begin operations in the first half of 2001 (Dum 2000, 2).

AMD, like many technological multinational enterprises (MNE), prefers to locate its factories and assembly plants in technology clusters in stable and democratic countries. However, AMD knows that East Asia is one of the best places for setting up factories because of cheap wages, stable countries, proximity to suppliers and potentially large markets. In fact, six out of AMD’s nine facilities are located in East Asia and employ approximately 5,600 people.

The company’s consolidated global position produces a very interesting case. This paper will analyze AMD’s international operations, competitors, alliances, legal problems, and its relationship with stakeholders. In addition, the recent meltdown in high-tech stocks and the reduction of PC sales are provoking the semiconductor industry to diversify its business. This analysis will consider the consequences of this problem and the resulting changes in AMD’s corporate business strategies.

The personal computer microprocessor market is considered a quasi-monopolistic market in which the largest corporate buyers such as Dell Computer Corp., Compaq Computer Corp., Hewlett Packard Co. and IBM Corp buy almost solely from Intel Corp. (Mathew 2001, 1). For this reason, AMD has had difficulty introducing its microprocessors into the market. For example, in January 1994, AMD and Compaq Computers Corp. formed an alliance in which AMD Am486 microprocessors would power Compaq computers (AMD 2001, 2). Between 1994 and 2001 AMD was not able to convince another large PC vendor to buy its microprocessors. However, in January 2001 AMD got its first contract with a major PC vendor, Micron Electronics Inc., to supply the Athlon microprocessor for the Micro Electronics’ ClientPro product line (Konicki 2001, 2). In the same month, AMD also contracted to supply and introduce its first version of the Duron microprocessor for laptops to NEC Corp., Japan (Duron chips for laptops… 2001, 1)

In addition, while Intel launched the Pentium IV at the end of 2000, AMD took advantage of the transition from Pentium III to IV to try to convince several of the largest corporate buyers, which were comparing the new Intel’s Pentium IV and AMD’s Athlon, to switch to AMD’s Athlon microprocessors. Although AMD could not change any of the corporate buyers’ minds, the company did prove that the Athlon microprocessor is faster, more reliable and cheaper than Intel’s Pentium IV (Letters 2001, 3).

This failure was frustrating for AMD, but this is the price a firm has to pay when attempting to enter a competitor’s market. Clearly, Intel has the first-in advantage, although AMD has a better quality portfolio with a cheaper price. However, sooner or later this trend must change because Intel’s marketing cannot hide this reality. Some laboratories have tested both AMD Athlon and Intel Pentium IV and have concluded that while Intel’s Pentium IV is not worth what it costs, AMD’s Athlon costs what it is worth. Thus, AMD does not have to attract customers by resorting to rebates and discount programs, as Intel has to do. Another weapon Intel has is to cut processor prices.

In any case, Intel does not want to lose any market share, and AMD wants to get more, so the rivalry and price war will certainly continue this year. They both know that in competitive markets, a market share lost by one company is a market share gained by the competitor. As a result, both companies are preparing to compete with one another. In fact, both AMD and Intel have increased their capital spending for 2001 by about 20% to $1 billion and $7.5 billion respectively, although PC sales growth is expected to slip to 16.6% worldwide, down from 18.8% in 2000 (Hannon 2001, 1).

AMD realized that it must diversify in order to maintain its growth rate. The

AMD and Fujitsu Ltd. venture, FASB, which includes joint technological development and production of flash memory for cellular handsets, is one way to diversify. Together AMD and Fujitsu have 30% market share of the flash memories sold for cell phones. However, in the short-term FASB will not be able to supply enough flash cards to get a larger percentage of the handset market because of capacity limitations. Therefore, in the year 2000 Fujitsu converted several of its own plants to serve strictly as factories for the joint venture. FASB is also pushing as hard as it can to begin production in its new mega plant in Japan, if possible before June 2001. The main competitor in this market is again Intel, which has about 60% of the market share, so another price war may soon begin (Dum 2000, 2).

Customers neither want to depend on only one supplier nor to contribute to Intel market dominance. They want to reduce the risk of insufficient supply of chips that occurred last year. Siemens is now buying flash-memory chips from both FASB and Intel (Accord is set… 2001, 1). Besides Siemens, Sun Microsystems Inc. also decided to buy microprocessors from both AMD and Intel for its Cobalt server (Robertson 2001, 3).

In this market war neither AMD nor Intel have ever been very interested in making collaborating. However, AMD has developed other collaborations with many related companies:

· In 1987 AMD and Monolithic Memories Inc. agreed to merge.

· As mentioned earlier, in 1993 AMD started a joint venture with Fujitsu Ltd., Japan.

· AMD collaborated with LSI Logic Corp. and Texas Instruments Inc. to create integrated solutions for digital base band processors (Dum 2000, 2).

· AMD, Dupont Inc., Motorola and Micron Technology Inc. are involved in a joint venture in Texas in which they research and develop photomask technology for future generation semiconductors (Chappell 2000, 1).

· On February 14, 2001 AMD, stated that it will license technology to about 100 companies including Cisco Systems Inc., Nvidia Corp. and Fujitsu Ltd. The licenses do not charge a cash fee, but they swap intellectual property (New AMD system… 2001, 1).

· AMD and Motorola have a strategic alliance to research the copper interconnect technology field.

· At present, AMD is looking for a partner to build in 2004 its first 300-mm factory costing about $4 billion (Advanced Micro is seeking… 2001, 1).

The usual warfare between AMD and Intel never seems to change, but analysts expect both firms to begin to collaborate soon. The small semiconductor players are now creating partnerships to improve their positions in the market. In fact, the microprocessor industry accounts for a lot of different technologies that no one company can have in-house (Dum 2000, 3)

In the last quarter of 2000, sales of Duron, AMD’s low-cost processor, were not as strong because a chipset used with the microprocessor was not readily available. Therefore, AMD decided to plan for the future and began a two-year multimillion-dollar global SAP project to provide a just-in-time (JIT) inventory program. In addition, SAP tools such as financial, supply chain, production, logistics and e-business software, would give AMD and its suppliers and customers day to day information regarding the chipmaker’s production and supply chain. This project would benefit all three parties (AMD, suppliers and customers) by avoiding upturns and downturns in demand and supply (Konicki 2001, 2).

As a technological sector firm, AMD is also deeply involved with the latest technology. For example, the company’s internal website provides employees plenty of information not only for learning purposes but also for safety purposes, such as radiation control, chemical issues, hazardous energy control and waste management issues. In each of the company’s local sites, the firm uses the latest technology in both the production area and in the corporate offices.

Although in 1976 AMD and Intel signed a patent cross-license agreement, in the late 80s AMD initiated several arbitration actions against Intel (AMD 2001, 1). The reasons for these arbitrations were Intel’s quasi-monopolistic dominance of the microprocessor market and its unfair market behavior, as fact confirmed by many other companies. The most tedious arbitration action finished in February 1994 after five years of court disputes. The judge finally ruled against Intel and awarded AMD full rights to produce and sell the entire Am386 family of microprocessors (AMD 2001, 2). Besides another court case against Intel in 1994, AMD has never been in court again. Nevertheless, AMD continues to complain about Intel’s market behavior. For example, Intel pressured IBM to backtrack a notebook microprocessor order that IBM had already booked with AMD (Mathew 2001, 2). As a result, AMD lost the contract.

The Environmental, Health, and Safety (EHS) program provides a safe work place for employees, protects the environment, prevents damage to property, enhances employee morale and assures compliance with applicable laws and regulations worldwide. The program is disseminated from the main team to all AMD’s local sites. Then, local sites apply this information and provide different services to the stakeholders surrounding each site (AMD 1999, 1).

Another task of the EHS department is to obtain the (ISO) 14001 certification from the International Organization for Standardization. By the end of 1999, AMD’s Bangkok facility had already been certified. All other AMD manufacturing facilities are expecting to achieve this certification before the end of 2001. The (ISO) 14001 certification develops standard methodology to recognize, identify, evaluate and control hazards in the workplace. The emphasis of this effort is intended to internalize those standards throughout the firm because they have not existed in the past. These standards are one way to improve the moral and physical well being of the workforce.

The safety and health policy focuses on reducing occupational injury and illness rates company-wide. To achieve this goal, each local facility must establish:

· Engineering controls and tests such as leak detection, air monitoring and fire detection systems.

· Emergency preparedness plans to learn what to do in case of fire, hazardous material release, earthquake and other natural disasters. .

· Education empowerment at all personnel levels through the internal website and seminars.

Moreover, AMD offers additional services in different sites such as:

· The Employee Development Center (EDC) in Bangkok, Thailand and Penang, China which has exercise rooms, fitness programs and relaxation rooms.

· The Repetitive Motion Injury (RMI) in Sunnyvale, CA specializes in adjusting the furniture and equipment to the needs of each individual at his or her workstation (AMD 1999, 17).

The safety and health policy has had excellent results considering that in recent years less than three injury and illness cases out of every 100 employees have been reported.

In the globalization era, AMD has to adapt to different cultural environments and incorporate different cultures in the organization. AMD operates in four continents, so its work force is a mix of people, cultures and customs. One can find an American working in a Singapore assembly plant or a Bolivian working in a factory in Dresden, Germany. This diversity creates an atmosphere of synergy and creativity that encourages every employee to do his or her best. The mix of cultures also facilitates the international communication between AMD’s locations, suppliers and customers. Under the universal employment policy and procedures that govern AMD’s practices worldwide, discrimination is not welcomed. Job applicants do not need to be concerned about age, color, ancestry, disability, religion, gender, sexual orientation, marital status or national origin (AMD 1999, 1). AMD also cares about employee morale and respect for individuals as well as individual’s values.

The environmental policy is an important part of AMD’s EHS program performance. The firm focuses on multimedia pollution prevention and resource conservation. In the last couple of years the firm has not only reduced the amount of hazardous waste generation, electricity use and water consumption but also has enhanced a successful reuse and recycling program. To illustrate, in 1999, at the Dresden factory, its own energy center was able to generate more than 100% of the power the factory consumed. At the same time, the Dresden water recycling plant recycled 20% of the consumed water (AMD 1999, 10).

Because of these and many other environmental accomplishments, AMD’s local sites have received several awards. The state of California has awarded AMD headquarters for its commitment to solid waste reduction and recycling programs for five consecutive years. The city of Austin, TX awarded AMD for its excellent compliance with wastewater treatment regulations.

AMD’s globalization emphasis has made it possible to begin building supply chain environmental management. To accomplish this project, the AMD EHS department evaluates the worldwide chemical suppliers’ EHS program and collects this information to select and evaluate existing suppliers.

As AMD evaluates its suppliers, third-party firms also evaluate and audit AMD local sites. Six of the firm’s local sites that have been inspected, usually by local government environmental agencies, have not received any citations or violations. However, AMD headquarters has been inspected 13 times between 1996 and 1999. This location has received five citations related to labeling of hazardous waste. Two other sites that were inspected and received citations were the Suzhou assembly plant because of two releases of diesel fuel and the Dresden plant because of a phosphoric acid release (AMD 1999, 9-18). AMD resolved all issues to the satisfaction of the regulatory agencies without any fines.

AMD has been committed to the communities in which it operates. The firm has also been a responsible and good neighbor that has involved the local communities in its corporate contribution programs. Some of the most important contributions done in 1999 directly by the AMD headquarters were; first, a cash gift of one percent of pretax profits to nonprofit agencies and schools that serve the communities where AMD operates and second, $1 million to the Taiwanese government because of the September 21st earthquake. On the other hand, each site contributes to its own community in different ways. For example, in 1999 AMD’s Bangkok site donated 200 computers to the community and cash to the Red Cross of Thailand to support a project that helps mothers with the AIDS virus. AMD Sunnyvale donated $600,000 to organizations and schools in the Sunnyvale area. In addition to financial donations, AMD’s workforce also participates in volunteer opportunities. Some examples are AMD’s Penang employees’ blood donations to the Blood Bank Hospital of Penang and AMD’s Dresden EHS personnel factory tours and the monitoring of ecological projects with local schools (AMD 1999, 10-18).

This analysis has attempted to prove that AMD has an efficient mechanism to run a global business. The firm not only was able to become a profitable company in the fourth quarter of 2000 but also proved that it can gain more market share from all the markets in which it does business. Moreover, AMD has been a good neighbor to the communities in which it functions, satisfying many stakeholders’ desires. AMD’s positive overall performance assures the company a bright path for future growth in the global economy.

Bibliography:
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