Mathias Crouzet
ISM MBA PROGRAM
ISEG PARIS

Professional Management Skills Assessment
AMD – A marketing Case study

November 2011

What would it take for AMD to see a significant increase in its market share in processors used in corporate desktops and notebooks? How can the success of Opteron in the server segment be leveraged to other segments?
To increase her sales volume and be able to have a significant market share and be able to really compete with Intek on the desktops and notebooks processors market, AMD has to improve a lot her products. First of all , it’s a question of customer perception : for many people , AMD’s CPU (Central Processing Unit) are not powerful and are used only on low cost computers (and for many years this information was true). In this case, the main challenge is to change this perception, because in fact if their products are actually quite good and are in fact almost as advanced as Intel’s ones.
In order to extend their market share they have to keep focusing their products design on the final client needs. What are they ?
When you are using your computer at work or for your personal use, there are 3 different parameters that you are looking at: -The first one is obviously the cost of the CPU. Because you are not baying one computer but often hundreds or thousands of them, even a tinny difference can make the firm choosing your product.
-Second parameters on which they are focusing are the power of the CPU. Working applications, specific software are more and more efficient and are doing a lot of different things, but they also need more and more calculation power in order to be used. Firms are looking for CPU with enough calculation power for their current use but also because they might not be ready to change their computer every 6 months, for their future use.
- Finely, the last parameter which is crucial on the corporate market is the consumption of the CPU. In fact, more and more people are no more using desktop PC but laptops. In order to be able to work as much as possible on batteries (without plugging their computer on power source) professional users are requiring high battery capacity with can be extended by using a lower consuming CPU.
It’s only if AMD is able to produce processors with those specificities and if their main goal is to adapt her products to the corporate market needs that AMD will increase her sells.
With their Opteron processor , AMD had proved that they are capable to produce good enough CPU for servers, they have now the opportunity to leverage this success on other markets an especialy on the general corporate one. To achieve this goal AMD has to capitalize on the good image they got through their server processor .The “IT people” (data centers managers, IT department managers) already discovered all the advantages that they can get by using AMD based servers (in term of performance and energy efficiently) the target is now to spread this idea and show to PC manufacturer that AMD CPU’s are good enough to be implanted in desktop PC and laptops. This is really important because if on the specific market of servers, clients are presciptors, on the general corporate and on the private market; clients are buying computers according to the information provided by the manufacturers. In this case AMD has to convince them that they are recognized by professional , and if their CPU are good enough for server use , they will be perfectly adapted to a general corporate and to a private use.
What do you make of AMDs Power Campaign? Is the value proposition it highlights compelling to end users?
The actual “power Campaign” is absolutely feting to what was written previously. AMD knows how to make efficient CPU and is communicating about it. Her principal competitor, INTEL is producing very powerful processors but they are consuming a lot of energy, whereas, AMD is promoting the idea that efficiently is better than extreme power. Today, the laptop market is growing more and more, almost all the computers bought for private use are laptops. At the same time , people are moving more and more and they are doing many different things with their computers. Because using all the time WIFI or even 3G connection, and using application such 3D games or advanced software require a big calculation capacity the final clients are requiring more and more battery . Because there is a limit on battery capacity improvement, the other solution is, with the same power of calculation , to reduce the power consumption of the computers, and after the screen , the CPU is the most consuming part in computer.
Because more and more people are caring about environment and especially global warming, this campaign is also a way for them to promote “greener” computers. Because of their advanced CPU they are consuming less , the use of AMD based computers is producing less carbon dioxide than using Intel’s. Moreover, thanks mostly to the growth of Apple’s laptop market share people are also more and more looking for computer with a high design level. Because AMD processors are consuming less, they are also warming less. And because of this they need fewer fans to be cooled. This specificity is now allowing the manufacturer to offer thinner products using new raw materials such as carbon or aluminum (witch couldn’t be used before because CPU where too hot). As we can see, this campaign is totally market afocused. This strategy is indeed feting totally to the final clients needs.
How concerned should AMD be about Intel’s imminent new product plans? Will they hamper AMDs growth plans?
Intel has lerned from the past and is now planning to develop a new range of products which is going to be adapted to the client’s needs: Their new products will be in fact a good balance between the power with new generation chips, the energy consumption, and reduce cost. This decision is quit revolutionary for the firm because they normaly used to offer eitheir very powerfull , with a hight energy need , and really expensive CPU or basic ones on very low prices This reduction of costs is one of the most important decisions of INTEL because price is still the most important things for clients. To achieve this, INTEL is ready to make huge reorganization in order to save 1 billion USD on his production cost. This will allow the company to lower a lot the price of her processor in order to get back her market share.
This strategy is a big threat for AMD. Indeed, the firm will as already reduced as much as possible her production cost and is not able to do it anymore. If Intel is starting a price war, AMD will probably not resist to this and will not be able to sell her products even if they are better than Intel’s ones.
AMD as invested her last money on the development of her new platform Opeteron and have barely enough money to advertise about it, the growth of the firm is necessary limited. In order to develop and because it was possible to growth on her own, AMD created an association called MAID (standing for Microsoft, AMD, IBM, and Dell). On this association, AMD was creating the processors, Microsoft was creating specific software to use them, IBM and Dell where using the processors in their computers. This association was a success and profitable for everybody because the integration of the CPU where designed from the beginning (creation, software) to the end (others hardware association). At the end, the final customers added per formant computers with a CPU specially designed for them and 100% efficient.
Will AMDs customer centric approach be a source of advantage over Intel?
All the microprocessors manufacturers are investing huge amounts in their factories (billions of dollars) and their fist needs is to make those very expensive factories profitable. What they are doing (and especially Intel) is that they are trying to produce as much CPU as possible in order to use their production facilities. In this situation the problem is that they are not trying to produce what the market need, but what is better for them. That’s why very often; the microprocessors used by the PC assemblers are not always the best ones available.
AMD, trough has chosen an absolutely different strategy. They decided, although the billions they invested in their factory , to produce only according to the market needs : If there was a great ask for a CPU which was taking much time to make , or with a lower margin , they will produce it instead of producing only the cheapest chips. The result is that the company is offering better products more adapted to what customers really needs, even it can mean that she will have a lower production or a lower revenue.
This choice of AMD’s CEO is the main difference between Intel and them: Intel is a big war machine with an enormous financial power (with a 43.6 billion USD turnover in 2010 compared to the the 6.5 billion USD of AMD) and they don’t really need to have the best products available as soon they can offer lower price to manufacturer. Because AMD cannot “fight” on this field, they had to find a new strategy which is developing less but higher quality products and products more adapted on what customers really need.
Will it yield commercially viable innovations that are dramatically different than those Intel will develop?
Definitely because of it size, Intel has a consequent advantage : they are able to invest a lot more in R&D and are able to produce a big amount of processors in order to reduce their production cost. But for Intel , the size is also a big inconvenient , as they are really big , they are like a big boat : it take them a lot of time to change their strategy and the direction they are going to. Because AMD is now able to offer new CPU totally adapted on market needs in term of power efficiency and calculation capacity, they have a really good card to play: More and more people and especially people in charge of data centers management are realizing all the advantages they can get from using AMD products. Because they are warming less than Intel’s ones, AMD processors need less cooling facilities (so you can put more of them on the same server rack) , because there are built in cooperation with Microsoft , they are really efficient on Microsoft new server platform. Finely, because they are consuming a lot less energy they can be considered as a good global investment for the clients because they will highly reduce their electricity bills by using AMD processors servers.
In the other hand , Intel is having some partnership with pc and servers manufacturers since a long time. Because they are providing processors to all of them and because they are in a quasi monopolistic position, their negotiation power is really high. It’s likely possible that in order to keep low prices and some exclusivity (they will got a new CPU before their competitors ) some manufacturers, despite all the advantages of AMD products , will choose to offer only Intel based computers/servers to their client. That will no be the first time : In 2009 , Intel was fined of 1.06 billions euros by the European commission because of her illegal behaviors in order to keep market share (Intel was giving some Supplier’s rebate to prevent them to use AMD processors in their PCs).

Sources :

AMD: A Customer-Centric Approach to Innovation, by Elie OFEK and Lauren BARLEY- Harvard Business School , January 2007

France 24 website article « Intel fera appel de sa condamnation à une amende record par l'UE » unk , May 2009

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[ 1 ]. Source : France 24 website article « Intel fera appel de sa condamnation à une amende record par l'UE » published the 05-13-09