AMD has faced quite a bit of upheaval in recent months, with the ouster of former CEO Dirk Meyer and the eventual hiring of his replacement, Rory Read. Much of the firm's executive leadership team has turned over, among them high-profile losses like former ATI exec Rick Bergman's departure to Synaptics. Meanwhile, the firm launched its long-delayed Bulldozer microprocessor, almost universally considered a disappointment, and then fired 10% of its workforce.
The recent turmoil at AMD has taken place against the backdrop of longer-term problems. AMD has long been the junior partner in a duopoly of PC-compatible CPU makers, with industry behemoth Intel taking the lead role and the lion's share of the market. The smaller firm has been a scrappy competitor at times, but an embarrassing string of delays and problems with key products, like Barcelona and Bulldozer, has sullied its record in the past five years. During that same time frame, Intel has established and executed quite well on its "tick-tock" cadence of new CPU architectures and process technology shrinks. The result has been an erosion of AMD's competitiveness and market share, with a predictable effect on the company's balance sheet.
In short, AMD faces some daunting challenges that Read and his hand-picked executive team will have to confront. For months now, whenever we've asked for specifics on the firm's new direction, we've been told to wait for AMD's Analyst Day event. That day finally came last Thursday, and we got a sense of how this new regime plans to steer AMD through some rough waters and, one hopes, into a better competitive position.
The day started with a speech from Read that was part vision statement and part pep talk. Read's demeanor seems earnest and youthful, although he tends to speak in a particular variety of corporate lingo that seems oddly indirect and can be somewhat difficult to parse quickly. That tendency may simply be a result of the strange task CEOs are sometimes given: to paint a picture in broad brush strokes without revealing too many specifics. Much of the day's talk was simply the new management team sharing its assessment of AMD's current challenges and opportunities with the outside world. What specifics there were to share, Read left to the other members of his executive team. Still, after consideration, we think he had some interesting things to say.
Before going on to address big-picture questions and possible new directions for his firm, Read made sure to underscore one central point: execution is key. Many of AMD's problems in the past few years stem from an inability to deliver on its product plans, not from having the wrong plans in place. Read is keenly aware of that fact, and he said he has been working on getting AMD "into fighting shape."
Read then launched into a bit of an overview of the market and AMD's place in it. He described the current state of x86 processors as an "unhealthy duopoly" and hinted at how he intends to extract AMD from the situation. Rather than trying to capture the most complex technology possible, he said, AMD needs to "skate to the puck"—in other words, to focus on where the market is going and attempt to provide products to meet those needs. As an example, Read pointed to AMD's success with the low-power Brazos platform for netbooks and cheap ultraportable laptops. Among Brazos' virtues is that it's easy to manufacture and "customers love them." The unspoken subtext: Intel didn't really contend for that portion of the market, failing to give Atom the graphics and video decoding horsepower it needed, probably because it wanted to protect its business in higher-margin laptop chips. AMD was able to capitalize by offering a better user experience, without pushing on bleeding-edge process technology and without attempting to squeeze out every possible ounce of performance. This sort of savvy product targeting—almost asymmetrical warfare, if you will—appears to be a big part of the new executive team's focus.
Looking forward, Read alluded to a gathering storm: the conflict between a "large incumbent" and "emerging players" in the computing industry—that is between Intel's PC businesses and the new order of "ubiquitous devices" largely powered by ARM-based systems-on-a-chip, or SoCs. He likened the coming transition to the conversion from mainframes to client/server computing in the 1980s, when "proprietary control points" eroded and prices plummeted. The implication: that Intel's processor business could face a similar fate in a future where the x86 instruction set becomes much less important and established computer price points begin dissolving.
One might expect such a transition to be devastating to AMD, as the second-source supplier of x86-compatible PC processors, but Read portrayed it as an opportunity for his firm, instead. After all, AMD has over 7,000 engineers and quite a bit of competence in building computing platforms. In this context, Read would like to shift AMD's focus toward pursuing business in places where the competition isn't so suffocating and where the potential for growth is greater—from AMD's current emphasis on mature markets, PCs, servers, and discrete graphics to a new focus on emerging markets, mobile clients, cloud servers, and embedded systems.
If such talk sounds like capitulation in AMD's decades-long struggle against Intel, well, we suppose to some degree it is. Without pushing on process technology or trying to eke out the last few percentage points of instruction throughput, AMD won't be contending against Intel for the high-end desktop or server CPU crowns. Then again, AMD hasn't really been competitive on process technology or high-end CPU performance for quite some time, and it hasn't consistently made money, either. By making the usual reality into official policy, Read may be able to defuse a perpetually difficult competitive situation and free up resources to pursue more profitable directions.
At the same time, we don't expect AMD to "pull an HP" and abandon its core business. In the short term, through the end of 2013, Read's focus is largely to deliver the products already on the roadmap. Many of those are too far along for the new team to make major changes to them, and they address established businesses. Longer term, we expect AMD to continue producing server CPUs and client-focused APUs while dipping its toes into "adjacent" markets—like embedded systems, smart TVs, and game consoles—using the same chips or tweaked variants of them.
Along the way, Read plans to employ several key tools, including a new "SoC-style" approach to chip creation intended to make AMD more agile, a more modest short-term roadmap that presumably frees up resources for other projects, and a programming standard called Heterogeneous System Architecture that should allow developers to exploit the mix of CPU and GPU power in AMD's APU products. Read left it to his colleagues, CTO Mark Papermaster and Dr. Lisa Su, Sr. VP and GM of AMD's Global Business Units, to explain the details.
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