Corporate Turnaround Story: Advanced Micro Devices (AMD)

August 31, 2023

Co-Author: Hadiqah Kapadia

Background:

In January 2012, Advanced Micro Devices (AMD) appointed Dr. Lisa Su as Sr. Vice President. At this point, the company was in a financial crisis and had accumulated total debt of nearly $2.5 billion and had been profitable only once in the last 5 years.

When Dr. Lisa Su assumed the role of CEO in 2014, she confronted the significant challenge and steered AMD towards profitability and financial sustainability. Her mission involved revitalizing the company’s culture, refining its execution strategies, and driving innovation in technology.

Challenges:

There were multiple problems that AMD was facing that led to its crisis including the following:

1. Competition & Intel’s Dominance:

One of the most significant challenges the company faced was the fierce competition from Intel, a giant in the semiconductor industry.
Intel had long dominated the market for central processing units (CPUs), which are the “brains” of computers and other devices such as phones, tablets and etc.
Intel held a substantial majority of the CPU market share. This dominance gave Intel significant control over pricing, innovation, and market trends. AMD struggled to carve out a meaningful share.

2. Financial Struggles:

Financial challenges were a major impediment to the company’s growth and competitiveness. The semiconductor industry is highly research-intensive, each new product development cycle requires at least 4-5 years requiring significant investment in research and development (R&D) to stay competitive.

AMD was competing against a well-funded competitor, Intel which could allocate substantial resources to R&D and had spent approximately $10.6 billion in 2014. AMD had limited resources to invest, and its R&D spend was approximately $1.07 billion in 2014.
In a bid to gain market share, AMD engaged in price wars with Intel, leading to lower margins. This further strained AMD’s finances.

3. Market Positioning:

AMD was often positioned as the more affordable alternative to Intel, catering to price-sensitive segments of the market.
While this approach had its merits, it also reinforced the perception that AMD’s processors were less powerful or less capable than Intel’s, impacting its ability to compete effectively.
Due to Intel’s market position and marketing efforts, its brand was widely recognized and associated with quality and performance.
This created a perception that Intel CPUs were the default choice for consumers and businesses, making it difficult for AMD to gain market share.

The Turnaround:

In 2014, Dr. Su shifted AMD’s course by recentering the company’s focus on its fundamental strengths in CPUs and GPUs. Following are some key strategic decisions that were taken that eventually led to the turnaround.

1. Focus On Core Competencies:

The company shifted the focus to the core competency which was building excellent high-performance processors and graphic solutions.
The company assessed AMD’s internal capabilities and market trends to pinpoint the company’s areas of expertise. In this case, CPUs (central processing units) and GPUs (graphics processing units) emerged as AMD’s foundational strengths.
By concentrating on CPUs and GPUs, AMD aimed to stand out in the market by offering products that were not only competitive but also technologically innovative.
AMD introduced new and innovative processors that challenged the dominance of its competitors. For CPUs architecture like “Zen” brought drastic improvement in performance and efficiency. They offered competitive multi core performance and better value for the price, hence challenging Intel’s dominance in the market.

2. Creating Strategic Engagements:

The company fostered partnerships with key industry players.
AMD collaborated closely with Sony and Microsoft. They became the silicon partner for both the Xbox One and the PS4, designing and building a console on a chip that combined processor and graphics technology.
Moreover, AMD planned to return to the lucrative datacenter business in 2017 with their Zen-based CPU design. The objective was to bring differentiated performance and low power features to the $18 billion server CPU market.

3. Effective Communication:

Dr. Su focused on enhancing communication. This played a crucial role in aligning efforts, building trust, and instilling confidence during the company’s transformation.
This led to the stakeholders being well informed about the company’s progress and direction. Open communication and transparency led to the employees have a sense of confidence and unity amongst themselves.

4. Investment in Research:

This meant strategic allocation of resources, both financial and human, into research and development (R&D) activities aimed at advancing technology, innovation, and product development
Commitment to R&D meant that AMD could explore novel concepts, experiment with new designs, and introduce groundbreaking features that met the evolving needs of customers.
The R&D budget was increased by approximately 45% from 2014 to 2017.
Radeon Technologies Group was established to bring a vertical focus to their graphics and immersive computing divisions.

5. Clear Roadmap:

A well-defined roadmap played a vital role in directing AMD’s decisions, bringing stakeholders into alignment, and fostering assurance in the company’s future trajectory.

Results:

By 2017, AMD introduced its next-gen Ryzen CPUs and Vega GPUs, leading to a rise in its share of the desktop CPU market from 17.8% in the previous year to 21%.
AMD continued to increase its market share by introducing high performance processors for desktop and workstation users. Moreover, gaming GPUS with strong performance across price ranges were also introduced.
In 2017, AMD achieved a net profit of $ 43 million for the first time in half a decade.
The profitability was attributable to robust demand for company’s premium products, increased average selling prices, and reduced production expenses.
AMD’s revenue grew from $5.5 billion in 2014 to $6.5 billion in 2018.

Key Takeaways:

Strategic focus on building differentiation and R&D is critically important to compete in the technology industry.
Mutually beneficial industry collaborations with key players help gain market share and competitive advantage.
Investment in R&D impacts profitability in short term but may generate significant rewards in the long term.
Strong leadership with a clear vision can motivate employees, drive a company’s transformation, and give a renewed sense of purpose.
Addressing customer pain points and acknowledging their feedback is important.
Quick adoption of industry trends helps your product remain relevant and competitive.

Disclaimer

The views and opinions expressed in this blog on Platform01 Consulting’s website are solely those of the respective authors. The information provided in these articles is for general informational purposes only and does not constitute professional advice.

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