Sign in with
Sign up | Sign in

AMD CEO: Consumer CPU capacity could be traded to fuel commercial growth

By - Source: Tom's Hardware US | B 0 comment
Tags :

Dena Point (CA) - During a meeting of financial and technology analysts, AMD chairman and CEO Hector Ruiz told an audience he would be willing to pare down his company's consumer market segments, including high-performance desktop PCs, in order to devote more energy to growing the company's lucrative, high-quantity commercial processor market.

Ruiz cited market share numbers - which were confirmed by the session's moderator, a Morgan Stanley analyst - giving AMD at least half or more of the consumer desktop PC market, but somewhat less of the consumer mobile PC market. Lower still, Ruiz acknowledged, is the company's stake in the commercial PC space, where enterprise buyers purchase in high quantities. There, AMD ekes out a mere 10% or less of that market, a number which drops into the mid-single-digits when you focus only on Fortune 1000 companies, he said.

AMD plans to spend the next three to five years carving out a name for itself among this lucrative market, Ruiz said. If that means taking the company's focus off of the consumer space for awhile, that's fine. "We don't feel we need to make huge strides in the consumer [space] in the near future," Ruiz told the audience. "In terms of retail around the world, for example, we have 40-50% of the market. Our desire, frankly, is to just hang on to that while we make much more significant impact on the commercial side."

One of the key problems with AMD being able to enter the commercial market, Ruiz explained, is that it has become highly commoditized, and the brand name of the CPU or even the computer is becoming less and less of a factor. He literally told the audience, in a fashion nearly resembling a dare, that they probably couldn't name the brand of the computers sitting in their own laps. "With all due respect to my friends in the CIO community," he said, "they have been, frankly, neglectful of looking at this tremendous opportunity" to purchase PCs based on a performance scale, rather than just a quantity scale.

Hinting at one well-known quantity seller in particular, Ruiz said that too many purchasers in the commercial space buy computers by placing checkmarks on forms, rather than making qualitative comparisons. The way to change this bad habit, while at the same time putting AMD in the commercial ballgame, he suggested, is in Ruiz' words, "to reinvent the client. There's an awful lot of money being wasted by people [who make their decisions transactionally], and I think they've been lulled into thinking if they can get it for the lowest price per pound, that it's going to work out, but it's not the case. We have an opportunity to disrupt that, to find ways which we can bring value to the client...and that can lead to significant changes." Among those changes are the kinds of performance and ease-of-use comparisons that could lead to the level of purchaser scrutiny the commercial market has been lacking, Ruiz believes, and which he hinted his company's key competition has been missing for some time.

There's barely an Intel IDF week that goes by without AMD making some sort of upstaging move, and this week is no exception. Ruiz' comments today come on the heels of AMD's announcement of three new Opteron processors that operate within the 90-watt power envelope.

Ruiz talked about a key measurement financial analysts make, concerning the average selling price (ASP, in this context) of key products in the segments which the company addresses. One measure of how well a company takes advantage of its market position is the strength of its average selling prices to that market. AMD has three markets, Ruiz pointed out: the consumer market, where it is already strong; the server market, where it's making continued headway; and the commercial market, where it is weak.

What determines ASP for these markets for AMD, Ruiz went on to explain, is the various mix of products it sells within that space. The biggest impact on total ASP, he said, is the mix of products sold within the respective markets. "As you look at, for example, a gaming chip that sells for $1,000, or a server product that sells for $1,000," he remarked, "then [compare] the mix of those products relative to the value space [where AMD is strong] that might sell for $60-75. That's a huge impact on the overall ASP. So one of the emphasis that we have right now is to gain, as rapidly as we can, on those spaces where ASP improvement can be very rapid. For us, the #1 place is the server. Our growth on the server will be a factor for some quarters to come, and we think that as we make that a bigger part of our portfolio, we will drive the average ASP mix up."

AMD has had to do this once before, Ruiz related, by concentrating three years on growth in the enterprise space - a successful move, he said, even though it came at the cost of growth in the mobile space. Coming clean, Ruiz said, "Because we were late with a competitive product in the mobile space, we have not been able to command premium pricing that, I think, in some areas of mobile computing, you want. So we're heavily invested today in consumer retail, where the prices are much lower." The mix in the consumer space, he explained, is determined less by products and more by...well, consumers, whose needs are usually met with a single sale. In the commercial field, where a company must continually reassure its customers of supply and reliability of delivery and support, the case can be made for raising prices, which as Ruiz explained, "allows you to increase your ASP somewhat more than you do on the consumer retail."

That said, AMD may very well face some supply challenges in the consumer space this year, as demand for high-performance products increases. "It is very likely that this year, if the market does behave as we hope it does, that we will be challenged in a capacity situation." The numbers of servers that AMD must support, even with its growing market, is small enough, Ruiz said, not to give the company any challenges there. But to be a player in the commercial space, where customer quantity may be low but supply quantity is much higher, the company may need to make some tradeoffs to ensure "we will always meet the needs of those people that are signing up on the commercial space.

"If we find a place where we might have a challenge in meeting some of the demands," Ruiz concluded, "[it] might be in some segments of the consumer space. For example, a lot of the products that we use to serve the very high end of the desktop market might be products that might be better used and redirected to serve segments of commercial or server. In that sense, we might be tight in those regards. But it will be a year in which the balance between demand and capacity will be carefully managed quarter by quarter."

So while the "Dual-Core Duel" may continue this week, especially with Intel IDF under way, expect a shift in strategy at AMD as that company looks for more dedicated OEMs to help it sell a broader mix of products to the commercial market - but not necessarily an OEM (though Ruiz didn't mention Dell by name) that relies on fill-in-the-blank forms for its sales.

Discuss
There are 0 comments.
This thread is closed for comments