This announcement will unveil the board’s and Rory Read’s new business strategy for AMD and reveal how the company will be competing in a quickly reshaping processor market. The content of that announcement will have to be at least as shocking as the clean sweep through its executive ranks that we have been witnessing for almost a year.
No company ever announces layoffs. They are referred to euphemistically as restructuring or operational streamlining and are used to justify an obligation to help an organization remain competitive. Executive changes often require layoffs and replacements. It’s what we expect, and there is no surprise when we receive news of pink slips. We almost feel guilty about drawing a paycheck when a teary-eyed letter from the CEO explains just how much a burden we have become for the bottom line of an organization.
However, as painful as the layoffs at AMD are, I somewhat feel that the description of "restructuring" may be very appropriate. Several key personalities must leave: Carrell Killebrew, who is credited with the creation of Eyefinity; several PR reps; vice president of marketing, Margaret Franco; corporate marketing fellow, John Volkmann; and most notably, corporate vice president of strategy and fellow, Patrick Moorhead. Moorhead’s time at AMD goes back to Jerry Sanders. Moorhead was the last standing figure that represented the old AMD. One would have to be blind not to see that AMD will be changing dramatically.
In his letter to AMD employees, Read justified the layoffs with a need to “rebalance” AMD’s "skillsets.” The terminations will result in operational savings of $118 million in 2012 and frees up money to fund "key growth areas." In the letter, Read wrote that “a lower cost base allows [AMD] to be more competitive today and to invest back into the business to fuel [its] "attack" strategies in … low power, emerging markets and the cloud.” Details are promised to be provided in a “Worldcast” this Wednesday. These details must include three pillars that will have to carry AMD in the near future.
A Clear Message
I have been very critical of Read’s performance during his first 60 days at AMD and have been told that I need to cut him some slack. However, we know that CEOs who are capable of leading a Silicon Valley CPU company are rare because they require a very specific skill set. Therefore, the chances are slim by default that AMD’s board of directors chose Read as the right person. The confidence that was molded into Read’s scripted and repetitive phrases during the third quarter earnings call made me wonder if Read’s performance has been worth his $1 million sign-on bonus combined with his $1 million annual salary plus bonuses.
There have been questions why previous CEO, Dirk Meyer, had to leave. We haven’t been given specific answers yet. At this time, AMD’s future direction is blurry. What we know is that AMD’s board of directors replaced a high-level engineer at the top with a businessman who is much more focused on operational efficiency than technology leadership. This puts AMD much more in line with Intel, which made that transition more than a decade ago and has done well, especially in times when it needed the expertise in reorganization when the company was in trouble back in 2005. However, Intel has always been very clear about what it intends to do in the months and years ahead and has never left any doubt as to what it wants. This approach made it very clear what Intel is, and what Intel is not.
Read will have to mirror this approach. He will have to understand what AMD was, what it is and what it can be. He will have to credibly address current concerns, such as manufacturing errors at GlobalFoundries, and the way in which the company will address such problems in the future. Read’s reference to the "AMDer" feels a bit awkward considering that he has been on the job for only two months and has, according to his notes during the conference call, spent most of the time travelling and talking with customers. He will have to understand AMD’s inside passion and understand how to capture the organization’s spirit without the help of scripted speeches. The expectation from the outside was that a new AMD would have to hit the ground running. This may not have been the case with Read, at least according to perception.
Without a precise message on Wednesday, Read may already be struggling to succeed at AMD. He may have the goal for the company to "step out of the shadows of others," but there is nothing more important than to clearly define the goals and capabilities of a company after such a critical layoff announcement.
Credibility
This may be very subjective, but I sense that AMD has, on some levels, a growing credibility issue. Sure, Fusion has had considerable success, AMD has captured market share from Intel in the mobile segment, and I am hearing very confident notes from AMD staff that Trinity is something to anticipate. However, if we are honest, AMD’s technology is way too average today on too many levels. What AMD needs is a true flagship product in its core CPU space – a technology that carries the industry mindshare for an entire company.
Intel has those flagship products, which may not bring in revenues on a product level, but they pay for themselves 1,000 times over in perception creation and marketing. Nvidia is building those products within its Tegra platform and has clearly stated its intentions to include in each product generation at least one feature that comes as a complete surprise to its rivals – such as the fifth power saving core in Kal-El. Such surprises, if executed correctly, can create product and market leadership.
AMD made an attempt to devise such a product with the most recent FX-8150 but largely failed to capture the perception of a flagship product. The pitch greatly represents a similar approach as the 2006 Quad FX, which consisted of two dual-core CPUs that created one quad-core system. It did not offer any performance advantages over a dual-core system and was extremely power hungry.
AMD will need an unquestioned flagship product to support its overall product credibility.
Tablets and Smartphones
Let’s be realistic. AMD’s opportunity to jump on the smartphone and tablet processor train has come and gone. While we can still discuss whether there is a market for tablets outside the iPad, it is apparent just how much Intel is struggling to make a dent in this market and come up with a product that is competitive with ARM architectures. Despite its huge resources, Intel needs years to come up with even a halfway decent product that is suited for tablets. What does that mean for AMD if the company also needs to compete in traditional markets that are the source of its income? Should AMD attempt to break into the smartphone market with an x86 product and face the same uphill battle that Intel has chosen? In addition, AMD has the aforementioned credibility issue because the company never competed in ultramobile space with the exception of its Geode processors on the very low end. If AMD is basically occupied with battling Intel in traditional x86 markets, how could AMD sustain an onslaught of ARM vendors, including Qualcomm, Samsung and especially Nvidia? Taking its x86 architecture into the ultramobile space is a huge risk that perhaps AMD should not be taking.
Instead, it is much more likely for AMD to join Nvidia & Co. in the ARM camp and line up against Intel. Not only is there a new market that is opening up in ARM-based Windows devices, but AMD already has ties at ARM, and it could use its graphics technology to become a key differentiator in this market. Once again, AMD would clash with Nvidia and compete with Qualcomm, which purchased its Imageon graphics technology in 2008 and now calls it Adreno. However, a clash with Nvidia may be more reasonable than dealing with Intel.
Given the traction of the ultramobile market and the ongoing speculation that Read was hired because of Meyer’s lack of an ultramobile product roadmap, AMD will have to make a spectacular mobile announcement this Wednesday. The integration of ARM into its product line could do it.
