Advanced Micro Devices (amd)

CASE PROFILE: Advanced Micro Devices (AMD) has always been ranked second in PC microprocessors with a market share of about 15 percent, compared to Intel, which had about 80 percent. Intel’s financial muscle allowed it to market its products aggressively and offer special incentives to wean away customers who did business with AMD. After Itanium, Intel’s processor had failed and Opteron was receiving favorable reviews the tables slowly began to turn. Opteron offered customers a smooth transition and promised a dramatic improvement in performance. After acquiring a new CEO, they have many ideas for the future and for their continued success.

General External Environment

Demographics:

The real median income of households in the United States rose by 1.1 percent between 2004 and 2005, from $45,817 to $46,326 and rose in the Northeast (2.9 percent) and in the West (1.5 percent). The last time median income of households experienced an annual increase was in 1999. Compared with 1967, the first year for which household income statistics are available, real median household income has increased 30.9 percent (Appendix 1).

The majority of households have personal computers and Internet access. In 2003, 70 million American households, or 62 percent, had one or more computers, up from 56 percent in 2001. In 1984, the proportion of households with a computer was 8 percent. The total number of households with a computer in 2003 was 69,912,000 (Appendix 2).

Sociocultural:

In the U.S. and even the world big companies, small businesses, and even personal computer users are all looking for the easiest way to update and integrate their new computer systems. With Opteron, their new product, they gave customers a smooth transition and promised them dramatic improvement in performance, which is what everyone wants. Consumers chose the value and quality of Opteron over the low price of Itanium.

Economic:

US GDP growth was 4.5 percent in 1999, 3.7 percent in 2000, 0.8 percent in 2001, 1.6 percent in 2002, 2.5 percent in 2003, 3.6 percent in 2004, and 3.1 percent in 2005. In 2004 the inflation rate in the U.S. was 2.68 percent and rose to 3.39 in 2005. In 2004, AMD gained about one percentage point of the microprocessor market, bringing its share to 15.8 percent. The AMD stock market is currently very low and has sustained some losses.

Political/Legal:

AMD, which won lengthy legal disputes with Intel in the 1990’s to make microprocessors in the x86 mode, realized that if Intel moved into a new architecture, it would effectively create a new industry and eventually dominate it.

Technological:

Opteron is a microprocessor that was designed to run existing 32-bit applications and offer customers a smooth transition to 64-bit computing, and promised a dramatic improvement in performance (Appendix 3).

Global:

Intel was not the only threat to AMD. South Korea’s Samsung Electronics had been spending heavily on chip-factory equipment and manufacturing capabilities. The leading Linux software maker, Red Hat from Nuremberg, Germany, offered Linux for Opteron.

Industry Analysis: Porter's Five Forces Analysis

The industry for semiconductors has been competitive for many years. In 2004, the industry reached a value of $243.3 billion. When looking at all aspects of the semiconductors industry, it is important to break it down into sections (Appendix 4). First, the threat of new entrants is low to moderate because of companies forming alliances and the barriers to entry of gaining a chipmaker. The high cost of entering the industry plays a major role since it takes a lot of money to get a company off the ground and be able to compete with the industry leaders. Second, the power of suppliers is low to moderate because many of the companies in the industry use a large variety of suppliers. This helps them to diffuse risk. Third, the power of the buyer is low because segments in the semiconductor market are dominated by a small number of large players. Fourth, the threat of substitutes is moderate because of copycat suppliers. This is mainly due to the fact that some companies can create similar products at lower prices if they are able to reverse engineer the product. Fifth, the rivalry among competitors is very high. To be in this industry, a company must be able to innovate and come up with competitive products. This industry is composed of many companies that are all fighting to stay ahead of their competitors.

Competitor Analysis Components

Competition in the semiconductor industry is