With Microsoft’s acquisition of Nokia we are now living in a world where all three major client OS providers (Apple, Google and MS) all own/are device companies. Samsung gets an honorary seat at the table by virtue of making devices as well as most of the components inside those devices (and fabbing the ones they don’t make), on top of adding a fair bit of software customization of their own. That makes four companies with the ability to control most of the market, what happens to everyone else?

Both Google and Microsoft have stated publicly that acquiring device companies doesn’t mean that they want to stop working with outside partners. Naturally that’s what you’d expect Google and Microsoft to say to avoid overly angering existing partners shipping existing devices. In the long run however, companies like Acer, ASUS, Dell, HP, HTC, Lenovo and LG (among others) will find themselves in an interesting position, competing against their OS suppliers that also happen to be vertically integrated device makers.

I don’t expect that we’ll immediately transition to a world where there are only four brands of smartphones, tablets and notebooks. I suspect that all of the existing players, vertically integrated or not, will do their best to maintain/grow marketshare despite the threat of real consolidation. After all, a threat alone isn’t enough to force companies out of a market.

When faced with a very large competitor, you need a broad set of partners. It’s all of these other companies that AMD views as potential candidates (including Samsung it seems) for its semi-custom approach to silicon manufacturing.

Last year AMD’s new CEO Rory Read talked about delivering semi-custom silicon, similar to what AMD does in game consoles, to OEMs who want to differentiate. At the time I didn’t really get how this strategy would work but I think I now have better insight into the theory. If we assume that Apple and Samsung will remain major players in the consumer device space, both of these companies have heavily invested in developing their own software and SoCs. If you’re an OEM looking to compete with either (or both), you need the same assets. As a company that isn’t Apple or Samsung however, you don’t have the resources to truly integrate vertically and become a silicon manufacturer as well as run a profitable business. AMD hopes that there will be at least a couple of enlightened players in the device space who realize they need a silicon strategy to differentiate but don’t have the resources/expertise/desire to become a silicon player.

The idea here is that AMD would then provide those OEMs with a semi-custom SoC, where they could choose their own IP blocks (video decode/encode, CPU cores, GPU, etc...), and help give them competitive parity or ideally even an advantage over the larger players. Counting on the bigger guys having higher overhead, being less agile and having to make larger profits should, at least on paper, give the smaller players a fighting chance.

It took me a while to understand AMD’s semi-custom strategy, but seeing how things have shaken up over the past few months I think I can understand it a lot better than what it was first floated at AMD’s Financial Analyst Day last year.

The other thing I think I understand a lot better now is why former Lenovo President & COO, Rory Read, was chosen as the man to run AMD. I’ve met most of the new guard at AMD and generally came away quite impressed. The challenge set in front of them is nothing short of insane, but the company has put together a good combination of leaders and visionaries to at least stage a comeback. The big unknown for me was always Rory. Until a few months ago I’d never even met the guy - I’d only heard him speak to analysts, and the nature of those conversations just wasn’t up my alley.

I finally had the opportunity to speak with Rory a few months ago in Austin in a much more candid setting. It was during that meeting that he laid out his strategy for AMD, and it was then that I understood why he was there.

Rory’s playbook for AMD is actually very similar to how he ran things at Lenovo. Lenovo was stuck in a similar position not too long ago: it had a relatively high margin enterprise business that it used to fund and grow a much lower margin consumer business. The new AMD strategy is quite similar.

Traditional margins on x86 CPUs are nothing short of tremendous. The fabless semiconductor manufacturers that compete with Intel don’t operate on anywhere near the same margins. AMD used to play in the same space Intel did, and as a result was often viewed as disappointing as their margins wouldn’t hold up. The problem was that although AMD shed its fab burden, its margins were always viewed as needing to be up at Intel levels. That perception has to change.

Rory’s strategy is to use high margin revenues from existing markets (e.g. PC client, GPUs) and use it to fund a low cost structure expansion into new markets. On paper it’s a sound approach, but the unexpected quick decline of AMD PC sales/shipments threw a wrench in the plan.

The company had to shrink in order to deal with lower than expected revenues than what Rory had planned on when he first took the job almost two years ago. Based on what Raja Koduri told me after he joined a few months ago, it seems like it’s working:

“Raja returns to a very different AMD than the one he left. I asked him what’s different and he responded by saying the AMD he left acted like a company that was 10x its size. Today, AMD is a much smaller and more agile company. Raja believes AMD is in a better position to take advantage of new opportunities vs. being in the hopeless position of never being able to catch up in mature markets.”

So you take the higher margin PC revenues, and use them to invest in lower cost products in new markets. Rory expects semi-custom silicon to see heavy use in these new markets by the way. Lower cost typically means lower margin, which is something the new AMD is ok with. Making Intel margins (or even traditional AMD margins) is tough, in these new markets AMD just needs to be making better margins than the ARM players as the company transitions from being fully PC supported, to PC + additive revenue from these new markets and finally to a position where AMD’s revenues are dominated by these new revenue sources. What are the new markets in specific? Getting anyone at AMD to answer that question today is tough, but I suspect the first place to look is among all of those other players I talked about earlier. The companies tasked with competing with these vertically integrated powerhouses could rely heavily on AMD.

At the end of the day, Rory Read is at AMD because he knows how to navigate a low margin business and run it efficiently to the point where he can use gains in one area to fund another (at Lenovo he took China and Commercial sales to buy him more wiggle room in consumer client). I finally get the plan, now all that’s left is to see if it’ll work.

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  • Flunk - Thursday, September 05, 2013 - link

    Short term selling something simlar to the PS4 and Xbox One's APUs for notebooks would really go over well. Small CPU big GPU? That's exactly what people want to play games on their notebooks. Get something that fits into a 45watt TDP all together and can manager half-decent GPU performance and they might have a break-away hit. Reply
  • piroroadkill - Friday, September 06, 2013 - link

    Thing is, they already make them. But you can only find things like that stuffed in godawful 15.6" 1366x768 plastic piles of rubbish.

    No manufacturer seems to be making a classy AMD notebook.
    Reply
  • phoenix_rizzen - Friday, September 06, 2013 - link

    Funny you should mention that:

    http://anandtech.com/show/7270/asus-announces-x102...

    And there's several listed here:

    http://anandtech.com/show/7242/choosing-a-gaming-l...
    Reply
  • Westfields - Thursday, September 05, 2013 - link

    Listening to the people and to customers on their needs and wants is a proven successful market model. I have definitely seen a difference as it builds relationships with the community. I I have had many friends ask about what is going on at AMD...the RED Team...the AMDTESTDrive program are some that come to mind. When I reviewed that A10 6k processor with the Fractal case and Fractal PSU I had many come and see what was up and then go to AMD's website and signup for programs and notifications. It is all about market saturation with feedback from the end-users (because of social media) becoming of primary importance in the growth and success at AMD. As we consumers become more computer savvy we will cling to those companies that will offer us our niche products that we require. Yes there will be those that will just go and buy a computer off-hand but NOW they are more likely to call ME first and have me order them one. Of course then I will be looking for those companies that are offering computer components that I would like to have a say so in the process of buying a computer that fits the needs of the person I am ordering for. I give AMD an A+ and it's partners an A+ for thinking ahead of the curve and adjusting to the new market structures that are being heaved upon us daily. AMD=WIN! Reply
  • Homeles - Thursday, September 05, 2013 - link

    Most people live in a post-desktop world. Their desktop innovations aren't awfully relevant today. Reply
  • HisDivineOrder - Friday, September 06, 2013 - link

    Actually, most people live in a computer world. PC's, tablets, smartphones, smartwatches, Google Glass, consoles, HDTV's with playback, smartcars, etc.

    They're all computers.

    They're all PC's.

    We've lived in a "post-desktop" world for about ten years now. Since the rise of the laptop that exceeded desktop shipments a long, long time ago. With that said, the conventional computer remains the thing people would take with them if they could only choose one in surveys. The reason you don't see computers selling as well does not imply people have less computers than they did. It implies they're not purchasing new computers as much as they did.

    Why?

    Because Intel is not innovating. They're chasing low power, high performance targets, trying to smoke out ARM by out-ARM'ing ARM. That's a huge gamble for Intel in the long term because you rarely win when you let the opponent choose the battlefield, the rules by which you fight, the time of day, every facet of the conflict, and then show up when they're good and ready for you. Intel is so used to just showing up and destroying anyone that dares challenge it, it hasn't had a real conflict in so long it doesn't know how to strategize properly.

    That's why they're likely going to lose. Their overconfidence betrays them. Like MS, they thought, "If you build it, they will come." Except no, they won't because they can still spend less and get "good enough" over with ARM. That'll be true for as long as Intel wants huge profit margins on their chips and as long as MS does the same. Even if Intel were to give away their chips, they'd still have to get MS to ALSO kill their licensing fees. Android on x86 is a dead end.

    But back to computers. Intel is actually killing themselves. They aren't making new chips that offer performance advantages because they think they have to chase tablets and smartphones, which is leading to unconvincing CPU's for desktops and by extension laptops. Unconvincing CPU upgrades first to regular consumers and if you look at Haswell's reception, that now extends to enthusiasts who are the ones who usually go forth and proselytize for them. Now you have the very hardest of the hardcore going, "Yeah, SB to IVB was pathetic, but IVB to Haswell is often a downgrade since the chips are petering out after moderate overclocking rather quickly" and "Who would go IVB-E after waiting so long through SB-E? Who would buy IVB-E to upgrade an almost identically performing SB-E system?" Intel has managed to lose the interest of the enthusiasts completely while having already lost the regular consumers by not focusing on performance, focusing on not moving the metric up enough to warrant a purchase.

    So if the enthusiasts aren't seeing anything worthwhile, then why would the casual consumers do so? Instead, they're now seeing so few gains from generation to generation that most of them view their computer like an appliance. Your TV at best, your fridge or washer/dryer at worst. How often do you buy a new fridge and/or washer/dryer? Do you spend a lot on it or is good enough just good enough? Are you content to sit on old ones for what? 5, 10, 15 years?

    If Intel were truly pushing the performance levels, people might see a real difference between a laptop versus a tablet, see a reason to want a computer that's new rather than one they've had for 5 years. Right now, Intel isn't doing anything even remotely in that direction. They keep screaming, "It runs longer on battery! It's cooler!" and people shrug. "My tablet lasts still longer and it's way cooler and it browses the web fine enough."

    Since "good enough" is what Android and iOS pursue as their ultimate strategy of "make low end hardware seem smooth," then suddenly Intel's advantage in performance is meaningless. So really Intel has two options.

    1) Copy ARM wholesale by giving up performance entirely, forget high profit margins, pump out tons of product cheaply and sell it cheaply, keep it low power and good enough

    2) Go high performance, ignore ARM because they're a different product class, and convince people to see the "good enough performance" as frankly not good enough by giving them new performance highs the likes of which no tablet could ever approach while fostering software that wouldn't have been nearly as convenient without it.

    They're both gambles, but what I can tell you with certainty is their current strategy of straddling the divide and doing both isn't going to work. They're going to have to choose and I suspect they'll wind up going with the first option, PC market be damned.

    The irony is that while it might seem like the less risky of the two options, MS seems to be choosing that course and it doesn't look like it's ending well for them, either. I think it's probably the riskier path since it accepts their competition's narrative for the way things will play out.
    Reply
  • p1esk - Friday, September 06, 2013 - link

    Or it could be that Intel does not push performance levels because the vast majority of their customers don't care?

    PC usage didn't change that much in the last decade. People still check their emails, browse the web, listen to music, watch videos, play games. Only the last two require somewhat decent CPU performance, which existing chips (SB, IVB, Haswell) already provide. Haswell is good enough to play 4k video, and to play games you are mostly limited by a videocard, so why do we need more CPU power?

    In the scenarios where you really do need as much power as possible (scientific computing), GPU clusters is the way to go. Intel tried to get into that market with Larrabee, and failed miserably. That is one area in which I wish they would try again, and try harder.

    Back to PC market. Most of Intel's customers want to have cool-looking, light and thin, highly portable laptops and tablets which last all day on a single charge.
    That's why Haswell is not faster than Ivy Bridge, and that's why it is a successful chip that everyone wants in their next laptop/tablet. I'm ready to drop $1,500 for a new laptop.
    There are 4 requirements I have:

    1. light and thin (<3lbs, <15mm)
    2. high res screen (>1080p)
    3. solid build quality (Apple quality)
    4. all day battery life

    Notice there's no mention of performance, because pretty much any Haswell chip is good enough for me (and 90% of other people).

    Intel does not gamble. It continues to give people what they want.
    Reply
  • gobaers - Friday, September 06, 2013 - link

    Haswell has a 15% IPC bump over Ivy Bridge, and can do so with greater power efficiency. What are we complaining about, again? Reply
  • silverblue - Friday, September 06, 2013 - link

    15%? In what usage scenario? Reply
  • jabber - Friday, September 06, 2013 - link

    Ahhh good at last some others are waking up to the fact that -

    PCs/Laptops are boring and everday items like refrigerators to 99.999999% of the worlds population.

    That 99.999999% don't really care what's inside their box or laptop as long as it does Ebay and Facebook. Oh and it's cheap.

    That Intel and AMD have realised that balls to the wall mega horsepower isn't the best selling point for CPUs anymore.

    That it's not 1997 anymore.

    So many on enthusiast websites fail to remember that they are a tiny tiny minority and hardly register on the most big tech companies ledgers. The world does not revolve around them.

    As for the corporate end a mate of mine is selling PCs left right and centre. He can't sell enough, doing crazy business. Thousands of PCs a month.

    Whats he selling? It's not i3/i5 or i7 based systems. No one wants them. AMD? Nope, who cares?

    No he's selling refurbished 2008 spec Dell Dimension C2D boxes with 80GB HDDs and 2GB of ram with Windows 7 Pro or Vista Pro on them.

    Hottest item in business tech right now. He gets a couple of thousand in for peanuts and sells them on in a week or two for a small fortune.
    Reply

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