Response is expected to be multi-faceted and brutal.
Technological change represents another key threat. As new technologies emerge and the end needs of users shift, the existing industry paradigm can shift quickly and decisively. For example, if the personal computer were to become outmoded in the next ten years, AMD's capture of the market leading manufacturers would be worthless. This is entirely possible, given the pace of change. AMD must always be on top of change in the industry, or risk being left behind.
Lastly, there is the risk of talent defection. AMD relies on top talent to develop its technology, to market the products, and to fight the legal battles. If their supply of talent were to be compromised, either by Intel or by startups, AMD would find it increasingly difficult to compete. They must ensure that their human resources systems are sufficient to attract and retain the top talent that is required to drive their business forward.
Analysis of Current Issues
There are three current issues facing AMD. The first is the competitive relationship with Intel. The firm has won a decision in Japan against Intel but similar action in the U.S. has been less successful. It remains to be seen whether or not AMD can parlay its success in the Japanese courts into increased market share in that country. Intel's response to AMD's recent exploitation of the regulatory system and marketing success has been to engage the company in a price war. AMD is going to need a complex, integrated strategy in order to not only fend off Intel attacks but to strike back at its much larger rival.
The second current issue is with respect to integrating ATI into the company and building the synergies that AMD management hopes will allow it to better compete against Intel. There are several culture issues that must be addressed in bringing a new firm into the fold. Moreover, building the communications systems that will facilitate knowledge-building and product synergies will take time. Furthermore, there is a high risk of talent defection from ATI as a result of this takeover. Too much defection could reduce the value of the transaction.
The third strategic issue is with respect to building share in the new portable device markets. AMD has an opportunity to establish market share in these growing segments and if it can do so, it can achieve substantial growth that will not only help revenues but will also help the company to build the critical mass necessary to battle Intel and other competitors.
The first strategic option is to continue focusing on stealing PC makers away from Intel. There is significant room for expansion in this market and despite the rise in portable devices, there is no indication that personal computing is going to disappear anytime soon. This option has relatively low R&D costs and plays to AMD's existing strengths in marketing and technological development. This option, however, does not give AMD much chance to take advantage off the rapid growth in portable devices. Moreover, it places virtually the firm's entire revenue streams in the middle of a price war with Intel.
The second strategic option is to enjoy the gains made in personal computers and shift focus to building research competencies for a stronger platform in mobile computing. The company's efforts to this point have been disappointing and not at the technological fore (Gupalo, 2007), but there is a strong future in mobile computing and AMD may compete against firms other than Intel.
The third option is to continue to fight to open up geographic markets. There is significant untapped potential in these markets, as AMD has miniscule market share in many. However, this strategy involves taking on Intel head-to-head, and often in the courtroom during antitrust hearings. The strategy gained AMD a victory in Japan but with limited results and similar action in the U.S. failed. However, using the regulatory system to chip away at Intel may be the only way for AMD to tilt the competitive battlefield in its favor.
Recommendations and Justifications
It is recommended that AMD focus its efforts on building dominance in mobile computing. Intel built its market position today on the back of its strong relationship with Microsoft and subsequent dominance of the PC market in the 1990s. The same opportunity exists for the company that gets on board with the dominant mobile platform in the mid 2000s.
AMD is advised to continue its focused attacks on Intel as well. The market for computers is not going away any time soon and Intel remains a difficult competitor. The legal system challenges increase the corporate stakes, but have been a key part of the AMD philosophy for several years. However, prolonged legal battles that do not result in profit improvements would result in little more than Pyrrhic victories for AMD. The focus of the attacks should play to AMD's strengths, primarily in marketing but also with regard to technology.
The final recommendation for AMD is to focus energy on the integration of ATI into the company. The impacts of such a large acquisition should not be understated by management. Indeed, failure to properly integrate ATI will only result in number of negative outcomes for AMD (Schuler, 2003), including talent defection, excessive spending and an erosion of the firm's strong corporate culture. The acquisition is expected to have strategy benefits, but poor integration of an acquired firm can have an impact opposite of what was desired.
MSN Moneycentral: AMD. (2009). Retrieved October 30, 2009 from http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?Symbol=AMD&lstStatement=Balance&stmtView=Ann
Porter, M., adapted. (1985). The value chain. NetMBA. Retrieved October 30, 2009 from http://www.netmba.com/strategy/value-chain/
No author. (2007). SWOT analysis. QuickMBA. Retrieved October 30, 2009 from http://www.quickmba.com/strategy/SWOT/
Gupalo, D. (2007). AMD launches "puma" mobile platform. X-Drivers.com. Retrieved October 30, 2009 from http://www.x-drivers.com/news/hardware/164.html
Schuler, a. (2003). Post acquisition integration. Schuler Solutions. Retrieved October 30, 2009 from http://www.schulersolutions.com/post_acquisition_integration.html