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  • Opening: cold war and sovietunin, given us a lesson or two on strategyIdeology, military, economy, space1950s: on par, if not ahead1990s: lost totally to the US

L1 6 L1 6 Presentation Transcript

  • A revitalization strategy that will generate an extra revenue of US$5.7 billion in 3 years
  • The Cold War gave us a lesson or two on strategy Prologue THE FUTURE IS FUSION
  • The Soviet Union had the upper hand in the Cold War in the 1950s and 1960s Ideology Military Power  Launched the first-ever artificial satellite, Sputnik in 1957  Growing influence in the third world  Beat the US to send the first man into space in 1961 Economy  Rapid growth under the Soviet Five-Year Plans  Economic growth rate was ahead of the US in the 1950s LOOK SET TO TOPPLE US GLOBAL DOMINANCE Prologue Source: Publicly Available Information THE FUTURE IS FUSION
  • The Soviet Union surrendered their lead and lost the Cold War in 1991 Ideology  The Soviet citizens are disillusioned with Marxist-Leninism by the late 1980s Military Power  The Soviet military could not match the superior American military technology Economy  The Soviet economy stagnated since the 1970s and was on the verge of collapse in 1991 EXISTENCE UNDER SEVERE THREAT Prologue Source: Publicly Available Information THE FUTURE IS FUSION
  • The Soviet Union stagnated and gradually went downhill in the 1970s Uncompetitive Misadventures Technology Lag  Over-reliant on the production of natural resources  Extremely expensive both financially and in terms of resources  Missed out entirely on the computer revolution in the West  Uncompetitive industrial products  Huge burden on the Soviet economy  Increasing relative disadvantage to the US Source: Publicly Available Information Prologue THE FUTURE IS FUSION
  • We can draw parallels between AMD and the Soviet Union in the 1970s Prologue THE FUTURE IS FUSION
  • AMD faces three critical problems 1 Sluggish financial performance for the past decade 2 Increasing relative disadvantage in core operations (CPUs) vis-à-vis Intel 3 Virtual non-existence in key growth segment – mobile handsets Source: Team Analysis Situation THE FUTURE IS FUSION
  • AMD has been experiencing declining financial performance and increasing relative disadvantage Lackluster Financial Performance Eroding Market Share 8 6 4 2 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 • Intel creates better CPUs than AMD based on performance, overclocking, and value • Overall revenues are insufficiently compete with Intel’s -2 -4 Sales Net Income EXISTENCE UNDER SEVERE THREAT Source: Passmark Software, AMD Financial Report Situation THE FUTURE IS FUSION
  • Acquisition of ATI  Acquisition in 2006 was an expensive misadventure  $1.6 billion of goodwill was written off in Q4 2007  Huge financial burden and diverted resources away from R&D  Weakened the competitive advantage of AMD’s new products vis-à-vis Intel Source: PCPRO
  • AMD is virtually non-existent in the mobile handsets segment of the industry Source: Various Sources Situation THE FUTURE IS FUSION
  • Expansion into the Semi-Custom Business is the best alternative for AMD Catch up with Intel in the CPU Market Expansion into Mobile Handsets Expansion into SemiCustom Business Cost Scalability Time Period Risks Overall LEGEND: Source: Team Analysis More desirable Situation THE FUTURE IS FUSION
  • AMD has acquired new capabilities and resources with the acquisition of SeaMicro Acquisition of SeaMicro  AMD bought SeaMicro in February 2012 for $334 million in total: $281 million in cash and the remainder in stock  Gained ability to directly negotiate with the buyer instead of having to go through other server manufacturers such as Dell and HP  Gained a path in the low-power server space by providing a role in cloud datacenter business Source: Forbes Strategy THE FUTURE IS FUSION
  • AMD has not fully utilized the capabilities and resources from the acquisition of SeaMicro High-Density Servers for Cloud Computing AMD Optero n 25% Intel Xeon E3 75%  SeaMicro still produces its microservers with both Intel and AMD processors  AMD has, rather ironically, become an Intel OEM Source: Forbes Strategy THE FUTURE IS FUSION
  • Rearranging Current Revenue Stream
  • AMD must effectively and strategically invest in the CPU & GPU segment to compete with Intel Product Differentiation  CPU & GPU accounts for more than 60% of AMD’s revenue stream CPU/GPU  Two distinctive segments will be targeted: High Price Targeting high-end gamers and overclockers text1 Low Price Optimal performance for daily PC users Strategy THE FUTURE IS FUSION
  • AMD can leverage on SeaMicro to develop Semi-Custom business units for the server market Vertical Integration  SeaMicro’s extended x86 platform product line can be used to exclusively target the server market  AMD can develop a platform where it can deliver products based on the platform, thus making it semi-custom  With minimal development cost, AMD and SeaMicro can target all the industry that require micro processors Cloud Proxy ERP Servers Communication Mail Telnet Web Source: Team Analysis Strategy THE FUTURE IS FUSION
  • SeaMicro can boost the sales of AMD's Opteron processor product line to increase revenues Global Server Market 2007 2008 2009 2010 2011 2012 Total Server Shipments (Mil) 8.8 9.1 7.6 8.9 9.5 9.7 X86 Server Shipments (%) 84.7% 84.9% 87.8% 87.1% 84.3% 82.8% Total Server Revenue ($Bil) 54.8 52.6 43.1 48.9 52.8 52.5 53.6% 52.9% 57.6% 65.3% 65.2% 68.2% 2007 2008 2009 2010 2011 2012 7.5 7.7 7.6 8.9 9.5 9.7 X86 Server Revenue (%) (In USD Million) X86 Server Shipment AMD’s Share in x86 Servers 15.0% 13.4% 10.1% 7.0% 5.5% 4.4% Implications  According to I.H.S Research, in 2012, 88K units of microservers are sold and it is expected to grow to 1.3 million units in 2016  SeaMicro can effectively market AMD’s Opteron processor through Semi-Custom business units, which will increase current market share of 4.4% up to 8 to 10% with the increasing demand on microservers  Revenue increase: 52.5 x 68.2% x 8% = 3.6B USD Source: Gartner & IDC Press Release Strategy THE FUTURE IS FUSION
  • Financial analysts also predict increased revenues for AMD from the processor segment Approx. 1.8B USD 4.4% of server market share Source: Trefis Strategy THE FUTURE IS FUSION
  • Alliance with different small server software companies to supply them the SeaMicro hardware Strategic Alliances  Fast growing ERP companies like OnDemand, WorkForce , Venty and Netsuite has the potential to grab extra market share.  Every 0.01% market share captured by these company could be translated into extra revenue of 7.35M USD (assuming that the profit margin of the server is 30%) Estimated number of Alliances: 3 Captured in ERP market share: 2% Expected Revenue increased: 24.5 x 2% x 30% = 490M USD Source: Forbes Strategy THE FUTURE IS FUSION
  • Creating New Revenue Stream
  • A huge opportunity lies in the other part of the server industry – ARM based servers Global Server Market 2007 2008 2009 2010 2011 2012 Total Server Shipments (Mil) 8.8 9.1 7.6 8.9 9.5 9.7 X86 Server Shipments (%) 84.7% 84.9% 87.8% 87.1% 84.3% 82.8% Total Server Revenue ($Bil) 54.8 52.6 43.1 48.9 52.8 52.5 53.6% 52.9% 57.6% 65.3% 65.2% 68.2% X86 Server Revenue (%) Implications  The revenue of the server industry is 52.5B USD and 68.2% of it belongs to x86  The remaining belongs to the next-generation ARM based servers Ideal Solution for Servers  ARM based processors delivers higher efficiency and less power consumption at the cost of slight performance  According to IHS, demand and expectation for ARM based servers are rapidly increasing Strategy Source: Wall Street Journal THE FUTURE IS FUSION
  • AMD can capture the new trend in the ARM based servers to create new revenue stream Product Differentiation  Develop ARM based servers to capture its increasing demand due to its higher efficiency than existing x86 platform  Only three companies are developing next generated ARM based processors Estimated increase in Revenue assuming 10% of SeaMicro’s market share in ARM based servers: 52.5 x (1 - 0.682) x 10% = 1.7B USD ARM Source: ARM Strategy THE FUTURE IS FUSION
  • AMD can acquire the ability to develop ARM based mobile processors as a positive byproduct ARM-based Technology  In the long run (2 years), AMD will automatically gain the ability to develop ARM based mobile processors for Android and iOS devices with technological knowledge gained from server processing units  Increased Revenue: Inestimable since its in a form of intellectual property in the future Source: Team Analysis Strategy THE FUTURE IS FUSION
  • The revitalization plan of AMD will be carried out over a period of 24 months Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Semi-Custom Business Units Building the Architecture Negotiation Fine-Tuning & Delivery ARM based servers Research & Development Building the Architecture Negotiation Fine-Tuning & Delivery Source: Team Analysis Implementation THE FUTURE IS FUSION
  • The acquisition of SeaMicro puts AMD in an awkward position Customers COMPETE Customers Source: Team Analysis Implementation THE FUTURE IS FUSION
  • SeaMicro has no intention to compete in the same arena and thus the threat is non-existent Customers No Threat Customers Source: Team Analysis Implementation THE FUTURE IS FUSION
  • The ever changing technological landscape gives rise to uncertainties 3 YEARS BEGINNING END IT INDUSTRY Full of SURPRISES Source: Team Analysis Implementation THE FUTURE IS FUSION
  • There will be precautionary measures undertaken to pre-empt the uncertainties ahead 3 YEARS BEGINNING END Mitigations  Emphasis on time schedule  Aim to have zero delays  Adopt best practices Source: Team Analysis Implementation THE FUTURE IS FUSION
  • The USSR might have lost the Cold War, but all hope is not lost for AMD THE FUTURE IS FUSION