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Advanced Micro Devices, Inc.   Term Paper ID:27945 Click to get this paper

Essay Subject: (1993) Advanced Micro Devices case study that looks at: company history; overall market position & strategy; & recommendations for the company.... More...

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Paper Abstract: (1993) Advanced Micro Devices case study that looks at: company history; overall market position & strategy; & recommendations for the company. Paper Introduction: ADVANCED MICRO DEVICES, INC. According to Hoover's Handbook of American Business 1993, Advanced Micro Devices has become one of the leading producers of computer microprocessors. Jerry Sanders was working at Fairchild Camera in Silicon Valley when he was fired, reportedly for wearing a pink shirt while making a sales call at IBM. In 1969, Sanders decided to start up his own semi-conductor company. Sanders had no general management experience and was unable to raise the large amounts of capital required to engage in semiconductor research and development. He therefore built the company by acquiring second-source agreements, or licenses to manufacture products designed by other chip makers. He also employed his flair for marketing to make these agreements pay, and he was successful enough so that Advanced Micro Devi Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. 226). (1992, February 3). Cyrix is anothercompany producing this technology with its partner Texas Instruments. Newseek, p. ReferencesBoudette, N. The rapidity of change in this industry demands this sort ofshift in thinking and a new strategy for the company in the future. 93). The company hopes to do the same thingwith an 8 486-compatible line, all based on technology from Intel (Baghdad,1992, pp. 32.Port, O., & Mitchell, R. providing the company with a new product base aswell as placing it in the lead rather than leaving the company as apermanent follower. 226. Forbes, p. This could be achieved over time withnew product mixes that would be directed essentially at the same customersas well as potential new customers who would be interested in dealing withthe company. According to Hoover's Handbook of American Business 1993, AdvancedMicro Devices has become one of the leading producers of computermicroprocessors. In order to attain a more competitive edge, AMD has recently enteredinto a $7 million joint venture with Japan's Fujitsu, previously seen asthe enemy but now seen as an ally in the computer war. This strategy leavesthe company very dependent on market shifts. Good-bye, Mr. Chips. AMD could not wait for the legal case to finish, sothe company set out to imitate the 386 on its own. The story of the development of the 386 clone shows a slight shift inthe R&D level of AMD. The company's stock doubled from 7 at the start of1991 to about 14 by the end of the year. The engineers managed to imitatethe Intel chip, a process that took two years. In the battle between Intel and AMD, bothcompanies were seen as winning when, after the conclusion of the lawsuit,it was noted that demand for products from both companies had reached anall-time high. (1992, December 7). The company also faced a setback when a group ofCMOS engineers left to start their own company, Cypress Semiconductor, in1982 (p. The move by AMD turned itsbusiness around - it had been declining. The problem faced by AMD at the time can be seen in the followingchart: Class of Chip Peak Sales AMD Share| | | ||286 |$15 million |52 percent || |199 | || | | ||386 |$1.1 billion |5 percent to 7 || |1991 |percent || | |(386 clone) |The company was hoping that the laptop market would be one of the besttargets for its clone. 1-2). The companymoved quickly into the 386 market and had sold the chips to Compaq in thefirst year and hoped to make a sale to IBM soon after. A. Hoover notes that the company has been slow to adopt key newproducts and technologies, including customizable gate array chips and CMOS(complementary metal oxide semiconductor) production technology, leavingthe company at a disadvantage against the competition that has adoptedthese new technologies. Intel had to reduce prices in order to compete with clone-makerslike AMD, and the company had produced a number of new designs for the 486chip in order to offer things that the other company could not and tocorner the market before AMD could begin manufacturing 486 clones. |863 |7 |88 |78 || | | | | ||Europe |232 |19 |2 |2 || | | | | ||Asia |132 |11 |23 |2 || | | | | ||Adjustments |-- |-- |(4) |-- || | | | | ||Total |1,227 |1 |1 9 |1 | AMD has facilities in California and Texas and assembly plants inMalaysia, Singapore, and Thailand. Intel braces for a chorus of 'send in the clones.' Business Week, pp. In developing its clone, AMD hadimproved on the Intel chip, however incidentally. One man was put incharge of the project, and he enlisted the aid of a number of engineers.They studied the Intel chip and fathomed its technology over a long periodof time, using a "reverse-engineering" approach by taking the Intel designapart bit by bit. The company immediatelybegan planning its cloning of the 486 chip. Intelwas continuing to innovate with new technology and to refine oldertechnology, while AMD was forced to depend on the technology it had beenable to acquire and could not market (Port & Mitchell, 1992, p. The marketing ofthe chips serves the type of customer targeted by the company. AMD has proven its capabilities in marketing and sales, andnow it needs to develop the technological expertise it has not needed inthe past. Business Week, p. 78-79.Powell, B., & Schwartz, J. 6 ). Advanced Micro Devices had to fight for its right to sell clones ofother technology, and the issue was settled in court so that AMD could sellits microprocessors that are similar to rival Intel. This helped the company grow rapidly in the early period of itshistory. The battle over the market for the 486 chip looked to befierce. Thecourt case involved the 386 line, but the victory was seen as pyrrhicbecause sales of the 386 are expected top decline soon as the 486 entersthe market in a big way. The mix between the technological level of the company and thestructure of management and sales seeks to be a good fit. Atthe present time, growth is entirely dependent on the success of some othercompany and on the ability of AMD to get a second source contract. 69-7 ). Another day, another chip. Thecompany has not instituted any products of its own except as incidentaldesign changes in products it is cloning or copying. Thecompany has had to become more interested in technological change fromwithin, and to this end it spent about 17 percent of sales in 1991 on R&D.Of course, most of this went to the effort to duplicate the Intel 386 chiprather than to develop any new products. The company need not abandon its clone business, but it needs to beless dependent on it for profits. The company has managed to achieve a strong market penetration withits 8 386-compatible line of microchips, reaching 12 percent of the marketfor that particular technology. Both companies werestill buying chips from Intel, but they were also interested in the clones. The company was founded on this basis specifically because thefounder could not afford to spend large amounts of money on R&D. The engineering staff that was brought together to copy the Intel 386chip could serve as the starting point for this new emphasis on researchand development. Suddenly, AMD is in the chips. There are testing facilities in Japanand the United Kingdom. PC Week, pp. Sanders had no general management experience and wasunable to raise the large amounts of capital required to engage insemiconductor research and development. ADVANCED MICRO DEVICES, INC. The Japanese are performing that task.There is some evidence that this deal and others like it are moreadvantageous to the Japanese than to American companies like AMD (Powell &Schwartz, 1992, p. According to the Porter Model, Advanced Micro Devices is a companythat has opted for a followership position in terms of technologicalstrategies. Thesecond-source agreements are the basis of the company's business, and thishas become more rather than less true as the company has developed itsmarket. 6 .Shaffer, R. That is, the company determines what is selling and tries tomake a second source agreement to provide the product in some markets. It is not certain that thecompany will be able to clone this more advanced chip or improve on it asit did with the 386, and it will also face increasing competition andopposition from Intel, which put $1.7 billion into research and capitalequipment in 1991 (Mitchell & Rebello, 1991, p. Since computer technology develops rapidly, the company isalways placed in a position where even a successful product has a shortlife.RECOMMENDATIONS This company needs to develop a research and development strategy thatis more creative and assertive than its present reactive policy. Jerry Sanders was working at Fairchild Camera in SiliconValley when he was fired, reportedly for wearing a pink shirt while makinga sales call at IBM. Thecompany has done well, but it has also encountered dry periods when itsbusiness suffered by being so dependent on clones. (1991, December 9). Thecompany needs a broader mix of products and needs to consider innovationand new technology as an important starting point for future growth. As new products are developedelsewhere, the company must make a second source agreement or be left outthereafter. He also employed his flair for marketing tomake these agreements pay, and he was successful enough so that AdvancedMicro Devices went public in 1972, also receiving a cash infusion of $3 million in 1977 when Seimens, interested in gaining a foothold in the U.S.market for semiconductors, bought nearly 2 percent of Sanders' company.The company signed a second-source deal with Intel in 1982, which enabledthe company to manufacture exact copies of Intel's iAPX86 line ofmicroprocessors which are used to operate IBM-compatible personal computers(p. This approach involved a danger of infringing onpatents, though as things have worked out, the decision in the court casehas made that a moot point. The product was expected tomake $1 million in its first full year. AMD in this case isnot only not responsible for originating the technology, but the company isalso not doing the manufacturing. 93). Intel was the only supplier of the 486 untilrecently, though AMD announced in December that it was ready forproduction. The company has 35 sales offices in the Unitedstates and 17 in Asia and Europe. (1992, February 1). Early in 1992, though,sales seem to have peaked. These engineers have already shown the ability not onlyto clone another product but to improve it, and their talents could beturned to the development of new products in a way that would benefit thecompany in the long term. (1992, August 3). The business of the company improved in 199 when an arbitrator ruledin the company's favor on the Intel suit, and by the end of 1991 AMD hadcaptured 3 percent of the market for the 386 chip. However,the degree of dependence of the company on clone chips for profits has madethe company vulnerable when there is a change in the market, such as istaking place at the present time with the move to the 486 chip. Until AMD reaches the market with high-volume production,though, Intel is cornering the 486 market (Shaffer, 1992, p. However, it has limited the growth of the company over the longterm. 78). 1-2.Mitchell, R., & Rebello, K. AMD hopes to repeat 386 gains with 486 chips. This could attract investment as well as customers whosee a potential in products from a more forward-looking company. The company saw Intel with a monopoly on 386 chipsand set out to design a competing chip. 32).| | | | | || |1991 Sales | |199 Operating | || | | |Income | || | | | | || |$ Million |% of Total |$ Million |% of Total || | | | | ||U.S. The clone market has been increasing, but competition in that markethas also been increasing. In the first nine months, AMD signed up 2 customers for these clones.AMD was expected to sell more than 2 microchips in 1992 for a 14 percentshare of the market. The AMD 386 chip did manage to cut into Intel's business. AMD has been sosuccessful that its sales have passed those of Intel. In 1969, Sanders decided to start up his own semi-conductor company. He therefore built the company byacquiring second-source agreements, or licenses to manufacture productsdesigned by other chip makers. The new product development process of the company is entirelyreactive. AMD then sued to get Intel to change this stance and tolive up to a 1982 agreement giving AMD the right to be a second source forIntel microprocessors. The reason AMD went into R&D tothis extent was because Intel decided in 1987 not to license the 386 or anysubsequent design. Once the 386 was developed, however, it was evidentthat a 486 was coming soon and that the process would have to start overagain in some fashion (Brandt, 1991, pp. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.