Skip to main content

AMD must step up mobile offerings or face failure, analysts warn

Perennial underdog Advanced Micro Devices is once again up against the wall, after announcing a dismal third quarter and staff cuts to the tune of 15 percent of its workforce in the coming months.

AMD has been in tight spots before, including a string of losing quarters at the end of the last decade, and managed to scratch its way back to profitability. The chip manufacturer appeared to right itself a few years ago with the spin-off of its manufacturing assets and a new focus on delivering a combination of CPU and GPU technology that was unique in the PC marketplace.

But the company's current situation may be even more dire than it was in the lead-up to its fab spin-off. Not only does AMD still face tough competition from its more deep-pocketed rival Intel, but the PC landscape is full of uncertainty going forward as the popularity of mobile devices like smartphones and tablets continues to affect sales of traditional desktops and laptops.

What can AMD do to turn things around? We polled a number of industry analysts for their opinions, also asking them to speculate on whether the company might become an acquisition target if things don't get better soon and what that would mean for Intel and the PC industry at large.

"AMD, like it has many times before, has the chance to turn itself around. It must attack growth markets in unique ways or it will have an extremely hard time getting back to strength," said Patrick Moorhead, chief analyst at Moor Insights & Strategy. "AMD must make quick and aggressive strikes in the search and social media mega-datacenters and drive tablet revenue at a much more accelerated pace."

Moorhead figured that the company could be attractive to Qualcomm, Broadcom, or even Intel, mainly for its unique and valuable intellectual property.

"AMD has significant value in its IP and the ability to develop high-performance, low power SoCs. AMD has a wealth of IP in graphics, GPU compute, and symmetrical multi-processing," he said.

Tim Bajarin, president of Creative Strategies, also keyed in on tablets as a product segment AMD will need to penetrate or risk perishing.

"They need to speed up their development of low voltage chips that can go into tablets. PC sales will continue to be flat through this year and will grow about 5 percent in 2013," Bajarin said. "On the other hand, tablets will grow 250 percent next year and that is where all the new volume will come from. AMD's Hondo chip is a good start but they have to get it and new chips down to lower voltage to turn things around."

Hondo to the Rescue?

AMD last week unveiled its 1GHz, dual-core Z-60 accelerated processing unit (APU), formerly code named Hondo, with an eye towards design wins in upcoming tablets running Microsoft's next-gen Windows 8 operating system, which will be officially released on 26 October.

One industry watcher who asked not be named questioned whether AMD still has the institutional know-how to compete with Intel, ARM, and others in developing low-power chips for mobile devices and embedded systems - especially given a round of layoffs earlier this year and another one coming in the fourth quarter.

Bajarin had his doubts about AMD's attractiveness as an acquisition target, saying, "Intel could never buy them for anti-trust reasons as well as the fact that they don't need anything AMD has." Going forward, a lot depends on whether Windows 8 tablets using x86 chips take off, in which case "a company like Qualcomm could perhaps absorb them into their business and be able to challenge Intel at its own game on the x86 as well as ARM front," the analyst said.

One sticky issue for any company contemplating buying AMD is the fact that its cross-license with Intel on x86 would have to be renegotiated in the event of a merger. There's no telling what Intel would do in that scenario, though Bajarin noted that the disappearance or continued shrinking of its only major x86 rival would "push Intel into an even greater monopoly position," so there's a decent chance the chip giant would work a new cross-license out quickly with an acquirer of AMD.

"It is in Intel's and all of the industry's best interest that AMD stay strong and on their own if possible by creating new chips for tablets and perhaps even phones in the future," the analyst said.

Before getting into the specifics of how AMD might turn it around, Jack Gold of J. Gold Associates questioned how much rope investors would give AMD's new management team "before demanding change." President and CEO Rory Read and his team have talked a good game since taking over the company in the middle of 2011, but so far, they've delivered the same uneven quarterly results as their predecessors.

"I don't think AMD is in imminent threat of going under, but clearly they have to do something," Gold said. A big challenge, the analyst said, is that "they have virtually no mobile strategy—I kid that AMD stands for 'Absent from Mobile Devices'."

Like Bajarin, Gold called Hondo a start for AMD, but wondered when the company would tune its new tablet chip to Google's Android platform like Intel has done with Atom.

Stuck Between Intel and an ARM Place

"AMD's strategy against Intel in the PC space has been to sell at a lower price. But their CPU performance has not kept pace with Intel's, although their GPUs are better, and this is impeding their ability to sell even with a lower cost, and by the way, Intel is getting more price aggressive," Gold said.

The analyst said other challenges facing AMD include lagging behind Intel in process technology and the shrinking of a market where the company remains an undisputed technology leader - discrete PC graphics.

Gold had mixed feelings about two recent moves by AMD into new areas, saying the acquisition of micro-server maker SeaMicro "could take years" to develop into a strong growth area. He was also skeptical about AMD's budding relationship with ARM, saying direct investment in the chip architecture to jump-start the company's mobile business "doesn't seem like a good idea, as I don't think they have the resources to concentrate on both ARM and x86."

"My bottom line is, AMD has a tough road ahead, especially given the current market conditions of reduced PC shipments. They don't have forever to get their act together if they want to become relevant again. If they continue to move in this trajectory, Intel will clean their clock in the x86 world, and ARM will clean their clock in the mobile world. That's a lot of clock cleaning they have to look forward to," Gold said.

Pretty grim? Without a doubt. It wasn't so long ago that among PC enthusiasts, AMD versus Intel was as vibrant a branch of tech partisanship as Windows versus Mac in more mainstream circles, or these days, Android versus iOS. There are still plenty of folks rooting for the chip maker to get back in the game - but that's looking like an increasingly tall order, even for a company that boasts as many comebacks as AMD.