How AMD's Making a Comeback
Karen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It looks like Advanced Micro Devices (NYSE: AMD) has finally thrown in the towel and declared Intel (NASDAQ: INTL) the semiconductor winner. Mike Silverman, a spokesman for AMD, acknowledged that the company was changing their focus from head-on competition with Intel to the mobile device and cloud computing markets.
The semiconductor sector is suffering from an overall weakness in consumer demand coupled with growth slowdown in China and Europe. But while Intel saw the opportunity inherent in mobile devices, AMD remained married to PCs. After previously announcing that their second quarter 2012 sales would rise 3%, AMD had to restate their forecast to an 11% sales drop for that same quarter. AMDs stock price fell about 10% after the revised figures were released.
While AMD struggled with the sluggish PC market, Intel made themselves more attractive by lowering their chip and quad core prices. Intel formed a strategic partnership with Apple (NASDAQ: AAPL) to have Intel chips put into Mac products and is also looking to get their Medfield chips in the iPhone. Intel’s lead over AMD further increased when Google (NASDAQ: GOOG) went with Intel’s Atom microprocessor for Android.
NVIDIA (NASDAQ: NVDA) has been quick to take advantage of AMDs weakness by making agreements with several major tech companies. They have multiple agreements with Apple to put NVIDIA’s chips in the next generation of MacBook Pro. Google decided to go with NVIDIA’s Tegra 3 processor in the Nexus 7 tablet, and Amazon likewise is using Nvidia chips in their tablets.
So where does this leave AMD? Former CEO Dirk Meyer resigned after a bitter disagreement with the board of directors over AMD's role in the mobile device market, a move which paved the way for Rory Reed to take over as the new CEO. Previously, Mr. Reed was president and CEO of Lenovo and under his leadership, remade the struggling company into the third largest PC maker. AMD is betting that Mr. Reed can work the same magic for them.
In addition to major management changes, AMD implemented internal cost-cutting measures by slashing 10% of the workforce, a move that should save the company $20 million dollars. Mr. Reed is especially interested in the thinner and lighter mobile computing market. During a recent interview, Mr. Reed stated, “I think we come in and steal the bacon around the whole thin-and-light movement and capture a significant portion of the opportunity there.”
In February of this year, AMD’s share of the processor market stood at a dismal 19%. But AMD fired back with the 2012 release of their Trinity-based ultra-thin notebook artfully priced 10-20% lower than Intel’s. And with AMD chips being used in a new generation of mini-PCs, it may not take long for the company to earn back its lost market share.
kprogers has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and NVIDIA. Motley Fool newsletter services recommend Apple, Google, and NVIDIA. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
