First it was four, then it was three… could it be two?
I wrote this article for Custom PC Magazine in the U.K. - it's the latest issue, and it's awesome. A warning though, this article is pure speculation! There's my disclaimer before people start freaking out - this is pure "hookah smoking, sitting around with a bunch of friends and chatting" speculation...! I will write an extended version of this later.
A few months ago I wrote an article on some of my own personal thoughts about AMD’s strategic position in the market. I included some ideas around AMD potentially creating strategic partnerships with companies whose pieces fit snugly in their holes (can you guess who?). In the process of doing this they would also need to lighten up some of the assets, and scale the business back enough so profitable growth can be sustained.
Its funny how things seem to make sense when you’re involved in a business for more half your life. If you put all the pieces on the board and stare at them long enough they start to tell a story.
Going further into the potential strategies for AMD, I think they could try to spin of their CPU, chipset, and graphics technology businesses into a separate entity. At the same time they could spin the foundry business into a separate entity or division. I continue to believe that somehow they would need to be linked in order to maintain their X86 license among other things.
Now imagine if they did both of the above; their value on the foundry side would be cut, but on the technology side they may get some great valuations with higher multiples, and thus the IP side would become a great target for acquisition for Nvidia.
Now the question is who in their right mind would want to own shares in a foundry business? Perhaps they could work a deal so existing shareholders get a share of one and half of another, and perhaps if Nvidia decides to come out and play they could also offer some share benefits to existing shareholders.
In my mind it would be easier dealing with two or four giants, then the three header four armed abomination we’re currently contending with. It’s just too bloody confusing.
Check out our new home at The Next Bench.
labels:
AMD + ATI,
AMD vs Intel,
ATI vs NVIDIA,
General Business
2 comments:
Interesting proposal on splitting the company up... but I think you underestimate the foundry impact.
1) AMD has very little actual capacity when compared to foundries like TSMC, UMC... this would put the spin-off at a serious disadvantage. F36 simply is not that big and it is not clear to me how the spinoff could survive, unless it was merged with more foundry capacity.
2) The interaction between process and design: Processes are often tweaked to match a design and vice-versa. As a separate company AMD would have a much more significantly difficult time tweaking a process that a spinoff owns, and would have no control over the timeline that the foundry spinoff changes technology nodes (which could put them at a disadvantage with Intel).
3) The longer term financial impact to AMD - using a foundry adds another level of cost that further eats into margins. While I've heard some mistakenly suggest that since ATI has shown this can be successfully done and the CPU division can 'learn' and leverage this expertise, this is a completely different case as Nvidia also uses a foundry.
"Its funny how things seem to make sense when you’re involved in a business for more half your life."
This is a bit overly simplistic - it makes sense to you as an end user, and to anyone else trying to develop PC's etc... but I don't see this making business sense for AMD. They would get very little value on the dollar for the assets they are spinning off into the foundry company. I would think there's even a question of whether the process IP could be spunoff as that is acquire/licensed through IBM, and if this was not included in the foundry spinoff, then the foundry really becomes just a collection of factory shells and equipment. Also in the long term, the lack of inhouse manufacturing capacity may put AMD at a competitive disadvantage with Intel (for 2 of the 3 reasons I list above).
So while making sense to users downstream of AMD, I don't see how this makes sense overall.
I agree with the above, spinning off is bad - the foundry keeps the rest of the enterprise grounded (engineers working on the product side can live the manufacturing side) - creates a synergy of experience that enables both to continue.
I've worked in the auto industry for a solid amount of time (Discretionary Thoughts)- and the strongest designs and engineering that are done are usually by people that were stationed in or close to the manufacturing facility - where the action occurs. Weaker organizations that don't place their product design headquarters or R&D groups near a plant (or have outsourced the plant!) over time become weaker as the cross-pollination never happens as new people are hired into the business. That plant stuff becomes mythical and abstract and drifts away into legend. Meanwhile the competitor with these functions well integrated is stomping on the pedal.
The larger strategic issue for AMD is how does it maintain its focus as a cpu and gpu company? Seemingly separate parts... The direction things are heading, with graphics so important, is the question of do you continue designing a motherboard with an add-on graphics card, or a "graphics-board" with an add-on cpu card? Or the combined gpu/cpu is possible by AMD where it will be slow by Intel and Nvidia because of the separation (and need by Intel to remain CPU focused).
I think once AMD finishes harmonizing and integrating their very large merger - they will be back on track and Intel will be in trouble. It wasn't very many years ago that HP and Compaq merged, with chaos and market share drops that competitors like Dell took advantage of. Now the new HP is regaining momentum.
J
Post a Comment