An Evaluation of Corporate Diversification Strategies
SINGLE BUSINESS STRATEGY
Single business: 95% or more of firm revenues comes from a single business. Advanced Micro Devices, Inc. (AMD) is a semiconductor company that designs, manufactures and markets microprocessors for the computing, communications and consumer electronics markets. The company also markets embedded microprocessors for personal connectivity devices and other consumer markets. The leading semiconductor company has manufacturing and testing facilities in the United States, Europe and Asia, and sales offices throughout the world (AMD 2006).
Sales by Business Area
It principally concentrates in semiconductor manufacturing. Total net sales for 2005 of $5.8 billion increased 17 per cent compared with net sales for 2004 of $5.0 billion (AMD 2006). This growth was driven by the performance of its microprocessor segment where net sales of $3.8 billion increased by 50 per cent compared to 2004, due to increased unit sales and average selling prices (AMD 2006).
Rationale for Business Strategy
Because a large pool of technology makers (computers, phone, gaming, servers, and internet, for instance) rely on the semiconductor industry for manufacturing consumer devices, it makes commercial wisdom for AMD to devote every drop of resources to meet increasing demand for advanced chips.
Appraisal of Business Strategy
Like other chips’ makers such as Intel Corp, AMD pursues a single-product line strategy. That strategy places the chips’ maker in a leading position in the development and innovation of electronics components. Moreover, AMD’s single business model has earned the company the reputation as one of the most recognizable computer processor brands against staunch challengers like Intel Corp., and Samsung Electronics Co. Ninety per cent of the top 100 and more than 45 per cent of the top 500 of the Forbes Global 2000 companies or their subsidiaries are using AMD64 technology today (AMD 2006). Another advantage to the company’s current single product strategy is its ability to deploy resources focusing on building on competency and capability. The company's microprocessors—AMD Athlon 64 and AMD Athlon 64 FX processors—specifically for gamers, PC enthusiasts and digital content creators, are based on the AMD64 technology platform, which extends the industry-standard x86 instruction set architecture to 64-bit computing (AMD 2006; Reuters 2006). AMD’s current business model permits it to be more responsive to changing demands of industries like gaming, digital content creation, and computing security for instance. Despite Intel Corp’s dominance in the semiconductor industry, AMD is able to parlay its experience and reputation into sustainable competitive advantage and prominent leadership position in terms of strategic alliance with software giant Microsoft, and motherboard manufacturers. Nonetheless, AMD’s all-eggs-in-one-basket business model comes with some risks. Intel’s dominant position in the microprocessor market is a threat; AMD’s reliance on one supplier for its 200-millimetre and 300-millimetre silicon-on-insulator wafers, and reliance on third-party companies for the design and manufacture of core-logic chipsets, graphics chips, and motherboards, all undermines its survival. Still at least for some years to come, AMD is reaping the advantage brought on by benefits of pursing a single-product line strategy.
DOMINANT BUSINESS DIVERSIFICATION
Dominant-business: between 70 and 95% of firm revenues comes from a single business. Founded by Ray Kroc in 1948, the fast-food giant primarily franchises and operates McDonald's restaurants in the food service industry (McDonald’s 2006; Reuters 2006). It also operates Boston Market and Chipotle Mexican Grill-Chipotle and has a minority ownership interest in United Kingdom-based Prêt A Manger (Yahoo Finance 2006).
Sales by Business Area
The company operates...
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