A Customer-Centric Approach to Innovation

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9-507-037
JANUARY 31, 2007

ELIE OFEK LAUREN BARLEY

AMD: A Customer-Centric Approach to Innovation
Hector Ruiz, CEO of Advanced Micro Devices (AMD), slowly hung up the phone as he reached for a piece of paper in his top-desk drawer. Quietly studying the handwritten word “MAID” on it, Ruiz scratched out the letter “D” for Dell. It was mid 2006, and Ruiz had just talked with Michael Dell, the founder and chairman of Dell Inc (Dell). He had called Ruiz with the news that Dell would purchase Opteron, AMD’s server microprocessor, for its highest-end server line. Dell had long been an Intel-only shop. Landing Dell as a customer was the culmination of a four-year effort that AMD had codenamed Project MAID. Sunnyvale, California-based AMD designed and manufactured microprocessors for the computing, communications, and consumer electronics markets. With roughly 10,000 employees, the semiconductor company had 2005 revenues of $5.8 billion, a 17% increase over 2004. The 2003 launch of Opteron and the company’s AMD64 technology ushered in a new chapter in AMD’s history. Traditionally, AMD had been a distant follower to Intel, which had a dominant position in microprocessors for the server and personal computer (PC) markets. However, Intel’s dominance was eroding as Opteron gained acceptance and AMD focused on “customer-centric innovation” under Ruiz, who was appointed CEO in 2002. Driven by Opteron’s success, AMD’s unit share in servers for the second quarter of 2006 rose to 26%, up from 11% in Q2 of 2005.1 The top four computer-makers that sold the vast majority of servers—Hewlett-Packard (HP), Sun Microsystems (Sun), IBM, and Dell—now offered at least one Opteron-based server. Furthermore, AMD’s presence in the lucrative corporate segment was growing: 90% of the top 100 Forbes Global 2000 were using AMD64 technology by the end of 2005.2 And, AMD reported higher margins than Intel in the first quarter of 2006. AMD also felt it had built enough credibility to lead the industry in new directions. The company had recently launched a marketing initiative called the “Power Campaign” to focus the industry on the importance of energy efficiency and systems designed to maximize performance at the minimum power consumption. Accordingly, AMD was leading an effort to use “performance-per-watt”—in which it held an advantage—as the best benchmark to compare competing microprocessors. Yet, Ruiz saw challenges that could pose a threat to sustainable growth for AMD. Intel’s dominant market position could limit AMD’s ability to make inroads into key market segments beyond servers, such as corporate desktops and notebooks. Furthermore, Intel had just announced its “roadmap to recovery” that included a new line of microprocessors that balanced performance, power consumption, and cost. Intel believed its new processors would be at parity, or even superior, to AMD’s on a performance-per-watt basis. Intel also planned a major restructuring, vowing to cut ________________________________________________________________________________________________________________ Professor Elie Ofek and Research Associate Lauren Barley prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2007 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

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