L1 6

A revitalization strategy that will generate an extra revenue of US$5.7 billion in 3 years

THE FUTURE IS FUSIONPrologue

The Cold War gave us a lesson or two on strategy


The Soviet Union had the upper hand in the Cold War in the 1950s and 1960s

Source: Publicly Available Information

Ideology

Growing influence in the third world

Military Power

Launched the first-ever artificial satellite, Sputnik in 1957

Beat the US to send the first man into space in 1961

Economy

Rapid growth under the Soviet Five-Year Plans

Economic growth rate was ahead of the US in the 1950s

LOOK SET TO TOPPLE US GLOBAL DOMINANCE


The Soviet Union surrendered their lead and lost the Cold War in 1991


Ideology

The Soviet citizens are disillusioned with Marxist-Leninism by the late 1980s

Military Power

The Soviet military could not match the superior American military technology

Economy

The Soviet economy stagnated since the 1970s and was on the verge of collapse in 1991

EXISTENCE UNDER SEVERE THREAT


The Soviet Union stagnated and gradually went downhill in the 1970s


Uncompetitive

Over-reliant on the production of natural resources

Uncompetitive industrial products

Misadventures

Extremely expensive both financially and in terms of resources

Huge burden on the Soviet economy

Technology Lag

Missed out entirely on the computer revolution in the West

Increasing relative disadvantage to the US


We can draw parallels between AMD and the Soviet Union in the 1970s

THE FUTURE IS FUSIONSituation

AMD faces three critical problems

Source: Team Analysis

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3

Sluggish financial performance for the past decade

Increasing relative disadvantage in core operations (CPUs) vis-à-vis Intel

Virtual non-existence in key growth segment – mobile handsets


AMD has been experiencing declining financial performance and increasing relative disadvantage

Source: Passmark Software, AMD Financial Report

-4

-2

0

2

4

6

8

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Sales Net Income

Lackluster Financial Performance Eroding Market Share

EXISTENCE UNDER SEVERE THREAT

• Intel creates better CPUs than AMD based on performance, overclocking, and value

• Overall revenues are insufficiently compete with Intel’s

Source: PCPRO

Acquisition of ATI

Acquisition in 2006 was an expensive misadventure

$1.6 billion of goodwill was written off in Q4 2007

Huge financial burden and diverted resources away from R&D

Weakened the competitive advantage of AMD’s new products vis-à-vis Intel


AMD is virtually non-existent in the mobile handsets segment of the industry

Source: Various Sources


Catch up with Intel in the CPU Market

Expansion into Mobile Handsets

Expansion into Semi-Custom Business

Cost

Scalability

Time Period

Risks

Overall

Expansion into the Semi-Custom Business is the best alternative for AMD

More desirable

LEGEND:


THE FUTURE IS FUSIONStrategy

AMD has acquired new capabilities and resources with the acquisition of SeaMicro

Source: Forbes

Acquisition of SeaMicro

AMD bought SeaMicro in February 2012 for $334 million in total: $281 million in cash and the remainder in stock

Gained ability to directly negotiate with the buyer instead of having to go through other server manufacturers such as Dell and HP

Gained a path in the low-power server space by providing a role in cloud datacenter business


AMD has not fully utilized the capabilities and resources from the acquisition of SeaMicro

Source: Forbes

SeaMicro still produces its microserverswith both Intel and AMD processors

AMD has, rather ironically, become an Intel OEM

AMD Optero

n25%

Intel Xeon

E375%

High-Density Servers for Cloud Computing

Rearranging Current Revenue Stream


AMD must effectively and strategically invest in the CPU & GPU segment to compete with Intel

CPU/GPU

Product Differentiation

CPU & GPU accounts for more than 60% of AMD’s revenue stream

Two distinctive segments will be targeted:

text1

Optimal performance

for daily PC users

Low Price

Targeting high-end

gamers and over-

clockers

High Price


AMD can leverage on SeaMicro to develop Semi-Custom business units for the server market


Servers

Cloud

ERP

Commu-

nication

WebTelnet

Mail

Proxy

Vertical Integration

SeaMicro’s extended x86 platform product line can be used to exclusively target the server market

AMD can develop a platform where it can deliver products based on the platform, thus making it semi-custom

With minimal development cost, AMD and SeaMicro can target all the industry that require micro processors


SeaMicro can boost the sales of AMD's Opteron processor product line to increase revenues

Source: Gartner & IDC Press Release

Global Server Market 2007 2008 2009 2010 2011 2012

Total Server Shipments (Mil) 8.8 9.1 7.6 8.9 9.5 9.7

X86 Server Shipments (%) 84.7% 84.9% 87.8% 87.1% 84.3% 82.8%

Total Server Revenue ($Bil) 54.8 52.6 43.1 48.9 52.8 52.5

X86 Server Revenue (%) 53.6% 52.9% 57.6% 65.3% 65.2% 68.2%

(In USD Million) 2007 2008 2009 2010 2011 2012

X86 Server Shipment 7.5 7.7 7.6 8.9 9.5 9.7

AMD’s Share in x86 Servers 15.0% 13.4% 10.1% 7.0% 5.5% 4.4%

According to I.H.S Research, in 2012, 88K units of microserversare sold and it is expected to grow to 1.3 million units in 2016

SeaMicro can effectively market AMD’s Opteron processor through Semi-Custom business units, which will increase current market share of 4.4% up to 8 to 10% with the increasing demand on microservers

Revenue increase:52.5 x 68.2% x 8% = 3.6B USD

Implications


Financial analysts also predict increased revenues for AMD from the processor segment

Source: Trefis

Approx. 1.8B USD4.4% of server market share


Alliance with different small server software companies to supply them the SeaMicrohardware

Source: Forbes

Strategic Alliances

Fast growing ERP companies like OnDemand, WorkForce , Venty and Netsuite has the potential to grab extra market share.

Every 0.01% market share captured by these company could be translated into extra revenue of 7.35M USD (assuming that the profit margin of the server is 30%)

Estimated number of Alliances: 3Captured in ERP market share: 2%

Expected Revenue increased:24.5 x 2% x 30% = 490M USD

Creating New Revenue Stream


A huge opportunity lies in the other part of the server industry – ARM based servers

Source: Wall Street Journal

Global Server Market 2007 2008 2009 2010 2011 2012

Total Server Shipments (Mil) 8.8 9.1 7.6 8.9 9.5 9.7

X86 Server Shipments (%) 84.7% 84.9% 87.8% 87.1% 84.3% 82.8%

Total Server Revenue ($Bil) 54.8 52.6 43.1 48.9 52.8 52.5

X86 Server Revenue (%) 53.6% 52.9% 57.6% 65.3% 65.2% 68.2%

Implications

The revenue of the server industry is 52.5B USD and 68.2% of it belongs to x86

The remaining belongs to the next-generation ARM based servers

Ideal Solution for Servers

ARM based processors delivers higher efficiency and less power consumption at the cost of slight performance

According to IHS, demand and expectation for ARM based servers are rapidly increasing


AMD can capture the new trend in the ARM based servers to create new revenue stream

Source: ARM

Product Differentiation

Develop ARM based servers to capture its increasing demand due to its higher efficiency than existing x86 platform

Only three companies are developing next generated ARM based processors

Estimated increase in Revenue assuming 10% of SeaMicro’s

market share in ARM based servers:52.5 x (1 - 0.682) x 10% = 1.7B USD

ARM


AMD can acquire the ability to develop ARM based mobile processors as a positive by-product


ARM-based Technology

In the long run (2 years), AMD will automatically gain the ability to develop ARM based mobile processors for Android and iOS devices with technological knowledge gained from server processing units

Increased Revenue: Inestimable since its in a form of intellectual property in the future

THE FUTURE IS FUSIONImplementation

The revitalization plan of AMD will be carried out over a period of 24 months


Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Semi-CustomBusiness Units

Building the Architecture

Negotiation

Fine-Tuning & Delivery

ARM based servers

Research & Development

Building the Architecture

Negotiation

Fine-Tuning & Delivery


The acquisition of SeaMicro puts AMD in an awkward position


Customers

Customers

COMPETE


SeaMicro has no intention to compete in the same arena and thus the threat is non-existent


Customers

Customers

No Threat


The ever changing technological landscape gives rise to uncertainties


BEGINNING END3 YEARS

Full of SURPRISES

IT INDUSTRY


There will be precautionary measures undertaken to pre-empt the uncertainties ahead


BEGINNING END3 YEARS

Emphasis on time schedule

Aim to have zero delays

Adopt best practices

Mitigations

THE FUTURE IS FUSION

The USSR might have lost the Cold War, but all hope is not lost for AMD

L1 6

Technology

Transcript of L1 6