AMD must return to the basics

Last year we talked about the current commercial strategies of Intel, NVIDIA and AMD, but now we want to analyze just the strategies of AMD.

Former CEO Rory Read has paved the way, and now the CEO Lisa Su is doing a great job making AMD great again (Trump citation needed). But how?

Firstly, we have to quote Jerry Sanders, first AMD CEO: “People first, products and profit will follow”. Thanks to this idea, AMD has grown to the point of becoming the main Intel competitor. Despite the limited resources, AMD has been able to create some little gem, like K7, Hyper Transport, and K8.

Rory Read, as CEO, has taken up Sanders’ idea, creating a team of senior "pissed-off" engineers (Zen/K12 team), and calling back some never forget AMDers: Raja “The Oracle” Koduri, Terry “Catalystmaker” Makedon, and so on. Do you remember Mr. Wolf in Pulp Fiction? "I'm Rory Read. I solve problems".

Now, Lisa Su must insure that these efforts will be successful.

In 1998, Atiq Raza, AMD VP, before K7 launch, said: "As long as we stay close to their highest performing parts, Intel cannot hurt AMD without hurting themselves. That’s the name of the game: stay close, big volume, higher performance, execute flawlessy". (MaximumPC 10/98)

Atiq Raza was Sanders heir apparent, but unfortunately he left the IT industry in 1999 for personal reasons. And instead of Raza, as AMD CEO was selected Hector Ruiz, so Sanders’ plans blowed up. Which plans?

For example, in order to improve AMD production, Sanders looked for an alliance with UMC: “The AMD/UMC fab (or fabrication plant) will knock out 300-mm wafers for high volume production of PC processors 'and other logic products'. UMC will also make PC processors for AMD in a separate foundry agreement. This will augment production at AMD's Fab 30 in Dresden, where Athlon chips are made. And it will enable AMD to move more quickly to the manufacture chips with a smaller die size. UMC-made AMD CPUs will kick off on the 130 nanometer (more commonly calibrated as 0.13micron) production line. The duo aim to move to 65 nanometer production in 2005” (Source).

Ruiz, appointed as CEO, changed AMD philosophy: he tried to challenge Intel in its game. Instead to continue a price war, like during K7 times, Ruiz priced K8 CPUs at Intel levels (UMC alliance was rejected). Instead to continue to invest in R&D, Ruiz bet on Intel inability to back into play (R&D investment was reduced).

Registred Patents, from 1998 to 2005, by AMD and Intel. Source: Calendar Year Preliminary List of Top 20 Patenting Organizations, by U.S. PATENT AND TRADEMARK OFFICE

Maximum PC, 10/2008

This modus operandi killed long term AMD potentiality, and Dirk Meyer was just a victim of this wicked strategy. From 2002 to 2008, Ruiz destroyed AMD by a financial point of view, and Meyer tried to made a new miracle with Bulldozer and the APUs (Also he was forced to accept the FABs spin-off ... GlobalFoundries). But as uArch engineers know, “Designing microprocessors is like playing Russian roulette. You put a gun to your head, pull the trigger, and find out four years later if you blew your brains out” (Robert Palmer, CEO of DEC). The miracle didn’t happen, and now people unfairly blame Meyer.

"Inside CEO Succession: The Essential Guide to Leadership Transition", by Thomas J. Saporito and Paul Winum, John Wiley & Sons, Inc., 2012

Between K7 and K8 era, AMD was known to have the best performance/price ratio CPUs, not the cheapest ones. Thanks to K7 products, AMD made a qualitative leap: Palomino CPUs were a huge bargain for the consumers, especially gamers. AMD sold its CPUs at a lower price than Intel not because its CPus were inferior, but for a marketing choice. With the K8 CPUs, Ruiz tried to follow Intel marketing path.

The real problems started with the first Phenom iteration, and later with Bulldozer CPUs. AMD, to staying afloat, had to sell its processors for a small amount of money. This change of mind had a damaging effect on customers perception of AMD: AMD was not longer the leader, and it was not acknowledged anymore as the company with the best performance/ratio CPUs since K7. This was a huge marketing mistake, even if it was a set route: “But when price becomes the focus of a message or a company’s marketing activities, you are beginning to undermine your chances to be perceived as being unique. What you’re doing is making price the main consideration for picking you over your competition. That’s not a healthy way to go. Few companies find happiness with this approach for the simple reason that every one of your competitors has access to a pencil. And with it, they can mark down their prices any time they want. And there goes your advantage” (Differentiate or Die, by Jack Trout, Pag. 45). AMD had lost its own distinctive trait.

MaximumPC, 02/2008

K6, and later K7 allowed AMD to use the same strategy Dell used against IBM and Compaq in 1980-1990: “They attached IBM and Compaq with comparative ads featuring side-by-side photos of computers. Copy under a Dell PC: “The lap of luxury” with a $3.899 price tag on the screen. Under a Compaq model: “The lap of lunacy” with a $7.699 price tag” (Differentiate or Die, by Jack Trout, Pag. 47). If you are the cheaper solution, doesn’t mean that you are the worst solution.

AMD ads, InfoWorld, 04/1997

Lisa Su has to restore the old AMD distictive trait: a cheap and luxury brand, just like during K7 era. But how? With the RyZen CPUs, of course.

To restore its own cash, AMD has two possible paths:

• commercialize a stunning product, at a premium price (K8 Strategy);
• commercialize a stunning product, at “human” price (K7 Strategy).

We have to exam the context: “The context also include what’s happening in the market. In the timing for you idea right? […] It’s like riding a wave. If you’re too early or late you’ll go nowhere. Catch it just right and you’ll get a long and profitable ride is your difference” (Differentiate or Die, by Jack Trout, Pag. 47).

We know that ARM is not a viable way today (K12 has been postponed), and we know that low-end and middle-end PC markets are slowly dying. The core of the PC market is today composed by Enthusiast users (Core i5/i7) and Prosumer users (HEDT). AMD has to attack these markets. A lot of people want to upgrade its own Socket 1366/1150/1155 platform, but these users didn't upgrade their PCs with Skylake or Broadwell-E, so RyZen could be a winner only if it will have a good price/performance/feature ratio. RyZen must have an aggressive price!

Lower PC markets are non influential: to surf the web or to write a document, a Celeron or a tablet is more than enough.

To accomplish this goal, AMD has to improve its marketing department. The “Radeon Rebellion” campaign follows this strategy: high quality products, relatively low prices. AMD can sell excellent products at an excellent price: “Every aspect of your communication should reflect your difference. Your advertising. Your brochures. Your web site. Your sales presentations” (Differentiate or Die, by Jack Trout, Pag. 69). AMD will not change this strategy when RyZen will be commercialized: “More aggressive marketing may be called for in periods of lessened buying interest so that companies can push their products through larger consumer benefits. Automobile makers across the globe follow such kind of strategy during the economic downturn stage. While the industry sale figures may experience cyclical variations, the successful firm has a rising sales trend line due to aggressive marketing. Such kind of persuasion of an aggressive marketing strategy depends on the manager’s ability to foresee, correctly estimate and reach new market opportunities” (Marketing Management, Second Edition, Tapan K Panda).

RyZen will be where the actions is (Enthusiast and gaming markets): “Marketing is “Where the actions is”, primaly because it is the most exposed of all business activity. […] In fact, in the minds of most consumers the marketer is the company” (Marketing Management, Second Edition, Tapan K Panda).

According to these statements, RyZen CPUs have to be a stunning product, and have to be sold at "human" prices to be successful.

RyZen seems to be a great product, but a great product sold at a low price is not enough to have success. You have to sell it. A good marketing campaign is the way to achieve this goal: The power of Simplicity.

From Differentiate or Die, by Jack Trout, Pag. 77: "Consider the Apple Newton. It was a fax, bepper, calendar keeper, and a pen-based computer. Too complex. It's gone and the much simpler Palm Pilot is an enormous success. The best way to really enter minds that hate complexity is to oversimplify your message. Some of the most powerful programs are those that focus on a single word (Wells Fargo: fast. Volvo: safety. Listerine: germ killing). The lesson here is not to try to tell your entire story. Just focus on one powerful differentiating idea and drive it into the mind. [...] Anything that others could claim just as well as you can, eliminate. anything that requires a compex analysis to prove, forget. anything that doesn't fit with customers' perception, avoid".

John Taylor, Corporate Vice President, Worldwide Marketing at AMD, told about Zen (05/2016): "By the end of the year, AMD will have moved on, to both its Zen CPU core as well as the Polaris graphics architecture. We are far closer to Intel than ever before – you always need a number two to keep them honest".

AMD message about RyZen must be something like: "Same performance of Intel's CPUs, but at half price", or "The True HEDT CPU"

Also, AMD has a great advantage over Intel. It has to sell just HEDT CPUs: "First, the specialist can focus on one product, one benefit, and one message. This focus enables the marketer to put sharp point on the message that quickly drives into the mind" (Differentiate or Die, by Jack Trout, Pag. 81). Intel, on the other hand, has to protect all its own portfolio: from low-end Celerons, to high-end HEDT CPUs.

Moving on, AMD could be the first company which sells HEDT CPUs at human price: "Getting into the mind with a new idea or product or benefit is an enormous advantage. That's because minds don't like to change. [...] And if you are there first, when your competitor tries to copy you, all they will be doing is reinforcing your idea. It’s much easier to get into the mind first than try to convince someone you have a better product than the one that did get there first" (Differentiate or Die, by Jack Trout, Pag. 83). 

As Jack Trout wrote, "Studies show that in most cases being first to the market provides a significant and substantial market share advantage over later entrants. It also forces later entrants to find their own distinctive positioning strategy. Such was the case with Pepsi-Cola’s “The choice of the new generation”. If Coke was the original, it obviously was for older folks. Pepsi added a little extra sugar and went for younger folks. It was a differentiating idea that also resonated with its target audience. It’s also an idea that never should have been dropped" (Pag. 85).

To improve this idea, AMD has to find an attribute for RyZen: "First, an attribute is a characteristic, peculiarity, or distinctive feature of a person or thing. […] What makes a person or a product unique is being known for one of these attributes. […] If you are not a leader, then your word has to have a narrow focus. […] The most effective attributes are simple and benefit oriented. No matter how complicated the product, no matter how complicated the needs of the market, it’s always better to focus on one word or benefit rather than two or three or four, and stay with it” (Differentiate or Die, by Jack Trout, Pag. 95).

What kind of attribute is perfect to describe RyZen? I don't know, but "some attributes are more important to customers than others. You must try to own the most important attribute" (Differentiate or Die, by Jack Trout, Pag. 97).

AMD has a long history, and this thing must be exploited: "Heritage has the power to make your product stand out. It can be a powerful differentiating idea because there appears to be a natural psychological importance in having a long history, one that makes people secure in their choice. […] But unlike countries such as China and Japan, where elders are given the utmost respect, our culture tends to have an abhorrence of old age. Everybody wants to be young. Old and wise means out it and passé" (Differentiate or Die, by Jack Trout, Pag. 115). For this reason, today Lisa Su seems to be years younger than in 2014.

Lisa Su, then and now

However, "another way to look at this approach is to recognize that being around a long time also gives prospects the feeling that they are dealing with an industry leader. If not the biggest, they certainly are a leader in longevity" (Differentiate or Die, by Jack Trout, Pag. 116).

So, if you have a long history, you probably have a speciality or two: "Generalists like General Electric, though their names are big, are weak in the market. Consider a big food name like Kraft. When that name is taken out against specialist brand names, nothing good happens. In mayonnaise, Hellmann’s trounces them, In jellies, Smuckers kills them. In mustard, French’s annihilates them. In yogurt, Dannon destroys them. Lucky for Kraft they have some specialist brands of their own. In fact, Kraft’s biggest brand is one that few people recognize as a Kraft product. It’s Philadelphia brand cream cheese. Even though “Kraft” is on the package, people don’t even see it. To most, it’s all about those little cheesemakers in Philadelphia” (Differentiate or Die, by Jack Trout, Pag. 128).

Like Kraft, even Intel is big and has some specialist brands: i5 and i7 “Core” CPUs, Pentium, and Celeron. Some years ago, even though “Intel” logo was on the cabinet, people just know that it had a Pentium CPU. The same today, with the brand "Core".

So, AMD has to become the specialist of HEDT CPUs: "People are impressed with those who concentrate on a specific activity or product. They perceive them as expert. And as expert, they tend to give them more knowledge and experience they sometimes deserve" (Differentiate or Die, by Jack Trout, Pag. 127). Apple is still the specialist of the video editing according to the most of customers!

At least, we can say that AMD is a truly expert about HEDT CPUs: AMD invented this category with the FX brand. :)