Analysis: AMD Asset Lite Strategy Will Create MAD AMD
Santa Clara (CA) - During the past couple of weeks, we contacted several current and former staffers along with partners in and around AMD’s ecosystem. In this article, we will focus more on revealing AMD’s corporate culture, which might be the main reason to blame for some departures, and then again, also a reason for some firings.
Barcelona’s shipment delays reveal complacency in the company
We start off with a situation that demonstrated AMD having a problem with execution and nature of those problems. Originally, K10 architecture (Barcelona/Agena) was supposed to enter volume production in February ’07, but it turned out that the product will be delayed to August ’07. In the end, we all know what happened - Translation Lookaside Buffer bug delayed the volume shipment until Barcelona B3 showed up in April of 2008.
The cause for delay did not happen in February 2007, nor was the delay a result of some obscure technological issue. AMD’s sales executives were quite happy with the fact that Opterons were selling like hot-cakes, and happiness was such that the company decided to delay their 65nm development in order to get as much 90nm wafers as possible. Delay of the process inherently affected Barcelona development and we ended up with a rushed product with a TLB SNAFU and a grand total of 14 months off schedule. The original Opteron was also delayed for nearly two years, but reasons were of technical nature, not a result of strategic call.
If we compare AMD to NVIDIA or Intel, it is easy to see what is actually going wrong with the company. AMD’s culture was explained to us as the sludge, often seen in countries such as Spain, France, Italy, Croatia, and Greece : divulging the responsibility for past, current and future projects to a level where it is be impossible to tell who was responsible for the project that what went wrong. Result - responsible people stay, scapegoats get pink slips.
In the past two years, we listened to numerous partners complaining about the projects that were started, effort (time+money) was put from the partner side, but it all suddenly stopped. "Sludge" was the term we heard from several industry partners ; from AIB/OEM/Distribution to Software/FAE side. Partners complained that the representatives that they were working with simply shut their computers off at 10 to 5PM or 5 to 5PM.
One of person we asked for comment is still an important partner to AMD commented on Radeon HD 3800 launch : "We worked hard on launching a product that would cater to the enthusiast market segment. However, seven days before the launch, we were still waiting to receive anything from them. No blueprints, no dummy boards, nothing. How can we compete with goblins [NVIDIA], when their partners launch enhanced products on [sales] week one ?"
That launch was subject to a lot of criticism from a lot of vendors, but it got silenced by a TLB bug and cancellation of the Phenom 9700 part. Another partner did not have kind words while commenting on one office in EMEAI region : "I cannot believe that they hired a MarCom person that does not speak English. What is going on in there ?"
AMD executives jumping off board
The issue with the Sludge spreading inside the company caused several AMD executives to leave the company would span across several pages, but we’re going to name just a few :
Henri Richard - One of first things done was that he joined AMD with Ferrari. Due to connections of AMD and Ferrari, Mubadala Abu Dhabi investment fund (UAE) bailed out AMD with a $608 milion investment and now owns 8.1% of AMD. Yes, it is the same fund that owns 5% of Ferrari, with logos located on Ferrari F1 cars and drivers. Henri left the company when TLB-gate started happening, now heads Sales & Marketing at Freescale Semiconductor and races in Ferrari Challenge.
David E. Orton - probably one of most soft-spoken executives you’ll ever meet. Dave was CEO of ArtX, got acquired by ATI, took lead of ATI Technologies, turned them around, established partnership with Microsoft, expanded the company into desktop, mobile, console, handheld and Consumer Electronics space. After failing to acclimatize with the new corporate culture, Dave decided to leave AMD in the summer of last year.
Phil Hester - CTO. Most recent departure, Phil was brought from IBM to head the AMD Fusion project. Left after whole Barcelona TLB bug debacle and the delay of upcoming "K11" core to late 2009 (Fusion processors : Falcon/Swift will feature 45nm K10.5 core, not K11 - Bulldozer/Bobcat), key part of AMD’s APU (Accelerated Processing Unit) strategy. He was replaced by Mike Uhler, but not as the new CTO.
Other departures included VPs such as Peter Edinger, Rich Hegberg, Gianluca Degliposti, and Chris Talago, just to name the few. Overall, number of "leaving AMD" e-mails we’ve received so far was greater than any company we’ve seen so far. We have mentioned only executives here, but also a lot of people left PR department : Andrzej Bania, Chris Evenden, Lorenzo Martone, Lars Weinand (former Tom’s Hardware Guide editor), Bubba Woolford, Jagoda Zieleznik and many more. Logic dictates that when executives and PRs are jumping ship, there is something seriously wrong going on.
AMD’s Asset Lite is a path to the AMD 5.0
In its current configuration, AMD needs $2.0 billion revenue a quarter to turn a profit, and the company right now cannot deliver more than $1.5-1.72 billion. With the reduction in workforce, company will save 40-60 million dollars per quarter ($150-250M/year), which should help the final bill. This should enable turning a profit in at least one quarter a year, and we have our suspicion when will the first positive quarter happen. Real test will happen with Asset Lite strategy.
But in order to understand what Asset Lite is going to create for AMD, we divided AMD’s development by generations :
AMD 1.0 - end of 60’s, 70’s. Memory Semiconductor Company, reverse engineering on Intel’s 8080 processor, bit-sliced microprocessors Am29K series, experiments with graphics and EPROM memory. Sex, drugs and rock’n’roll are all parts of industry legend how Jerry signed some of his first customers.
AMD 2.0 - 80’s to mid-90s. A lot of AMD employees like to skip the first part, given the wild-60’s and 70’s nature of business, so they like to say that AMD actually started with so-called age of second-source : IBM wanted a second source for x86 CPUs, and Intel had no choice but to give x86 license to an unnamed company... such as one that already managed to reverse engineer the CPU - here comes Jerry ! First semi-serious challenge to Intel was AMD 386DX/40, a 386 CPU with integrated FPU ; working at 40 MHz (Intel’s 386 peaked out at 33 MHz). Truth to be told, 386DX/40 appeared when i486 was gaining ground. However, finances were debatable, and company struggled to survive.
AMD 3.0 - mid-90s to 2006. AMD made their first serious acquisition at the time company was bleeding badly, with 5x86-PR1xx and K5 processors suffering from dismal performance in floating-point operations, Acquisition of NexGen brought Atiq Raza on-board and started the creation of first true competitive architectures : K7 and later K8. This era resulted with the success of Opteron - signs that company grew up enough to start supporting mission-critical infrastructures.
AMD 4.0 - 2006-2008. Acquisition of ATI Technologies came at the very end of AMD sitting on its laurels, enjoying the utmost success of K8 architecture, challenging Intel on all fronts : desktop, mobile, server and workstation. However, after the acquisition, company slowed down to a crawl, while competition stepped up and left AMD/ATI offerings behind in terms of performance, power consumption.
AMD 5.0 - Asset Lite era, 2008-2012. During and after the 10% cull, business units are migrating into more flexible divisions. In next three quarters, AMD is set to announce additional Mubadala Abu Dhabi investment into new business : OnlyArabsHaveFabsTM. Set to adopt semi-fabless model. Biggest challenge : corporate culture and market conditions.
Players in card shuffle that will change AMD for good are Hector de Jesus Ruiz and executive board from one, and Mubadala Abu Dhabi Investment Company from another.
Mubadala Abu Dhabi is investment fund owned by Abu Dhabi Government and serves as a direct investment company for United Arab Emirates. Mubadala invests in aeronautics & automotive industry, electricity and real estate. Technology-wise, MAD owns only two telecommunication companies : YahSat (100%, satellite phone) and du (20%, fixed line provider).
What is Asset Lite ?
There have been various conclusions and analysis about what AMD’s Asset Lite is. In short, we are talking about creation of influential giant that links U.S.A., Canada, Germany, Russia, Emirates, Singapore, China and Korea into one melting pot. But what is important to understand is the fact that AMD vision for the future is not delivering chips, but rather complete platforms. My ex-colleague Charlie delivered spot-on analysis a while back, but what he omitted is just how "AMD Foundry" would operate.
AMD is splitting into two entities : Daamit Inc. ("original" AMD+ATI), while AMD East Fishkill, AMD Saxony, facilities in Malaysia, Singapore, China and upcoming AMD New York will going to form into "AMD MAD LLC". AMD MAD is very appropriate, since by some odd chance, short name for Mubadala Abu Dhabi would be MAD. So, we have MAD AMD in making :-)
This is very same receipt as FASL LLC (Fujitsu-AMD), joint venture that was renamed into Spansion. FASL LLC started its life as Fab 25 in Austin (TX), which was converted from CPU to flash manufacturing, took capital from Fujitsu and ended up being spun off. This reduced the headcount by 8400 employees and you can expect that AMD MAD will do the same.
MAD AMD LLC is an interesting combination : split ownership between AMD and Mubadala Abu Dhabi investment fund. We’re talking about more than 5 billion dollar investment for a minority stake in this joint venture, or a golden ace from Hector’s sleeve. Ironically, thing is that according to our sources, this new company will be worth almost twice as AMD’s current market cap.
Just like in a case of Ferrari S.p.A, Mubadala Abu Dhabi is satisfied with minority stake, and AMD has to control the company : x86 license terms between Intel and AMD state that percentage of non-AMD manufactured wafers cannot exceed more than 20% of x86 market share. MAD AMD LLC will be owned by AMD, and case closed.
Capex that MAD AMD LLC has ahead of them is somewhat astounding. According to numbers we managed to acquire, AMD Saxony LLC (Fab36+38) has to undergo $2.5B investment for complete conversion into 45 nm 300 mm wafer plant and able to produce 50,000 wafer starts per month (resulting in manufacturing possibility of over 100 million AMD CPUs).
At the same time, New York Fab was supposed to cost 3.2 billion USD. However, due to continuous devaluation of US Dollar and rising cost of oil New York Fab will cost around $3.6-4.2B, plus additional $1.1 billion from NY State (originally, it was $900M). Thus, MAD will have to invest between 4.5 and 6 billion USD. We would bet on 5.5B as the original sum, but that is nothing else but a hunch.
Headcount for AMD Inc. will decrease by 4000 (Saxony), 3000 (Malaysia, Singapore, China) and with completion of New York Fab, MAD AMD LLC will employ around 10000 people across the globe.
Daamit Inc. is nothing else but current company without manufacturing headaches. This will tremendously help to reduce Capex, and enable AMD to turn in revenue with much better margins. In numbers, AMD will first decrease from current 16800 to around 15000 (10% cut), and additional 7000-8000 will be spun off into MAD. With approx. 7000-8000 employees, AMD should be much more flexible in terms of designing new products. However, inherit danger of Sludge will remain.
As you can see, AMD is starting to execute migration from 4.0 to 5.0. This will happen in following stages :
1. Workforce reduction. Another set of executives of different ranks will leave for a combined total - 10% of workforce.
2. Reorganize regions in order to cover the market better. We’ve seen EMEA becoming EMEAI (Europe, Middle East, Africa, India), and the trend is set to continue.
3. Asset Lite announcement : changing the business model into AMD Inc. and MAD AMD LLC. Manufacturing part will receive cash injection high enough to build the New York Fab and pay for tooling machines for Fab38 and Fab36.
Of course, each of these moves can result in positive, but also in a negative way. Inherit dangers are :
1. Keeping the obedient, pink slips for creative individuals. During first wave of exodus from AMD/ATI, we heard that people who kept their head down stayed on the job, while people that were trying to change the status quo and threatened the Sludge were given goodbye letters. If AMD looses creative souls, company is destined to remain on outskirts of competitiveness.
2. Expanding the regions by too much will result in poor coverage due to lack of understanding for specific markets (we heard numerous complaints about how all three major players mistreat Africa, middle-East and India/Singapore). One person cannot handle the load and differences in any line of business if he/she has to work with India, Middle East countries and of course, Europe with 30+ countries.
3. AMD siding with middle-Eastern folk is guaranteed to cause a lot of turbulences, especially in a case of Luther Forest Technological Park. Arabs owning the largest allowed number of shares for a factory close to The Big Apple is a tough one to crack, say industry experts.
AMD is not going down any time soon and even after the AMD + ATI vs. MAD AMD LLC split, cooperation with IBM, TSMC, Chartered, ANGSTREM, AMD will not stop. In fact, it will expand into another alliance, but that is a subject for future stories.
Current corporate climates have to change at AMD ; otherwise it will continue to be an occasional challenger to industry heavy-weights like Intel and NVIDIA. This is also one of the primary reasons why the deal with Mubadala Abu Dhabi fund was not announced earlier.
One thing is certain : doomsayers claiming that AMD is dead forgot to check the facts. Just like they forgot to check actual facts of Ferrari in 1993, Apple in 1997, Airbus SAS in 2006, Nvidia in 2002, and Microsoft in 2007. This is big business, and big changes do not happen overnight. The success or failure of one product isn’t necessarily a sign of certain death for a company.