Amid challenges, chipmaker AMD sees a way forward

Company, which employs 1,600 in Austin, is counting on its new Zen microprocessor design project to turn its fortunes around.


For more than two decades, Advanced Micro Devices Inc. has been the comeback kid of computer-related electronics.

The chipmaker has worked itself into difficult places only to make Houdini-like escape through clever and pioneering products, acquisitions, business restructuring and through winning legal settlements.

Now AMD finds itself in another difficult place — and company leaders think they know the name of the potential escape hatch. It is called Zen — a microprocessor design project whose results are expected to start showing up in a family of new products starting in 2017.

Zen is a new design for an advanced processor core, or data-crunching engine, that will be used in a wide range of AMD chips to be brought to market over the next several years.

“If Zen hits, they are back in the game,” said analyst Patrick Moorhead with Moor Insights & Strategy in Austin.

“Everything is riding on Zen,” said analyst Nathan Brookwood with Insight 64. “They are shooting for performance parity with where (arch-rival) Intel will be. AMD understands that they have to succeed with Zen. If Zen fizzles, they will really have to do a lot of running around.”

By that, Brookwood means AMD could be in trouble if Zen is not successful.

Suzanne Plummer, the veteran Austin chip engineer who heads the Zen team, exudes confidence about the project.

“It is the first time in a very long time that we engineers have been given the total freedom to build a processor from scratch and do the best we can do,” Plummer said. “It is a multi-year project with a really large team. It’s like a marathon effort with some sprints in the middle. The team is working very hard, but they can see the finish line. I guarantee that it will deliver a huge improvement in performance and (low) power consumption over the previous generation.”

Plummer has worked at AMD since 2002, when it acquired the startup she was working for, Alchemy Semiconductor.

If Zen-based products don’t ship in volume until 2017, what will AMD depend upon in the meantime? It has a new family of promising lower-power chips based on a current generation design called “Carrizo.” It has made advances in graphics processors should translate into stronger sales. And it expects to sell more “semi-custom” processors into non-computer devices such as game consoles and other products.

If AMD can return to prosperity, that should make a difference in the computer industry, where it is an important alternative source to Intel Corp., and to Austin, where the company remains a leading tech employer. AMD has about 1,600 workers in Austin, which is about half the local employment it had several years ago.

AMD’s big challenges remain its larger long-time rivals — Intel in computer processors and Nvidia in computer graphics chips.

But lately it has run into an even tougher adversary — the dramatic downturn in the global personal computer market.

PC shipments dropped by 11.8 percent in the second quarter compared with a year ago, according to the IDC market research firm.

Even with the decline, the market remains sizable — 66 million PCs were shipped during the quarter and IDC projects this year’s total will be above 281 million units.

But analyst Dean McCarron with Mercury Research notes that this kind of downturn is unprecedented for PC sales.

PC sales have been in a slow-growth to no-growth mode for the past few years due to the advent of more capable smartphones and tablet devices, but last year the bottom fell out in part because of economic weakness in emerging markets including China, Brazil and parts of Europe.

“I don’t think anybody ever imagined that we would see that big of a one-year decline in the industry,” said McCarron, who has tracked the market for two decades. “We are in a transformative era in the PC business.”

Despite the downturn, analysts say they expect to see a bounce in PC sales in the quarters ahead in part because of the advent of Windows 10, Microsoft Corp.’s new operating system software.

The PC downturn hit AMD hard. Its revenue dropped by 30.5 percent to $1.97 billion in the first half of the year due primarily due to declining sales of computer processors and graphics chips.The company lost $361 million in the first half of this year, compared with a loss of $56 million for the same part of the year before. And it could have been even worse — AMD was helped somewhat by strong sales of semi-custom processor chips to the two big makers of game consoles, Microsoft Corp. and Sony Corp. AMD has tried to develop its semi- custom chip business in recent years and Microsoft and Sony are its two biggest wins so far. The company says it has a few other customers lined up, but hasn’t disclosed who they are.

The softening of the PC business makes Zen crucial to AMD. The company needs a new generation of products that can compete better with Intel chips. If it can deliver them starting next year, the company could return to profitability, industry experts say.

The uncertainty over the PC market and AMD’s lack of profits and the company’s depressed stock price — under $2 a share in recent weeks — have fueled speculation about what AMD’s prospects might be. Analysts have speculated on potential buyers for the company. AMD doesn’t comment on rumors, but says it is keeping its focus on new products and returning the company to profitable growth.

For all its financial struggles, analysts say AMD still can be a potent force in the world of computers and graphics-related products.

Analysts Moorhead and Brookwood both say the company is making progress on tightening its product focus under new CEO Lisa Su, who was handed the reins to the company last October. Su was chief operating officer at the company before the promotion.

Su’s first major move was to cut 7 percent of the company’s global workforce — about 700 jobs — in a belt-tightening move. Early this year, she shut down its SeaMicro server subsidiary, which was unprofitable and not growing as fast as the company wanted. SeaMicro had been acquired in 2012 for $334 million when AMD was headed by previous CEO Rory Read. Su described the move as prioritizing the company’s research and development resources. AMD remains intent on developing processor chips for servers, but not in creating densely-packed “microservers,” which is what SeaMicro made.

Analysts say Su, 45, who earned a doctorate in electrical engineering from MIT, appears to have the right mix of talents to head the company during a challenging time.

“She has done a good job of getting the company focused on products first,” said Moorhead. “She runs things with an iron fist. She holds people very accountable.”

Su this year has pushed the company to focus harder on three growing areas for its computer and graphics technology in addition to PCs — gaming, including game consoles and PC gaming; “immersive devices;” and the data center.

AMD already has pushed into leadership of the gaming console market and analysts are impressed by some of its recent advancements in graphics processing.

By “immersive platforms,” Su says she includes both advanced graphics-oriented entertainment systems and industrial engineering and other technical applications.

She acknowledged AMD has set its sights on making a big push to expand in the $15 billion data center market, where AMD’s recent revenues have dwindled to about $300 million. That’s where it expects the Zen project will help.

The broad strategy is to expand AMD’s targets well beyond the traditional PC market that, until the past few years, accounted for more than 90 percent of its revenue.

“We are a technology company,” she said at an analysts meeting this year. “We have been at our best when we have delivered technology on the leading edge and we’ve taken bold risks and we’ve come out with something that nobody else has done.

“So our first and total priority is around building great products… If you ask any engineer at AMD what they are doing today, it’s about building great products…That’s what we stand for.”



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