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Commentary: AMD's next challenge

New Chief Executive Hector Ruiz--formerly Advanced Micro Devices' president and chief operating officer--inherits a colorful legacy that he must transform into growth and profitability.

    By Martin Reynolds, Gartner Analyst

    New Chief Executive Hector Ruiz--formerly Advanced Micro Devices' president and chief operating officer--inherits a colorful legacy that he must transform into growth and profitability.

    Jerry Sanders, AMD's chairman and outgoing CEO, has taken the battle with Intel personally. He doggedly invested in his microprocessor business through bad times and good, and his tenacity has resulted in his company being the last significant competitor to Intel. The company has outlasted Cyrix, IDT (Integrated Device Technology), Chips and Technologies--and even IBM--in this savagely defended market. Indeed, the war has been fought on many fronts, including marketing, legal, technical and manufacturing, but AMD has weathered it all and, occasionally, turned a profit.

    AMD keeps searching for opportunities. Its new group of Personal Connectivity Solutions (PCS) processors will enable multimedia for the next generation of handheld devices. AMD sees a good opportunity as handheld devices become more sophisticated.

    The PCS group will initially expand products it acquired when AMD bought Alchemy but will eventually move into a broader wireless networking system market. The chipmaker thus signals its desire to open up a potentially lucrative market supplying customers with full sets of multimedia features for handheld and other wireless devices.

    The forecasts for handheld devices are impressive: Gartner Dataquest estimates worldwide personal digital assistant shipments will total 15.5 million units in 2002, with cell phone shipments exceeding 400 million units in 2002. AMD wants a piece of that market.

    AMD is a major player in PC processors and flash memory and now has the PCS group. Intel is the driver of PC processors, a major player in flash memory, and two years ago embarked on an extensive program to establish itself as a force to be reckoned with in wireless communications and handheld computing. The two companies have been archrivals in their former markets and look to be on a collision course in the new wireless and handheld arena, one dominated by Texas Instruments and Qualcomm.

    See news story:
    End of era as AMD's Sanders steps aside
    The challenge for Ruiz is to take the legacy of competing in the market and turn it into operational success. The line that he and AMD must tread is a fine one, balancing billion-dollar investments against cash flow and profitability a year down the road. Missteps are easy in the processor business, and Intel is an unforgiving competitor.

    Perhaps the nature of the challenge is underscored by AMD's unlikely deal in 1995 when, for $860 million, it purchased 9-year-old start-up NexGen, which had failed to deliver a compelling product to the market. Overcoming cultural, geographic and technological barriers, the deal ultimately brought AMD compelling and competitive products that compare well with Intel's offerings--all in all, a successful high-tech merger.

    (For a related commentary on AMD, see gartner.com.)

    Entire contents, Copyright © 2002 Gartner, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.