Advanced Micro Devices Company’s Strategic Analysis

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Advanced Micro Devices is an American multinational corporation that specializes in the manufacture of semiconductors. In this study, the researcher was interested in conducting a strategic analysis of the company to provide strategic recommendations that the management can use to enable the firm to achieve sustained growth. The study relied on secondary data, especially peer-reviewed journals and books, to provide the needed information. Financial information was obtained from reliable databases such as Yahoo Finance. Findings made show that the firm is operating in a highly competitive market. However, it has been able to achieve growth through various strategies, such as its recent merger with Xilinx. The study recommends that the firm should consider investing in innovation while at the same time using various strategies to maintain growth.

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Introduction

Advanced Micro Devices, popularly known as AMD, is one of the leading developers of microprocessors in the global market. This American multinational corporation started its operation in 1969 and has since achieved massive growth in this market (Docter, 2018). The industry has become highly competitive over the years as new firms continue to emerge, targeting the same segments of the market. It means that the management has to use unique strategies of attracting and retaining its market share. In this paper, the researcher was interested in conducting a strategic analysis of this firm to understand the growth that it has achieved in the market over the years (Bogers et al., 2019). The paper analyzes both the internal and external environmental factors of the company. It also provides strategic recommendations that the management should consider enabling the firm to manage the identified challenges while at the same time taking advantage of the opportunities in the market.

Current Company Situation

Advanced Micro Devices is operating in a highly competitive market. When it comes to the manufacture of a microprocessor or central processing unit of personal computers. According to Makadok, Burton, and Barney (2018), Intel Corp has been the market leader in this industry, although the two firms have been keen on gaining and maintaining their market share. Creativity and innovation have remained the main ways through which each of them can gain a competitive edge. It is necessary to look at ADM’s current situation.

Company Profile

AMD is an American semiconductor company that is headquartered in Santa Clara in California. It is one of the major developers of computer processors and other related technologies. Founded in 1969, the firm has achieved massive growth and has expanded its market share beyond North America (Trigeorgis & Reuer, 2017). Through creativity and innovation, it has been able to expand its product portfolio as a way of increasing its revenue and meeting the needs of its clients effectively. As a way of enhancing efficiency, the firm has been outsourcing some of its manufacturing activities. The firm has over 11,000 employees, with John Edward Caldwell as the current chairman while Lisa Su is the president and chief executive officer (Durand, Grant, Madsen, 2017). Before the COVID-19 pandemic, sales revenues of the company had been rising consistently.

Financials

The financial statement of the company, shown in appendix 1 below, indicates that this company has registered consistent growth over the past five years. In 2015, the company’s total assets were valued at 3.084 billion dollars. It consistently increased in 2016, 2017, 2018, and 2019. The value of the assets in 2019 was 6.028 billion, which was almost double the value in 2015. The analysis of the growth shows that from 2015 to 2016, the growth was 7.68%, from 2016 to 2017, it was 6.96%, from 2017 to 2018, it was 28.27% and from 2018 to 2019, it was 32.31%. These statistics, especially in the last two years, show that the firm is going through impressive growth. The return on average assets, at 6.44% in 2019, confirms the sound financial position of the company.

Manpower Strength

The ability of a company to achieve its strategic goals in the market largely depends on the capabilities of its workforce. Dzwigol (2020) explains that having a team of highly skilled and self-motivated workforce determined the ability of an organization to achieve specific goals. AMD has been keen on employing skilled engineers and other experts needed to undertake various tasks. Currently, the company’s report shows that 11,400 people are directly employed by the company as engineers, accountants, marketers, logistics officers, among other professionals (Ketchen & Craighead, 2020). The majority of them work in the company’s head offices while others are deployed in different parts of the world to help promote the brand and facilitate sales of its products.

Turnover

When analyzing the progress and financial health of a company, one of the factors that one needs to consider is its turnover. It shows the strength of the firm in the market and its ability to generate a given amount of revenue within a specific period. AMD has been performing well in the market over the years. Its financial report shows that in 2019, its operating income was $ 631 million (Dvorský et al., 2020). It was a significant increase from what the company had made in the previous year. The financial reports in Appendix 1 below further state the progress that it has been making since 2015 (Ansoff, 2019). It is possible that the financial report of the year 2020 may not be as impressive as that in previous years because of the COVID-19 pandemic. However, it is evident that the firm is on an upward trajectory in terms of its stock turnover.

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Countries of Operation and Number of Divisions

When the company was founded, the management was primarily focused on serving the American market. However, the scope has widened as it continued to achieve growth. Currently, the firm sells its products in the global market. North America, Europe, and parts of Asia are its major markets in the world (Teece, 2019). The company has four main divisions in the semiconductor industry. These include microprocessors, embedded processors, and motherboard chipsets. The fourth and major division is graphic processors that are used for workstations, embedded system applications, servers, and personal computers.

External Analysis

The external analysis makes it possible to understand the market and industry forces that directly affect the operations of the company. As the management of AMD struggles to achieve success in the market, it must understand various challenges that exist in the market (Demir, Wennberg, & McKelvie, 2017). This section uses various theoretical models to assess the external market of the firm.

Theoretical Underpinnings

It is necessary to assess this market using various models. One of these theoretical models of market analysis is Porter’s five forces. It identifies various forces in the market that can influence the progress of a firm either positively or negatively (Siegel & Leih, 2018). The first factor is the level of rivalry among existing competitors. As shown in Table 2 in the appendix, rivalry among existing firms is considerably high. Intel Corp and Nvidia are the major rivals in the global market. The threat of new entrants is also growing as new firms emerge, targeting various segments of the market. The threat of substitute products is relatively low because it is not easy to replace the semiconductors that these firms sell with another product (Parakhina et al., 2017). The bargaining power of buyers in this industry is significantly high. As Zhao et al. (2017) explain, when the market is highly competitive, customers tend to be powerful because they have various options to make whenever they want to purchase an item. The bargaining power of buyers is low because the company can access raw materials from different companies.

Conducting a PEST (political, economic, social, and technological) analysis can also help in further understanding the external market (Lasserre, 2017). The political environment in the United States and most of the markets where the firm operates is relatively stable and good for its growth. The global economy, especially in major markets in North America, Europe, and Asia, has been growing consistently, leading to market growth for firms in the industry. The social environment has also been favorable as personal computers, smartphones, and tablets become essential products in social life (Konovalova et al., 2018). Technological advancements have made it possible for the company to remain innovative as it seeks growth in the market. The information is summarized in table 4 in the appendix below.

Trends, Opportunities, and Threats

The market continues to expand while at the same time attracting new entrants keen on taking advantage of opportunities that the market has to offer. One of the emerging trends in this industry is outsourcing of production activities. AMD outsources most of its manufacturing activities. The strategy enables the firm to only focus on core activities. The analysis in table 3 identifies major threats in the industry that the firm has to address (Özman, 2017). The growing global market, improved transport infrastructure, and global integration are the major growth opportunities. However, the market also has some major threats such as stiff competition in the market, counterfeiting, and political tension between the United States and China, which may slow this growth.

The Scope of Business

AMD major operates in a business-to-business model as most of its semiconductors are used in the manufacture of a wide variety of products such as personal computers. HP, Lenovo, Acer, and Toshiba are some of its major organizational clients in this market (Mohapatra, 2017). When it started its operation, the scope of the market was limited to North America. However, Europe and Asia have also been included as primary markets for the firm.

Internal Analysis

The external analysis above has identified both opportunities and threats that AMD faces in the global market of semiconductors. It is necessary to look at the internal environment to determine the capacity of this firm to overcome challenges that it faces in the market while at the same time taking advantage of the existing opportunities (Alam, 2018). The internal analysis also helps in assessing the sustainability of the company’s operations.

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Capabilities behind the Competencies That Create Value

Assessing the capabilities of the firm makes it possible to understand whether the firm can take advantage of the identified market opportunities while at the same time overcoming the threats that the market poses. Conducting a SWOT analysis helps in explaining the capabilities behind competencies that create value for the firm (Walid et al., 2019). Table 3 in the appendix below identifies strengths, weaknesses, opportunities, and threats that the firm faces. Strong brand name, financial muscle, experienced and dedicated managers, and diversified workforce is the major strengths of the firm. However, limited flexibility and high reliance on other companies to manufacture some of its products is a major weakness (Dyer et al., 2018). These weaknesses may compromise the capacity of this firm to achieve its strategic objectives in the local and global markets.

Sustainability of the Firm’s Operations

The management of AMD has developed various strategies meant to help the firm achieve growth in the market. However, it is important to ensure that strategies will endure into the future (Wessner & Howell, 2020). Mergers, such as the recent acquisition of Xilinx, enable a firm to achieve sustainable growth because it reduces competition in the market. Apple Silicon plans of introducing high core chips are a major threat to AMD in this market. However, the decision to diversify its product portfolio will help in broadening the source of income.

Definition of Issue/Problem

The previous sections have provided an analysis of both the internal and external environment of this company. In this section, the focus is to define the problem that this study focuses on and the goal that should be realized. It forms the basis upon which strategic recommendations will be provided.

The Issue

In this paper, the main issue that the researcher seeks to resolve is to enable the company to achieve sustainable growth despite the existence of various challenges in the market. Some of the problems that these firm faces include stiff competition in the market, the high bargaining power of buyers, the ease with which new firms can enter the market, and the growing popularity of Apple Silicon that is becoming a potential substitute product (Henry, 2018). The tension that is continuing to grow between the United States on the one side and China and Russia on the other is another major concern (Nazemi et al., 2019). The company has to find a way of overcoming these issues to achieve sustainable growth.

The Objectives

The identified issue is how this company can achieve sustainable growth in the face of numerous challenges in the market and internal weaknesses that compromises its capabilities. The management should define specific goals that it should achieve to enable it to achieve the desired goal. The following are the objectives that the management team of the company should focus on achieving:

  • To achieve consistent market growth through mergers, acquisition, and partnerships with some of the best brands in the local and global markets;
  • To strengthen its brand as the best developer of semiconductors with high speed and durable;
  • To find a way of tapping into the Chinese and Russian market despite the political and economic tension between the two countries and the United States.

Assessing the Strategic Recommendations

The section above has identified the problem that AMD faces in the global semiconductor industry. The section has also recommended various objectives that the management should consider to enable it to overcome these challenges. The first recommendation of maintaining expansion through mergers, acquisitions, and partnerships will help resolve some of the challenges that the firm faces. Through mergers and acquisitions, the firm will have the opportunity of expanding its market share. The strategy is effective because, in the process of expanding the market share, the firm will be eliminating competition (Mondal & McMurtrey, 2020). Mergers tend to lower the intensity of market rivalry within a given industry, as Darling, McClanahan, Mouillot (2019) observes. This approach will enhance sustainable growth for the company despite the growing competition and other challenges discussed in the section above.

The management is strongly advised to strengthen its brand in the market as the best developer of semiconductors which have high speed and are durable. Intel is currently the market leader because of the strong brand it has created by offering high-quality products in the market (Bondarenko et al., 2017). Apple Silicon may also achieve massive success in the market because of the strength of its brand. For this firm to manage the stiff market competition, it is necessary to strengthen its brand further. The strategy will enable AMD to become the preferred brand in the market (Wunder, 2019). Achieving this goal will enable the firm to achieve sustainable growth despite the stiff competition that it faces from various rivals in the market.

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It is also recommended that this company should find a way of continuing its operations in China and Russia despite the political and economic tension between the United States and the two countries. China is currently one of the largest and most preferred markets for electronic products (Sushil, 2019). The huge population and the rapidly growing economy have made the country highly attractive for companies in this industry. The management of AMD must ensure that its operations in China, Russia, or any other major global markets are not affected by the current foreign relations between the United States and the global community (Helinski, 2017). Strategic partnerships, mergers, and acquisitions of firms in these markets may help in achieving this goal. It will help give the firm a local image in these countries, which will easily be acceptable despite the existence of political tension.

References

Alam, J. (2018). Developing strategic management and leadership skills. München, Germany: GRIN Verlag.

Ansoff, H. I. (2019). Implanting strategic management. Cham, Switzerland: Palgrave Macmillan.

Bogers, M., Chesbrough, H., Heaton, S., & Teece, D. (2019). Strategic management of open innovation: A dynamic capabilities perspective. California Management Review, 62(1), 1-16.

Bondarenko, T. G., Isaeva, E. A., Orekhov, S. A., & Soltakhanov, A. U. (2017). Optimization of the company strategic management system in the context of economic instability. European Research Studies Journal, 20(2), 3-24.

Darling, E., McClanahan, T., Mouillot, D. (2019). Social–environmental drivers inform strategic management of coral reefs in the anthropocene. Nature Ecology & Evolution, 3(1), 1341-1350.

Demir, R., Wennberg, K., & McKelvie, A. (2017). The strategic management of high-growth firms: A review and theoretical conceptualization. Long Range Planning, 50(4), 431-456.

Docter, Q. (2018). Comptia it fundamentals – exam fc0-u61. New York, NY: Wiley & Sons Publishers.Durand, R., Grant, R., Madsen, T. (2017). The expanding domain of strategic management research and the quest for integration. Reviews of Strategic Management Research, 38(1), 4-16.

Dvorský, J., Petráková, Z., Ajaz, K., Formánek, I., & Mikoláš, Z. (2020). Selected aspects of strategic management in the service sector. Journal of Tourism and Services, 20(11), 109-123.

Dyer, J., Godfrey, P., Jensen, P., & Bryce, D. (2018). Dzwigol, H. (2020). Methodological and empirical platform of triangulation in strategic management. Academy of Strategic Management Journal, 19(4), 1-8.

Helinski, C. (2017). The application of the blue ocean strategy assessing opportunities for stationary fashion retail companies targeting competitive advantages. Munich, Germany: GRIN Publishing.

Henry, A. (2018). Understanding strategic management. Oxford, United Kingdom: Oxford University Press.

Ketchen, D., & Craighead, C. (2020). Research at the intersection of entrepreneurship, supply chain management, and strategic management: opportunities highlighted by COVID-19. Journal of Management, 46(8), 5-21.

Konovalova, E., Vladimirovna, E., Viktorovna, B., Viktorovna, T., & Anatol’evich, L. (2018). Forming approaches to strategic management and development of tourism and hospitality industry in the regions. Journal of Environmental Management and Tourism, 2(26), 241-247.

Lasserre, P. (2017). Global strategic management. London, United Kingdom: Palgrave.

Makadok, R., Burton, R., & Barney, J. (2018). A practical guide for making theory contributions in strategic management. New Theory in Strategic Management, 39(6), 1530-1545.

Mohapatra, S. (2017). Case studies in strategic management: A practical approach. New Delhi, India: Pearson Education.

Mondal, K., & McMurtrey, M.D. (2020). Present status of the functional advanced micro, nano-printings: A mini review. Materials Today, 17(1), 1-16.

Nazemi, H., Aashish, J., Park, J., & Emadi, A. (2019). Advanced micro- and nano-gas sensor technology: A review. Sensors, 19(6), 1285.

Özman, M. (2017). Strategic management of innovation networks. New York, NY: Cambridge University Press.

Parakhina, V., Godina, O., Boris, O., & Ushvitsky, L. (2017). Strategic management in universities as a factor of their global competitiveness. International Journal of Educational Management, 31(1), 1-11.

Siegel, D., & Leih, S. (2018). Strategic management theory and universities: An overview of the special issue. Strategic Organization, 16(1), 2-11.

Strategic management: Concepts and cases. Hoboken, NJ: Wiley & Sons.

Sushil, D. (2019). Cases in strategic management: A flexibility perspective. New York, NY: Springer.

Teece, D. J. (2019). A capability theory of the firm: an economics and (strategic) management perspective. New Zealand Economic Papers, 53(1), 1-43.

Trigeorgis, L., & Reuer, J. (2017). Real options theory in strategic management. Reviews of Strategic Management Research, 38(1), 42-63.

Walid, M., Malik, M., Arifuddin, A., Uyun, F., & Busro, B. (2019). Development of advanced micro devices media to enhance student concept understanding in thematic learning. Journal of Physics Series, 1175(1), 1-6.

Wessner, C. W., & Howell, T. R. (2020). Regional renaissance: How New York’s capital region became a nanotechnology powerhouse. Cham: Springer.

Wunder, T. (2019). Rethinking strategic management: Sustainable strategizing for positive impact. Cham, Switzerland: Springer.

Zhao, E., Fisher, G., Lounsbury, M., & Miller, D. (2017). Optimal distinctiveness: Broadening the interface between institutional theory and strategic management. Reviews of Strategic Management Research, 38(1), 93-113.

Appendices

Ratio Analysis

Fiscal year is January-December. All values USD Millions. 2019 2018 2017 2016 2015
Cash & Short Term Investments 1,507 1,161 1,188 1,266 786
Cash Only 1,470 1,083 1,188 1,264 785
Short-Term Investments 37 78 2 1
Cash & Short Term Investments Growth 29.80% -2.27% -6.16% 61.07%
Cash & ST Investments / Total Assets 25.00% 25.48% 33.45% 38.12% 25.49%
Total Accounts Receivable 1,859 1,269 460 311 533
Accounts Receivables, Net 1,859 1,235 454 311 533
Accounts Receivables, Gross 1,859 1,235 454 311 533
Other Receivables 34 6
Accounts Receivable Growth 46.49% 175.87% 47.91% -1.65%
Accounts Receivable Turnover 3.62 5.10 11.42 13.74 7.49
Inventories 982 845 694 751 678
Finished Goods 197 357 214 176 180
Work in Progress 691 354 446 564 482
Raw Materials 94 134 34 11 16
Other Current Assets 249 265 292 202 323
Prepaid Expenses 57 77 63 43
Miscellaneous Current Assets 249 208 215 139 280
Total Current Assets 4,597 3,540 2,634 2,530 2,320
Net Property, Plant & Equipment 705 348 261 164 188
Property, Plant & Equipment – Gross 1,473 1,055 1,001 881 984
Machinery & Equipment 951 798 758 714 821
Construction in Progress 114 78 56 19 17
Other Property, Plant & Equipment 203 179 187 148 146
Accumulated Depreciation 768 707 740 717 796
Total Investments and Advances 88 79 79 74 15
LT Investment – Affiliate Companies 58 58 58 59
Other Long-Term Investments 30 21 21 15 15
Intangible Assets 499 515 528 521 467
Net Goodwill 289 289 289 289 278
Net Other Intangibles 210 226 239 232 189
Other Assets 117 59 39 21 46
Tangible Other Assets 117 59 39 21 46
Total Assets 6,028 4,556 3,552 3,321 3,084
Assets – Total – Growth 32.31% 28.27% 6.96% 7.68%
Asset Turnover 1.27
Return On Average Assets 6.44%

Source (Mondal et al., 2020)

Tabular Analysis of Porter’s, SWOT, and PEST

Table 2: Summary of Porter’s Analysis

Rivalry among Existing Competitors Threat of New Entrants Threat of Substitute Products Bargaining Power of Buyers Bargaining Power of Suppliers
Very High High Low High Low

Table 3: Summary of SWOT Analysis

Strengths
  • Strong brand name
  • Financial power
  • Team of dedicated workforce
  • Experienced managers
  • Diversified workforce
Weaknesses
  • Limited flexibility
  • Reliance on other firms to manufacture some of its products
Opportunities
  • Growing local and global market
  • Improved transport enhances logistics for these firms
  • Improved global integration
Threats
  • Stiff competition from rival firms
  • Counterfeiting
  • Economic rivalry between the US and China/Russia

Table 4: Summary of PEST Analysis

Political (P) Economic (E) Social (S) Technological (T)
  • Political stability in the US
  • Political class rarely interfere with the business community
  • Commitment by political leaders to support corporations
  • Growing global and US economy
  • Increased disposable income among many Americans
  • Impact of COVID on the business community
  • Increased relevance of computers
  • The global appeal of American products
  • Increased acceptance of diversity in product
  • Emerging technologies enhances creativity
  • Emerging technology creates healthy competition
  • Technology improves communication

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