Can Console Gaming Save AMD From Collapse?
The future of Advanced Micro Devices crucially depends on development partnerships for next-generation Sony PlayStation4 and Microsoft XBOX ONE console systems
By Olin Coles
One year ago Advanced Micro Devices, Inc. (NYSE:AMD) company stock was publicly trading for $8.20 per share (16 March 2012), the highest point since trading at the same level a year prior (March 2010). Since then, AMD stock has sunk to as low as $1.86 per share, performing far worse than other stocks within the same industry. Analyzing the graph charted below, you can see that the Dow Jones Industrial averaged a 12% gain over that same one-year period from late March 2012-2013. Microprocessors company ARM ($18.6B current market capitalization) enjoyed a 51% growth over Dow Jones for this period, while NVIDIA ($7.8B) and Intel ($107.6B) slowly tapered off 16% and 22% respectively. AMD ($1.9B) is the standout here, dropping $4.53 Billion dollars in market capitalization value to sustain 65% under-performance below the Dow Jones. While the numbers don’t lie, they don’t always tell the entire story.
Chart Courtesy Google Finance (click for full-size image)
There are parables that illustrate how one thing can relate to another, while remaining completely unrelated. For example, I’ve been a fan of the Oakland Athletics (A’s) baseball team since I first began following the sport as a child in 1986. They already had Mark McGwire and Jose Canseco on the team back then, joining existing legends Dave Henderson, Carney Lansford, Mickey Tettleton and even Reggie Jackson as the DH, plus the A’s had just picked up pitchers Dave Stewart and Dennis Eckersley. It was a good year for the A’s, later adding greats such as Walt Weiss and returning the always-amazing Ricky Henderson back to the Athletics. I loved that era in baseball, and still follow the A’s, but the team hasn’t been the same in almost two decades.
My affection towards the Oakland A’s is a fitting parable to my relationship with AMD. When I opened my business back in 2000, we built and upgraded computer systems using only AMD processors. In those early days, whenever performance wasn’t the sole focus we used AMD K6-III CPU’s to build price-competitive desktop computers. Then the AMD ‘Thunderbird’ series desktop processors arrived on scene, and easily outperformed the rival competition: Intel’s Pentium-III CPU. My shop became an AMD Authorized Reseller and used that leverage to become a listed Microsoft System Builder. For the next few years I was a small business that opened each morning to build high-performance AMD computer systems. Then the Intel Pentium 4 happened, and customer demand forced my tastes to change.
I’ve given these examples because both are near and dear to me. Each example event shared a moment of greatness, followed by a long period of struggle.
It’s important to get past emotional attachment, and recognize that AMD has not been doing well as a business. Regardless of how much some might disagree, and it’s a certainty that fan boys will disagree in the loudest manner, AMD is a battered ship sailing in very troubled waters with (yet another) storm approaching. Intel has maintained a firm lead ahead of AMD, who has remained the distant #2 worldwide supplier of x86 microprocessors. AMD purchased graphics giant Advanced Technology Investment (ATI) in 2006, thereby buying for itself a front-row ticket into the discrete graphics market. So now, AMD also maintains an outlying second place to NVIDIA in discrete graphics sales.
AMD put itself into the game with the Radeon HD series in 2007′s popularity explosion of PCI-Express, quickly securing an early head-start over NVIDIA and Intel by adopting DirectX 10 ahead of others. This market, like the others, would see many ups and downs as it suffered a global recession and was later stymied by a shrinking desktop user base. AMD debuted their Northern Islands GPU architecture in 2010, only to face disappointing worldwide sales that forced them to merely reshape and tweak their existing GPU design for a 2012 launch of Southern Islands. Now that the discreet graphics market has settled towards catering to a much smaller niche, one that produces less total revenue, fewer funds are generated for research and development.
All of these things have forced AMD into the position of either perpetually trailing the industry leaders with value-priced products offering similar performance, or boldly making innovative leaps to provide the industry with fresh technology. AMD has long-resembled the former, and in 2008 choose to become the latter when they created GlobalFoundries Inc. Unfortunately, the timing for this venture forced a 10% reduction to AMD’s entire global workforce of approximately 10,000 employees. A few years later another 10% reduction occurred late in 2011, followed by a 15% workforce release announced at the end of 2012. Sailing into the rough seas of 2013, this ship had taken on some water while losing 1/3 of its crew. But just when it looked like the Captain was going down with the ship, two unexpected companies tossed AMD a line: Sony and Microsoft.
Not so long ago I wrote XBOX-ONE and PS4 Consoles To Revive PC Video Games, an article that asserted how game developers would see new demand for their products as the platform technology improved. The obvious winners were those invested in game console production and development, but it was too early to point the finger at many specific names. Sony’s PlayStation and Microsoft’s XBOX platform were expected to thrive well into the next generation, as would the developers and publishers working to launch fresh game titles with them, but hardware component suppliers were still an unknown… at least until now. Unofficially announced, both Sony and Microsoft have selected Advanced Micro Devices as their source for next-generation console processor needs.
Details are still slowly rising to the surface, but now the question in desperate need of answering is: How much will this help to save a failing company? Enough, I hope. At least enough for AMD to enjoy smooth sailing for a little while longer, because there’s plenty of room for competition.
COMMENT QUESTION: Between Intel, NVIDIA, and AMD, which company do you most want to succeed and why?