Business Today

Chipping in

India is critical to AMD’s long-term prosperity.

Print Edition: February 10, 2008

AMD’s Meyer: Every R&D dollar counts
Dirk Meyer
In five to ten years from now, when we think of AMD, we will think of it as an Indian company, a Chinese company and a North American company. Those are the words of Dirk Meyer, President & Chief Operating Officer of the Sunnyvale, California-based semiconductor major. The company is one of the two biggest chipmakers of the world (the largest is old rival Intel).

Talking to BT on his maiden visit to India to inaugurate AMD’s second facility in Hyderabad, and the fourth in the country, the 46-yearold second-in-command goes on to elaborate: “The three regions will cover all the crucial areas, namely: Where the products come from, where the technologies are developed and where the most advanced markets exist.”

At a time when AMD is experiencing financial pain, Meyer is particularly conscious that every R&D dollar invested counts, and goes “into the most efficient places possible.” A sample of the pain: Operating income, which stood at $127 million on sales of $1.33 billion in the third quarter of 2006, was down to $22 million on sales of $1.77 billion in the following quarter. At the end of the first three months of 2007, AMD found itself saddled with an operating loss of $391 million (on sales of $1.23 billion).

“Despite the fact that the company has been in a difficult situation financially in the past couple of quarters, we have continued to expand our R&D capability and we’ve really only done so in China and India,” says Meyer. Three years ago, AMD didn’t have much of R&D investments to show in these countries.

Chary about sharing numbers on investments, Meyer confines himself to headcount numbers. AMD, he says, has some 700 R&D staff in India. The corresponding number wouldn’t be too different for China, although the total workforce there would go up to 2,000.

Yet, as far as markets (for personal computers) go, China appears to be streets ahead. In fact, it might just be the second-largest market for PCs, behind the US, and just ahead of Japan. India, says Meyer, is still “relatively small as an opportunity for PCs, although given the rate at which the economy is expanding, I think the IT intensity of the economy is going to rapidly increase and will soon become a very large opportunity.”

AMD is working towards expanding the Indian PC market by investing in low-cost internet solutions. This is a part of its 50-by-15 initiative (which aims to bring half of the world’s population online by 2015). In India, AMD is doing things like computer learning labs and providing students early access to the internet “so that they can become part of the world economy more quickly, more effectively and more easily.”

In India, AMD has also partnered with SemIndia in setting up a silicon chip manufacturing project in Hyderabad. AMD will deliver its technology and manufacturing expertise to SemIndia. Meyer, for his part, is reluctant to throw more light on the venture, besides pithily saying there was no change as far as the partnership and the agreement was concerned.

Interestingly, AMD in its products and business opportunities is not confining itself to PCs. Although its main source of revenues is still from microprocessors, computing and discrete graphics, it also sees a growing opportunity in consumer electronics. So, while it is a few hundred million dollars business for AMD today, Meyer thinks it can grow “in a matter of a few years to in excess of a billion dollars.” In fact, the R&D team in Hyderabad is involved in VLSI (very large-scale integration) and embedded systems design for consumer electronics. Meyer also says AMD sees a huge emerging opportunity in mobile devices. “We see the internet experience as not just a PC-centric experience but a device-centric experience; the device could be a PC, a handset or a television.”

Those strategies might just be beginning to pay off. AMD, which currently has a 23.5 per cent market share in the worldwide processor market (the rest is Intel)—in India, it has a 21.4 per cent market share—has in the past few quarters showed better performance every quarter. Its operating loss decreased to $363 million on sales of $1.38 billion in the second quarter of 2007, and to $148 million (on sales of $1.63 billion) in the third quarter. Gross margins also increased from 30 per cent in last year’s first three months to 34 per cent and 41 per cent in the second and third quarters, respectively (although they’re still less than the 51 per cent posted in the third quarter of 2006).

AMD hopes to show an operating profit by the third quarter of the current year, apparently backed by a better product mix and cost-capital containment. India may not yet be a big factor in that turnaround but over the longer term it clearly has the potential to be a significant contributor to AMD’s top and bottom lines.

— E. Kumar Sharma

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