Intel Corp (INTC)

[DewDiligence]

AMD’s ‘Vision’

[This marketing campaign strikes me as better suited to such companies as Proctor & Gamble or Colgate-Palmolive than a high-tech outfit, but what do I know?]

http://www.businessweek.com/technology/content/may2010/tc20100511_763855.htm

›May 12, 2010
By Arik Hesseldahl

Chipmaker Advanced Micro Devices is preparing a marketing blitz for the all-important back-to-school and holiday selling seasons that de-emphasizes processor speeds and core counts and plays up PCs' ability to get jobs done.

On May 12, AMD (AMD) and computer makers including Hewlett-Packard (HPQ), Dell (DELL), and Acer announced the launch of 135 notebooks using AMD chips sold under the brand name Vision.

AMD introduced the Vision brand last year to highlight its chips' ability to readily run software that lets consumers watch movies, edit videos, or play games. It's the first time AMD is using the Vision brand across an entire product line of chips used in notebooks and desktop PCs.

"People find the PC buying process to be difficult, because we focused on processor speeds and core counts, which don't translate well to what the consumer wants to know," says Leslie Sobon, vice-president for product marketing at AMD. "Instead they ask practical questions, like if they'll be able to watch TV on the PC or edit video" when shopping in stores.

AMD's research found that half of consumers rely on retail salespeople to help them decide which computer to buy. Vision's four categories, including "Black" for playing 3D games and "Premium" for watching Blu-ray movies, aim to help sales staff steer buyers to the right product, says Sobon.

Intel's Lead

The rebranding comes as AMD aims to close a long-standing market share gap with Intel (INTC) and capitalize on resurgent demand for PCs amid an improving economy. AMD held 18.1 percent of the worldwide market for x86 chips used in most PCs and servers during the first quarter of 2010, compared with Intel's 81.2 percent share, according to market research firm Mercury Research.

PC sales increased by more than 24 percent during the first quarter to 79.1 million units, propelled in part by consumers' demand for low-priced laptops, according to market researcher IDC. At an analyst meeting on May 11, Intel Chief Executive Officer Paul Otellini forecast double-digit revenue and earnings-per-share growth in the next few years. Intel spokesman Tom Beerman declined to comment on AMD's marketing plans.

Roger Kay, founder and president of Endpoint Technologies Associates, says AMD is "better poised for a resurgence than at any time in the past several years." A chip called Fusion that combines central processing and graphics processing functions, expected to arrive late this year, could make AMD's brand more compelling to consumers. "The AMD product story only gets better in 2011," says Kay.

AMD's ability to land its chips inside a large number of PCs comes as the company is emerging from three years of financial losses and a legal battle with Intel that was settled last November. AMD on Apr. 15 reported first-quarter net income of $257 million on sales of $1.57 billion. Prior to those results, AMD had reported a loss in 12 of its 13 previous quarters, dating back to the fourth quarter of 2006. Analysts surveyed by Bloomberg expect AMD's sales to increase 21 percent this year to $6.55 billion.

"Earnings Power"

Shares of AMD closed May 11 up 8 cents at 9.07. The shares had reached a 52-week low of 3.22 on July 8, 2009. Doug Freedman, an analyst at Broadpoint AmTech (BPSG) who has a buy rating on AMD shares, calls the stock "one of my favorite ideas in semiconductors." Even a small increase in sales of PCs that feature AMD chips can disproportionately benefit the company's profits, since AMD can sell manufacturers the CPU, graphics chip, and a collection of chips called the chipset. "AMD controls a higher share of the silicon content that goes into a PC," says Freedman. "There's a lot of earnings power to be had by AMD for even a small increase in revenues."

Aside from the new branding efforts, AMD has other winds at its back. The $1.25 billion settlement with Intel has helped AMD reduce debt and removed clouds of legal uncertainty since it filed an antitrust case against Intel in 2005. The settlement also cleared the way for the spin-off of AMD's manufacturing operations into a company called Global Foundries, which AMD owns jointly with an Abu Dhabi investment group.

After AMD launches its Fusion chips, enabled by its 2006 acquisition of graphics chip maker ATI, consumers will continue to see only the Vision brand on AMD chips. By the end of 2009, AMD had 211 combinations of CPU and graphics chips, each with a different set of brand names, stickers, and emblems attached to the computer. The convoluted branding confused consumers and sales suffered, the company says.

Marketing Challenge

To be sure, AMD may have an uphill climb convincing consumers to buy PCs featuring its chips on the basis of its new marketing campaign. Computer processors have become so fast in recent years that the differences among them are hard for users to distinguish, says Stephen Baker, vice-president at market researcher NPD Group.

"There's a real challenge out there for AMD and frankly for Intel, too," says Baker. "We're dealing with a notebook market where most of the sales are occurring between $400 and $700, and the differences between them aren't that big a deal. Consumers are a lot less focused on the processor, and that makes it difficult to be the underdog."

By playing up its processors' capabilities, AMD is trying to inject its chips back into consumers' conversation.‹