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How has AMD created a true duopoly in the microprocessor business? According to Porter, there are two main strategies that can make any firm profitable in any industry. The scientist is sure that failures did not follow any strategy or try to follow both, but it is impossible because there is a key difference in these strategies. They are Low-cost Strategy and Differentiation Strategy. Following the first strategy, the firm tries to diminish all its expenses. These measures give it an opportunity to reduce prices comparing with other firms in the market.
At the first sight, the measures seriously constrain profit margins. But the costs on producing the product are reduced the same. It means that the firm will makes more profit than other firms in the industry. The firms competitors can follow two different ways: they can undercut the prices of its products (it is called a price war), or start to produce the products different. In this case, the competitors will not take care about prices. These measures are taken in Differentiation Strategy.
This way is more profitable method because a price war can diminish profits almost completely. Thats why there are a lot of substitute products. In the world of severe competition the way Advanced Micro Devices (ADM) has reached its success is the best evidence of well organized and planned marketing strategy. For a long time Intel and ADM have been struggling for the first place in the electronics market. During the period, AMD has become from a producer of cut-rate clone chips a real competitor and rival to Intel. Advanced Micro Devices, Inc. (AMD) was established in 1969 as a producer of microprocessors for computers.
It was founded in Sunnyvale, California. The first products of the company were logic chips, and later it supplied the market with non-volatile flash memory. The best processor made by AMD at that time was 29 K. Other attempts were not successful.
In 1975, Intel was considered to be the company number one in producing microprocessors; and the most famous one was 8080. The same year AMD presented a reverse-engineered clone of the 8080 microprocessor. The company decided to concentrate the affords on producing Intel-compatible microprocessors and flash memory. Though AMD was not as popular as Intel but it became a competitor in secondary markets.
With the purpose to avoid direct competition, in February 1982, a contract between two companies (Intel and AMD) was signed. According to the terms of the contract AMD became a licensed second-source manufacturer of 8086 and 8088 processors. In 1986, IBM, one of the largest producers of personal computers, decided to use the Intel 8088. But according to the terms of IBM's policy it was to have two or more suppliers of chips. By the time AMD had produced its 80286 processors and was ready to work under the terms of arrangement.
The same year Intel revoked the agreement with AMD. The AMD 386 project was not supplied with technical details. In 1991, after a long legal dispute, AMD won the case; and, according to the decision of the Supreme Court of California, Intel had to pay about $ 1 billion as a compensation for violation of contract. But AMD was sentenced to develop "clean room" versions of Intel code.
The clone of the Intel 80386 processor was the Am 386. It was very popular with PC manufacturers, especially small ones, because the processor was rather cheap. In 1993, AMD presented the Am 486. Though the products of the company were proved popular, but the prices for them are considerably lower then for the Intel processors. Most of all, on December 30, 1994, AMD was forbidden to use the i 386 's microcode by the Supreme Court of California. It was evident that cutting prices was not the way out.
Cloning of the Intel 80386 processor meant for the company to be always behind Intel. In 1995, the company finished its first in-house x 86 processor. It was called the K 5. Though technologically the processors were better than the Intel Pentium but there were several problems with them.
The greatest was the clock speed. It was slow and did not match the PR rating. The company had to sell the K 5 for low price. Later In January, 1999, AMD developed the K 6 -x series. The 450 MHz K 6 -III from the series was the first with 3 levels of cache. Intel, in its turn, introduced "Celeron" as a cheap version of Pentiums.
Though Intel cut the prices on its Celeron's, and the K 6 was more popular and competitive with Celeron's; but AMD had to keep prices down for the K 6 -III. According to Porter Intel and AMD were in a price war. The profit of AMD was diminished greatly. Low-cost Strategy was not successful. AMD was in the low end of the market.
It was evident that the company had to change its strategy. One of the founders of AMD Jerry Sanders proposed to follow Differentiation Strategy. He introduced a famous "Virtual Gorilla" strategy. The company decided to produce quite different processor the Athlon (K 7). It was presented in 1999.
The Athlon could solve a lot of problems and its clock rates were very high for that time, 650 MHz. The innovation gave AMD the right to compete with Intel as peer. Inspired with success, AMD presented the Athlon's with clock rates 900 -MHz and 1 -GHz, in March 2000. A few days later, Intel introduced a 1 -GHz Pentium. The culmination of "Virtual Gorilla" strategy was an announcement of the AMD 64. For a short time AMD became known as a company with credibility in the market and a real competitor and rival to Intel.
Intel had to make an agreement with AMD. According to the terms of the agreement Intel had the right to use the AMD 64 for its 64 -bit (EM 64 T) processors. In conclusion, it should be said that AMD is a great example of successful business. It proves that, from a marketing point of view, often it is necessary to change a strategy to achieve success.
Nowadays, AMD is known for its easily reproducible performance benchmarks, and for its system stability. Bibliography: AdvancedMicroDevices. (2006). Wikipedia, free encyclopedia, October 20, 2006. Retrieved October 22, 2006 from web AMD Celebrates 10 Years of Innovation in Dresden. (2006). Press Release.
Yahoo! Inc. , October 22, 2006. Retrieved October 22, 2006 from web Information and technology news. (2006). Information and technology news from the world, 2006. Retrieved October 22, 2006 from web Louis, B. K. (2001).
Marketing Strategies: Porters Five Forces and SWOT. New York: Free Press, 2001.
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Research essay sample on Low Cost Strategy Differentiation Strategy
