Porter’s Five Forces Analysis of AMD
|Name||Advanced Micro Devices, Inc.|
Semiconductors, Electronics, Electrical Engineering, Technology Hardware & Equipment
|Headquarters||Santa Clara, California, United States|
|CEOs||Dr. Lisa Su|
|Revenues||US $16.434 billion in 2021
US $ 23.601 billionin 2022,Dec 31st (unaudited)
|Profit||US $ 3.162 billion in 2021
US $ 1.32 billion in 2022 ,Dec 31st (unaudited)
Intel, NVIDIA ,Samsung, IBM, , Qualcomm, ASUS
Advanced Micro Devices is an American multinational company, engagedin the business of semiconductor provision. The company made an annual revenue of US $ 23.60and net profit billion and US $ 1.32billion, in FY 2022, while the revenues were US$ 16.34 billion and US$ 9.76 billion in FY 2021 and FY 2020 respectively.Total assets are valued at US $ 12.42billion in FY 2021 billion and US $ 67.58 billion in FY 2022.The AMD ranked564th by Forbes Global 2000 list, in 2022.The AMD ranked 226 by Fortune 500 as of Year 2022.
The company operates in more than 40 locations worldwide with approx. 15,500 employees.
Today we are going over Porter’s Five Forces Analysis of AMD (Advanced Micro Devices, Inc.)
Porter’s Five Forces Analysis
AMD Rivalry among Within the Industry
- AMD Business Segments:
The Company operates in provision of microprocessors (CPUs), accelerated processing units (APUs), chipsets, discrete, Computing & Graphics cards etc. The core computing products are Desktop Microprocessors, Notebook
Microprocessors, Commercial Microprocessors and Chipsets.
- AMD Revenues Geographical Representation:
In 2021, the company made revenue of US 4.656 billion from United State,which is 28% of total revenue generated in FY 2021 while US$ 2.29 in FY 2020,which was 23% of the total revenues.The other regions contributed as follows:
China (including Hong Kong), US $ 4.096 billion which is 25% of total revenuesin FY 2021 while US$ 2.32 in FY 2020.Japan generated US $ 2.381 billion in FY 2021 which is 14.48% of the total annual revenue, while US$ 1.03 in FY 2020.
Europe generated US $ 2.091 billion in FY 2021 while US$ 1.18 in FY 2020.Singapore generated US $ 1.389 billion in FY 2021 and US$ 1.09 in FY 2020.Other countries US$ 0.572 in FY 2021 and US $ 0.716 in FY 2020.
- AMD Financial Analysis FY 2022-FY 2021-FY 2020:
In 2021, net revenue was 68% more, when compared to 2020. While, revenue in 2022, was 44% more, when compared to 2021. In 2020, US $6.43 billion and US $ 3.33 billion was generated by Computing and Graphics and Enterprise, Embedded and Semi-Custom segments respectively.
Gross profit in terms of percentage was 48% and 45% of revenue in 2021 and 2020, respectively. Operating income was US $3.6 billion and US 1.4 billion in 2021 and 2020, respectively, showing significant increase in 2021, in comparison of 2020. Moreover, net income of the company was US $3.2 billion and US $2.5 billion in 2021 and 2020, respectively also showing significant improvement.
- Intel made an annual revenue and a net profit of US $ 79.024 billion and of US $ 19.868 billion, respectively, in 2021 and gave a stiff competition to the company. Revenue exceeding US $ 40 billion and US $ 26 billion was generated from segments of Client Computing Group (CCG) and Data Center Group (DCG), in 2021. Hong Kong and China were countries in which sales of approximately US $ 21.14 billion were generated by the company in 2021. Whereas, sales amounting to approximately US $ 14.25 was made by the company, in Singapore. Total assets and market value were US $ 168.41 billion and US $ 190.29 billion, respectively of the company in 2021.
- Samsung Groupmade an annual revenue and a net profit of US $ 244.388 billion and of US $ 34.301 billion, respectively, in 2021 and gave a stiff competition to the company. As per Statista, US $ 74.64 billion was the brand value of Samsung, in 2021. There was a sale of 1.43 billion units of smartphones worldwide, in 2021. While 70 million units of mobiles were shipped worldwide, in 2021 by Samsung. The company operates in 14 countries, having 32 factories worldwide. Total assets and market value were US $ 372.89 billion and US $ 367.26 billion, respectively of the company in 2021.
The company had a workforce of 266,673 people worldwide, in 2021.
AMD Threat of New Entrants
- Global Semiconductor Industry – Highly Competitive Influencing by Tech Giants :
It is estimated that in 2023, industry of semiconductor will reach to US $ 599.8 billion. Also in 2023, the largest segment in the market is Integrated Circuits with an estimated value of US $ 488.8 billion. By 2027, revenue is expected to grow annually at the rate of 8.09%, which will result in volume of US$818.6 billion.
The Industry is leading by Samsung with a market share of 10.9% while Intel is having a market share of 9.7%.The other following companies are SK Hynix with 6%,Qualcomm with 5.8%,Micron Technologies with 4.6%,Broadcom with 4% and AMD with 3.9% market share as of Year2022.
In such situation entry from new entrant is tough especially when it is highly penetrated by tech giants.
- Investment in Research & Development- Product Innovation Leading Challenge:
The product research and development is very important especially AMD is facing tough competition from Intel and NVIDIA in product innovation and design mentioned by AMD in their Annual Report. The Research and Development cost is US$ 2.84 billion in FY 2021 and US$ 1.98 in FY2020 an increase of US$ approx. US$ 0.8 billion which is 43% respectively. The R&D expenses targeted to product development and high skilled employee incentive.
In such situation even any new start up need a launching pick up which only these giants can provide only.
AMD Bargaining Power of Suppliers
- Supplier Industry Influence:There are a significant number of suppliers in the industry. Moreover, AMD is large in size, due to Which AMD is a significant customer to the suppliers, resulting in low bargaining power of suppliers within the industry.
- Suppliers Collaboration: The Company has suppliers collaboration with entities all around the world. Approximately 26% of the company’s spend is with approximately 33suppliers, providing direct materials to the company, 61% of the company’s spend is with global companies producing semiconductors and approximately 26% of the company’s spend is with approximately 2700 companies, providing indirect materials.
AMD Bargaining Power of Buyers
- Customer Satisfaction and Customer Base – After Sales Services Wide RangeConsistency in the retention of market share is possible through continuous innovation and satisfying customers by meeting their needs. Therefore; the company should continue to innovate and make products as per the demands of its customers.
There is a wide range of support and after sales services providing by AMD including Downloading of Drivers and Software, Warranty Support, Product Specifications, Community Support, AMD Software Help Center, AMD Rewards Help Center, AMD Product Security, AMD Xilin Product Support and AMD Pensado Product Support.
Even for x86 computer processor test customer share of AMD has been increased from 33.6% to 35.2% from Q3 2022 to Q4 2022.While Intel is still leading in this category by acquiring the market share from 63.7% to 62.8% from Q3 to Q4 2022.
- High Switching Cost: Most of the hardware and software of computer depend on chips of computers. Therefore; switching to adifferent product will resultantly require changes and will also be costly. Hence bargaining power of consumers is low due to high switching cost.
Threat of Substitute Products or Services
- Low availability of substitutes: As a result of low availability and accessibility of substitutes, there is low threat of the same. Therefore; even if the consumes want to use other similar products, they cannot, because of difficulty in finding the same.
- Brand Loyalty: As AMD, is one of the leaders of market and also has huge share of market, therefore; the risk of substitute is quiet low because of high investment by the company in research and development. Therefore; only high quality products are offered by the company, so any replacement in the form of substitute can only happen at the cost of loyalty of brand.
AMD also succeeds in competing Intel CPU market in Benelux during 201 and 2019 as AMD’s market share of Ryzen increased from 10% to 43% in 2019 reported as March 31, 2023.
- AMD Annual Report 2022.Available at AMD
- AMD Complete Annual Report 2021.Available at FY 2021
- AMD Fortune 500.Available at Fortune 500
- Advanced Micro Devices (AMD) – statistics & facts| Available at Statista
- AMD global workforce share in 2020, by gender(Jul 26, 2022) | Available at Statista
- Forbes Global list 2000| Available at Forbes
- Basic information on AMD by Forbes| Available at Forbes
- Semiconductors – Worldwide| Available at Statista
- Intel’s net revenue by country from 2011 to 2021(Jul 27, 2022 )| Available at Statista
- Intel Client Computing Group (CCG) revenue from 2018 to 2022, by quarter(Aug 31, 2022) | Available at Statista
- AMD revenue worldwide from 2015 to 2020, by segment(Sep 12, 2022) | Available at Statista
- AMD “Enterprise, Embedded, and Semi-Custom” segment revenue worldwide from 2018 to 2021, by quarter(Feb 7, 2022) | Available at Statista
- Samsung annual financial report 2021| Available at Samsung
- Number of Samsung Electronics employees worldwide from 2009 to 2021(Aug 12, 2022)| Available at Statista
- Samsung Electronics’ global revenue from 2005 to 2021(Jul 27, 2022) | Available at Statista
- Statista (January 25,2023) Semiconductor companies market revenue share worldwide 2008-2022.Available at Statista
- Statista (March 31,2023) Market share of computer processors brands Intel and AMD in the Netherlands, Belgium and Luxembourg from Q1 2017 to Q1 2019*.Available at Statista
- Statista (Feb 28, 2023), Distribution of Intel and AMD x86 computer central processing units (CPUs) worldwide from 2012 to 2022, by quarter. Available at Statista