Two years ago, KitGuru analysed AMD and came to the conclusion that reducing the salary bill by as much as possible was a perfectly valid business technique – and one that AMD should get into more and more. Now, as we approach 2013, KitGuru takes another look at the thousands working for AMD and wonders, “Will additional sackings bring additional results?”
One of KitGuru's associates found themselves having breakfast with AMD's European hierarchy back in February. After the general chit chat, the subject moved to AMD itself and an idea was put forward to AMD's management, but – apparently – it didn't go down too well. The idea was this, “Given how powerful Intel's processors are once you move past a certain budget (i.e. into the ‘k' series line-up), and given that multi nationals like Dell, HP etc MUST have a second source for processors – why doesn't AMD just get rid of everyone with the words ‘Channel', ‘Sales' and/or ‘Marketing' in their job title?”
We have had the logic explained to us.
The major system builders have no choice, they need an alternative to Intel. So, for brands like Dell, HP etc you can just send them a price list. No selling, marketing or channel development required. But in the mainstream – outside of the APU/Fusion products – it's hard to imagine a sales/marketing/channel role that could affect unit shipments by more than a tiny amount.
So, instead of mounting these huge, multi-national team salaries etc – just lose around 1,000 jobs and put that money into (a) the bottom line and (b) a bit more advertising/promotion/marketing activity.
If the average salary of the people you let go is around £35,000 – then that's £35 million ($55m) in profit that you DON'T have to find. If AMD's average ‘sell into the channel' processor price is around $60, then over the course of a year, sacking these people would mean that you could sell 920,000 less processors and make the same bottom line profit.
Or they could sell the same number of processors and put the $55m on the bottom line. Or a combination thereof.
In the real world, of course, the numbers would never work out so perfectly – but there must be a huge temptation to evaluate everyone within the company and lose any role that is not absolutely essential. The human cost is something different. There is the importance of being a good corporate citizen and also the idea that companies are as much about the people in them as the products they make. How you balance these things is a VP/CEO decision from within the company itself.
The graphics side of things probably needs less tinkering – plus you have the benefit of the various partners (like Asus, Gigabyte, MSI, Sapphire and VTX3D bringing their sales and marketing efforts to the table).
It makes sense for AMD to pick the 5-10 biggest countries in the world and focus its efforts there. The whole of Europe comes to just over 700 million, comprised of 58 countries and includes everything from giants like Turkey and Ukraine through to minnows like San Marino and Vatican City. Many of these countries have a unique sense of self and, often, their own language/distribution channels etc.
In comparison, the combined population of Russia, Indonesia, Brazil, China and India comes to 3,165 million. That's 4x the total population of the whole of Europe, but in just 5 countries. We're gonna call this the Big Boy Mega Region (BBMR).
AMD has settled on around $6 billion revenue recently (up from a few years spent around the $4 billion mark). If it wants to achieve $7 billion, then it needs to pick up more than 70 million sales in a year (processor, mainboard combinations etc). In Europe, that means 1 in 10 people need to choose AMD. For the BBMR, you only need 1 in 45 people to choose your brand.
Alongside a different customer targeting strategy, we still think that ‘Sacking your way to success‘ is a perfectly valid technique for AMD. As long as it happens more in developed countries and the company, overall, doesn't lose focus on the major brands.
KitGuru says: In the harsh economic realities of 2013, companies that carry the smallest amount of overhead possible – will be wasting the least amount of money – and so will do better. During a recent interview with AMD Desktop VP Leslie Sobon in London, it was put to her that AMD needed to investigate this kind of ‘wholesale sacking' as a strategy for healthy business growth going forward. Apparently there was no reply from Leslie, but some of the other AMD folks looked distinctly nervous. If you were a rose bush branch – being told that ‘serious pruning' would yield more beautiful flowers next summer – would you volunteer for the chop?
Comment below or in the KitGuru forums.