AMD or HP, Which Is the True Server Room Maverick?

by Rob Enderle

The parallels between how AMD and HP and the presidential candidates handle challenges reveal that crisis can be an opportunity to move forward.

Frustration in the United States is running high because we can't seem to get our elected representatives to do much more than blame each other for the mess the country ‘ and increasingly the world — is in. But from crisis often comes great innovation, and during the latest presidential debate I heard one answer that took me off the fence and put me behind one of the candidates running for U.S. President.

What had me in the frame of mind to make this decision was the announcement from AMD on Asset Smart and several days with HP's very strong Printing and Imaging division.

For me, AMD is representative of the post-crisis United States, and the result was an amazing amount of innovation that corrected its own serious financial difficulties and left the company with what now may be a competitive advantage.

HP was like the pre-crisis United States, secure in its belief that changes would come slowly and that all that needed to be done was preserve the status quo. But change is always coming and the United States is a good (well, maybe a bad) example of what can happen if you aren't prepared for it.

AMD's Amazing Choice

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The problem AMD had was terminal. It would run out of money in 24 months, and its industry requires a massive investment in technology on a regular basis. This investment typically has to come years before the benefits arrive, and AMD has been operating on near zero to negative margins for some time. So it simply didn't have the money to make the investments that needed to be made.

Even if it had the money, the market would have punished AMD for not maintaining profitability during the process. In short, even if it could have come up with the cash to build out the plant and equipment needed to compete, the company probably wouldn't have survived the process with its executive team intact.

Intel, one of the few firms able to succeed with the current model, estimates that of the 20 companies that could do what AMD does, fewer than six are likely to be around in a few months because the costs of maintaining manufacturing capability are so high.

AMD, to initially and continue to survive, needed to change the game plan, and that is what it did with Asset Light. It found a funding source in Abu Dhabi, basically oil money, that was both deep enough and more than willing to wait for a future return.

AMD was able to cut a unique innovative deal that not only made it solvent, it also delivers $2 billion in reserves and a lower break-even point (meaning it will be more profitable going forward). It is the now most competitive, on paper, in terms of available resources than it probably has ever been. And had it not first dropped into crisis, none of this would likely have ever happened.

HP Printing and Imaging

HP Printing and Imaging is far from crisis. This company within a company is a revenue and profit machine, generating a massive amount of money for HP but showing only a moderate 8 percent growth.

The unit does innovate in terms of things like green technology, and its high-end Indigo presses are rapidly replacing analog counterparts in a variety of markets. At the event, they announced an alliance with Tandberg to help drive Halo technology (high-end video conferencing) more broadly into a market hungry to save money with travel alternatives.

But HP Printing and Imaging really isn't Printing and Imaging, it is more of a Printing company and imaging is probably where the future is. In addition, HP Printing is solidly in the two-dimensional color present where the future is three-dimensional and animated.

In looking at the company, I'm reminded of the railroad industry just before the introduction of Transworld Airways, or the Gas industry as the first light bulbs were strung in demonstration, or the carriage industry the year before Ford figured out mass production. If you go to Times Square or drive down many freeways the billboards that catch your eye are not the static ones but the active ones — and the prices for that technology is in freefall.

The hot news this past week was on the battle of the new eBooks. Second-generation Kindle information was leaked, and Sony responded with its new touch screen reader. 3D printing continues to advance, cutting massively into the cost of prototyping and promising a future where we will be able to print some of the objects we use.

Most of what we read is coming to us by way of Google, Facebook, MySpace, and the Web and viewed on products like the iPhone and Archos. Snail mail is already in steep decline, and an increasing number of us haven't written a letter or published in a paper magazine in years. Esquire magazine has just published the first issue with a digital cover and got national recognition for it (though not all response was good). Still, the first light bulbs and commercial airlines were hardly great either and the issue evidently sold out at twice the normal cover price.

Industry analyst Rob Enderle is a frequent contributor to Datamation, where this commentary first appeared.

This article was originally published on Monday Oct 13th 2008
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