Can AMD Regain Your Trust?

Ten months ago, San Francisco system builder Polywell Computers took possession of a defective Advanced Micro Devices motherboard and sent it back to the board's manufacturer. It took two weeks to get a replacement.

It's a familiar, frustrating ordeal for many AMD system builders, who say they can get a replacement from market leader Intel in 24 hours.

The AMD Validated Solutions (AVS) program, which was introduced six months ago, is designed to end that nightmare. The program promises to deliver a new set of services similar to those rival Intel has provided for partners for years—a 15-month stability guarantee on motherboards, a 48-hour return service for motherboards, telephone technical support and access to a 24x7 partner support site.

To date, eight desktop boards have shipped under the AVS program, and AMD plans to ship server boards with the same support and benefits for partners later in 2007, executives promise.

Partners say it's too early to rate AMD's competence in handling returns and exchanges because the AVS program is in its infancy. Still,they are happy to have validated solutions available to sell and a better, faster return materials authorization (RMA) policy that's beginning to take root.

"Last year we got a lot of hassles for RMAs, and now it's easier," said Sam Chu, CEO of Polywell Computers. "AMD has been difficult to deal with in RMAs. They asked too many questions and then we had to go through tech support and it ate up a lot of our administrative time. They've resolved some of those issues. It's much better than last year. Now, we send one back, and AMD sends us back one right away."

System builders such as ZT Systems also expect the upcoming launch of AMD's much-anticipated Barcelona quad-core desktop and server processors—and the planned AVS solutions based on them—will restore AMD's price/performance advantage. "Everyone is really waiting for Barcelona," said Pat Wong, director of marketing at ZT Systems, Secaucus, N.J.

AVS is one of several channel initiatives AMD has under way this year as it prepares to debut its Barcelona processors in mid-2007. AMD also wants to build its base of VARs and resellers to reach SMB customers, and to do this, its commercial system group is working with distributors and ISVs to create stronger SMB solutions and executing deals with the established channels of IBM, HP and Dell to grow its share of the SMB business, said Kevin Knox, a vice president in that group.

"We are going into 2007 with the first product geared and targeted at a segment where we haven't paid attention, frankly," Knox said in an interview with CRN in late December. "It will be significantly higher than what we've ever done before in the systems channel, which is separate from our components business," he added.

"AMD has become very competitive with Intel over the past three years. Major hardware vendors are providing more options about which processor to buy, which is giving AMD more market share," said Tom Raisbeck, vice president of technical services at Nortec Communications, a VAR in Falls Church, Va.

While some partners expect AMD's share to keep growing long-term, analysts are not so sure. A price war, shortages and weak consumer sales contributed to a $611 million lost in the first quarter, and its market share slipped after 14 quarters of successive gains. In early April, AMD said it would cut costs in 2007 by $500 million and restructure internally to elevate its earnings and cash reserves.

Despite the cutbacks, AMD plans to increase spending on its North American channel marketing, Gary Bixler, a key channel executive who AMD brought back in April to oversee worldwide channels, told CRN. Still, the company is facing a channel backlash as it struggles to balance demand from its system builders and increasing roster of top-tier OEM partners.

Next: The processor market and battle with Intel

AMD system builders are wrestling with two nagging issues: performance and politics. Rival Intel reclaimed the price/performance title after lagging behind AMD and won over many system builders with its Core 2 Duo and the industry's first quad-core processor.

At the same time, AMD's focus on brand-name OEMs, particularly its new partnership with channel nemesis Dell, is causing channel concern. Although AMD was raised by thousands of small system builders and VARs that nurtured the underdog to health, much of AMD's growth spurt last quarter came from large OEM sales, market researchers say.

According to Gartner Group, AMD's overall share of the market grew to 22 percent in 2006, up 4 percentage points since 2004. In that same two-year stretch, Intel lost more than 3 points, from 81.2 percent to 77.8 percent share. AMD's market share grew faster in OEMs than in the white-box market in the fourth quarter due to strong sales in the home PC market, where OEMs are traditionally strong, Gartner reported. The research firm also cited AMD's new partnerships with Lenovo and Dell as contributors to its gain.

Alarms sounded in the channel last year after Dell started shipping its first AMD-based Optiplex PC for business users. Soon thereafter, a shortage of Athlon 64 2Xs available to smaller OEMs during the busy holiday season ignited loud protest and anger in the channel—traditionally AMD's most loyal constituency. Some partners pledged to move business back to Intel.

AMD, for its part, claimed overall OEM demand put a strain on its supply and denied that its Dell relationship was responsible for the shortages. The company publicly apologized to partners and vowed to make changes internally to avoid such a deficit in the future, including appointing a new director of manufacturing, revisiting its supply chain system, adding capacity and negotiating with motherboard manufacturers.

Still, the mood at AMD's Executive Summit in Phoenix last February was bleak, according to some partners who attended the annual conference. Partners sat quietly, listening to AMD CEO Hector Ruiz reaffirm the company's strong commitment to the channel.

For some, it fell on deaf ears. "They spent a lot of time apologizing to us, but partners let AMD know we felt like we got screwed," said one partner who requested anonymity.

Paul Filion, vice president of operations at Microbytes, a system builder in Quebec, said the chip shortage is only one reason why his company shifted the bulk of its business to Intel's favor. Microbytes' business is now 70 percent Intel and 30 percent AMD. "It's the opposite of what it was last year," he said.

Another system builder who requested anonymity said AMD's price cuts and efforts to enlist more brand-name OEM business are affecting its relationship with the system builder community.

"The scar is permanent," said one system builder that has decided to switch more of its business to Intel. "The channel is getting hit on two sides: Multinationals selling below the channel's cost and taking away customers, [and] then AMD stuffed the channel and then kept lowering pricing and not extending price protection to the channel. Most channel guys can't afford to be burned even once, let alone three times in two months."

Others say AMD is on the road to maturing from a processor company to a platform vendor and is experiencing growing pains as it moves out of adolescence. Some partners—even those affected by AMD's recent gaffes—maintain that supply shortages like those Intel endured in the past are short-lived, and they expect AMD will leapfrog Intel in the price/performance category once the Barcelona chips ship.

AMD claims its quad-core processors will offer almost double the performance of Intel's current fleet of quad-core chips. "You'll see a performance swing back to AMD's favor," said Brian Corn, vice president of marketing at Source Code, a custom-system builder based in Waltham, Mass.

"The channel felt AMD turned their backs on the channel because of the supply issues, and when they made the move to Dell, there was a lot of resentment. The supply starting running out, Intel got Clovertown [quad-core processors] out, and everyone was feeling a little shaky," Corn said. "I was feeling the same way, but AMD put my feelings to rest. They admitted they messed up, and I feel a renewal of commitment toward the channel."

Analysts say the two chip makers are engaged in an aggressive price war and pointed out that market share—as well as channel loyalty—can shift rapidly in the component business. "We see this as continued leapfrogging. AMD was in the lead for quite some time, and then Intel woke up and jumped over AMD. Now, AMD has to take its turn," said John Enck, a vice president at Gartner.

Next: Earning the channel's trust

But earning more share and the channel's trust will be an uphill battle this time around, say sources in the channel.

"Although I see AMD trying to work with motherboard manufacturers and server vendors, the level of support is nowhere near what I get from Intel," said David Stinner, president of US itek Group, a system builder in Buffalo, N.Y. "With Intel's fast warranty replacement on processors, mainboards, server parts and notebooks and corporate stable chipsets, I can base my efforts on selling a stable product with the back-end Intel Engineering support, if needed, and know that my image won't be tarnished in the event of a downed server or workstation. That allows me to sell confidence in my server, SAN, workstation and notebook products to the small business."

AMD, meanwhile, is expanding its channel programs, and AMD Validated Solutions will continue to evolve and expand, said Ron Myers, divisional manager of AMD Validated Solutions. He noted that AMD is currently stocking replacement inventory in the Technical Service Center in Sunnyvale, Calif., so it can replace any of the AMD Validated Solutions commercial desktop motherboards. Although some partners say the AMD Depot is yet to be finished, Myers said it is "up and running" and AMD soon will embark on a road show to educate system builders about the desktop RMA service.

The first four AVS desktop motherboards that shipped last fall use existing Commercial Stable Image Program (CSIP) chipsets from ATI and Nvidia. After completing its acquisition of ATI, AMD followed up in the first quarter of 2007 by announcing four more AVS boards—this time based on ATI's newly introduced 690G chipsets for Windows Vista and other graphics-crunching applications.

Next, AMD partners will make available the first set of validated server motherboards with a similar stability period, support, service and a replacement program in the first half of 2007, with more server platforms being added to the program through the end of the year, Myers said. And AMD also will ship new AVS boards that use chips from ATI rival Nvidia, he said.

Satisfied AMD partners say they are enjoying better support and attention from AMD than in years past. Debi Cooper, sales and operations manager at system builder M&A Technology's San Antonio office, said she originally did business with the underdog because its pricing was better than Intel, but now it's performance—and partner support—that keeps her faithful to AMD.

"I have a rep that calls on my office and comes once per month, and he and his engineers are accessible and timely in their response. It's an easy company to work with," Cooper said. "The level of support and the method of getting support is better. AMD has kept its Web site updated with current information, drivers and benchmarks, and that has helped me as well."

Wong said said AMD has provided ZT Systems with additional MDF and incentives to promote the AVS solutions, such as free game bundles. "It's been a great effort, especially over the past few months," she said. "We've seen a lot of programs to help the channel and make sure we get something out of it."

Some system builders said AVS is a good start, but AMD has a long way to go to catch up to Intel's services for the channel. "AVS is one tool they will need in their arsenal if they are serious about getting the attention of the channel, but it is only one tool. Component validation is fundamental. Disk drives, memory, even operating systems can provide an integrator with a list of validated platforms," said Pat Taylor, president of Proactive Technologies, Carrollton, Texas.

"It is encouraging to see that AMD is finally doing something to cultivate an ecosystem for their products," Taylor added. "But will it sway me and other integrators to look at AMD again? No, not likely. It goes far beyond simple platform validation."

Steve Bohman, vice president of operations at Columbus Micro Systems, Columbus, Ohio, said he has been telling AMD for years that they need to have an advanced warranty replacement program for motherboards to compete with Intel.

"The question now is whether or not they're too late. My guess is whenever they do finally launch a motherboard return program, it will help them gain traction in the system builder community," he said. "But they sure missed their chance to make a big impact before the launch of Intel's Core 2 processors."