AMD CEO discusses plan to compete with Intel Atom chip

Advanced Micro Devices has its eye on the ultra-low-cost notebook market. Dirk Meyer--the company's new CEO--and other executives discussed this and ways to make the company profitable during the company's earnings conference call Thursday.

HP 2133 Mini-Note is a low-cost ultramobile notebook--a market AMD is eying.

(Credit: Hewlett-Packard)

Meyer--promoted to CEO on Thursday--made it clear that AMD is serious about the so-called Netbook market, where Intel's Atom processor has been the most successful so far. (Though Intel CEO Paul Otellini made a perplexing comment Tuesday about the Atom processor.)

Netbooks have two hallmarks: they are typically under $400 and are extremely small and light. The Asus Eee PC is the most popular Netbook currently.

In response to a question from an analyst, Meyer implied that while AMD is not interested in the mobile Internet device market (think: iPhone), it is serious about low-cost notebooks.

"We're a much smaller company with not nearly the scale that our competitor has," Meyer said. "We don't intend to try to do absolutely everything they do in the marketplace. (But) slightly smaller form factor notebooks and inexpensive notebooks. That is a market segment that we're interested in."

AMD is already taking concrete steps to get into this market.

"It's actually a segment that we're starting to offer products to our customers in support of now," Meyer said. "We actually haven't talked in public about that, but I expect we'll be talking about that roadmap when we get together in November at our analyst conference."

Meyer and other executives also addressed upcoming 45-nanometer processors, new graphics chips, and the so-called "asset-lite" strategy as ways to bring the company back to profitability.

Chief Financial Officer Bob Rivet said upcoming 45-nanometer processors and the eventual outsourcing of more production to companies like Taiwan Semiconductor Manufacturing Company (TSMC) will be the keys to long-term sustained profitability.

"Our strategy to continue to execute on 45 nanometer improves our cost structure," Rivet said. He added that improving profitability also "does incorporate asset-smart (and) execution by Hector (Ruiz) to bring it to conclusion." Analysts refer to the outsourcing strategy as asset-lite, AMD refers to it also as "asset-smart." Outgoing CEO Hector Ruiz will stay on to execute the asset-lite strategy.

Rivet later added that asset-lite "will be a major reformation of the company."

On upcoming 45-nanometer production, Meyer said: "We're well on track with the 45-nanometer plan. We actually started production late last quarter and on track to begin volume shipment early in Q4." AMD currently uses a 65-nanometer manufacturing process for most of its silicon. Intel, on the other hand, has been shipping 45-nanometer processors since last year and its newest Centrino 2 processors are made on a 45-nanometer process.

New graphics chips will also help, according to Rivet. "The new 4800 series will be the best products in the marketplace. (This) will definitely contribute to gross margin," he said. AMD is struggling to get the all-important financial benchmark of gross margin to above 40 percent. It is now at 37 percent. By comparison, Intel's gross margin was just below 56 percent in the second quarter.

About profitability in general, Rivet said: "Since we're so far away from profitability. The first order of magnitude is operating profit at the operating income level not at the net income level. First get to that level then we'll work to get the net," he said. Rivet said AMD will show an operating profit in the second half.