AMD CEO Hector Ruiz appeared before a crowd of analysts with Morgan Stanley this morning to explain why his company would fall short of the projected $1.6 billion to $1.7 billion it gave in earlier guidance. This comes after the disappointing fourth quarter of 2006.
As a result, AMD
shares took a tumble along with the rest of the shaky stock market. The stock is now at a 52-week low of $13.95, down from the $40 a year ago.
Perhaps this was why his first few minutes in today’s spotlight were devoted to discussing things like his company’s “one-laptop-per-child” program and the potential of the worldwide market, rather than why he was falling short of projections.
Ruiz: There is good and bad behind success.
Eventually, he came around to discussing what happened. He framed it as good news/bad news: AMD had been a victim of its own success, and not being able to shift gears quickly enough.
“In a very short period of time about four years ago, we’ve gone from being a player whose vast majority of products went to the channel distribution, not the OEM channel, to the point where now the majority of our products go to OEMs and less to distribution,” he said.
In the four years since the Opteron was introduced, AMD went from a company with no OEM partners to dealing with every tier-one OEM out there, and the company simply had a hard time keeping IBM, HP, Dell and the retail channel happy.
OEM demand for parts ramped up significantly in 2006, but in the process, AMD was not able to serve the retail distribution channel. Then the other shoe dropped.
“When a lot of the OEMs were not able to materialize their demand as the year was ending, we couldn’t flip our capabilities to the channel as rapidly as we would have liked,” he said.
“We let down our channel partners by not being able to support them as they wanted us to,” he said later, in what had to be a hard admission to make. The retail channel was all AMD had for the longest time in its battle against Intel
. Ruiz said he believes that by the time the second quarter ends AMD can support the channel as much as it needs.
Ruiz said he thinks the x86 market has the potential of growing in the high double digits, “20-ish” percentage, in the future. AMD currently has 25 percent of the market overall, and Ruiz said he sees “No reason why we should not continue that.” He would later add that he thinks AMD needs to hit 30 percent market share to break the “monopoly,” but he didn’t name names.
CPU analyst Mike Feibus of TechKnowledge Strategies said there was some truth to Ruiz’s mea culpa on delivering supply. “I would say the channel felt burned by AMD. It was at a time when AMD was bringing Dell online, so everyone was hypersensitive, not just the channel. So they had a lot of issues to deal with, and no question the channel got the short end of the stick and Intel was happy to fly in and be the savior,” he told internetnews.com.
Ruiz talked about AMD’s manufacturing transition, which is a lengthy process and has caused more than one semiconductor vendor to stumble. One factory is manufacturing 65nm chips on 300mm wafers, while Fab 30 — the massive Dresden, Germany, factory — is transitioning from a 200mm wafer to 300. A larger wafer means more chips can be made at one time.
Ruiz finished his conversation with the Morgan Stanley analysts by discussing Barcelona, once again citing the 30 percent to 40 percent improvement in benchmark scores, which has been an AMD talking point for months now.