AMD Loses $1.18B and Its CEO

AMD

Seven is usually considered a lucky number, but not for Hector Ruiz. After seven quarters of red ink, the AMD CEO has resigned his post, turning it over to President and Chief Operating Officer Dirk Meyer, who had long been acknowledged as Hector’s successor-in-waiting.

Ruiz will stay on as executive chairman and chairman of the board, working on the company’s mysterious “asset smart” strategy and continuing the battle against Intel by “breaking our industry from the grip of an illegal monopoly,” as he put it.

“The time is right,” Ruiz told a conference call of financial analysts. “Barcelona is shipping, the conversion to 45 nanometer is on track. We’ve made progress on asset smart. This is why the time is right to turn the company over to a new leader, one who has earned the trust of AMD partners and customers worldwide.”

Ruiz, 62, joined AMD as president and chief operating officer in January 2000 and became AMD’s chief executive officer on April 25, 2002. He has served on AMD’s board of directors since 2000 and was appointed chairman of the board of directors in 2004.

Meyer, 46, joined AMD in 1995 as part of the design team for the original AMD Athlon processor. He worked his way up to president and COO in 2006. He holds more than 40 patents as an engineer. An AMD spokesman said there was no immediate plans to replace Meyer as COO and would stick with the existing executive team for now.

Right now, patents are not what AMD needs, it needs to make some money. The company just reported a second quarter net loss of $1.19 billion, or $1.96 per share, compared with a net loss of $600 million, or $1.09 per share, in the second quarter of 2007. Revenue rose to $1.35 billion from $1.31 billion a year ago.

The lion’s share off the loss was a $876 million loss in write-offs from the ATI, which was two years ago. AMD has taken several depreciation charges for ATI over the past few years. These write-downs are simply a realignment of the balance sheet, saying that the company has less value on paper than it thought it did. No money actually goes out the door.

A challenging economic climate

But in this quarter, the company was cash flow negative. It posted an operating loss of $143 million, even though its gross margin was 52 percent and expenses were in line with prior quarters. The loss could be attributed in part to the seasonally weak quarter and, as Chief Financial Officer Bob Rivet put it, “the challenges of the consumer macro economic climate.”

The company will also take charges for the next few quarters as it ramps up to a 45 nanometer manufacturing process, something Intel is several quarters ahead on. Rivet said the company would take charges over the next few quarters as it brings its fabrication plants up to speed.

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The good news, Rivet said, is AMD is getting traction in new products, as indicated by a steep increase in sales of triple and quad-core products on the desktop and server as well as on the graphics side, where the ATI HD4800 line is getting good reviews and lots of design wins.

“We’re regaining server momentum and winning back customers on the strength of workloads and floating point performance in Quad Core Opteron,” he told the conference call.

AMD also launched a line of Business Class commercial desktop and notebook solutions in the second quarter and more important, Puma, its first mobile platform. Rivet said it had scored more than 100 design wins, many of which will show up in the third quarter for back to school sales.

Meyer did most of the talking on the call, which seemed appropriate now that he’s in the driver’s seat. “Looking at the recent past, we have not lived up to our potential,” he said, a curious, or perhaps frank comment, as he has worked hand in hand with Ruiz for the past two years to lead the company.

“Looking forward, we will. We will focus on x86 and leadership technologies, and we will execute, execute and execute,” he added. “I still believe in the strength of the products we’ve introduced in the second quarter, that we can be operating profitable in the second half of the year.”

Meyer said he saw signs of a shift toward value-based computers at the right price points, which echoes what Gartner said recently about the trend in lower-cost PC sales. AMD will focus on “volume markets, traditional markets that AMD and ATI have been focused on for a long time,” he said.

That means the traditional desktop market, notebook PCs and the volume server, especially single and dual socket servers, as well as adjacent markets, like network and storage hardware and the game console space. Meyer also expected to see server sales contributing more to the top line, i.e. revenue, in the future, as will the Puma platform.

Although AMD also promised its second half would be better last year, analyst Nathan Brookwood thinks this time the company has a better chance to deliver the goods..

“The new notebook platform will help them, they didn’t have 45 nanometer on the horizon, which helps with cost and performance,” said Brookwood, research fellow with Insight64. “So they do have something for them for the second half of the year, assuming they execute, that they didn’t have going for them a year ago,” he told InternetNews.com.

With mobility gaining so much traction, Brookwood felt Puma was especially well-timed to help the company. “Considering how well they did in notebooks when they didn’t have anything notebook-focused and they were cherry picking desktop products and putting them into notebooks, their prospects are pretty good,” he said.

He admits to being stumped as to what asset smart is supposed to be. “Nobody understands what it is and they refuse to clarify what it is,” said Brookwood. “They’ve been playing this game for a year and it’s extremely frustrating for everybody trying to understand it. Their explanation has been if they told you it would screw the deal, but that’s getting old.”

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