Business Tech

Advanced Micro Devices' chief executive predicts that Netbooks will eventually disappear. This thinking, though obviously favorable to AMD's strategy, isn't completely at odds with Intel's.

The lightweight HP Pavilion dv2, which uses the AMD Neo processor, is marketed as a notebook

(Credit: Hewlett-Packard)

"The distinction between what is a Netbook and what is a notebook is going to go away," AMD CEO Dirk Meyer said Thursday in the company's earnings conference call.

"There will be a continuum of price points and form factors," he said.

"Given the way Netbooks are configured today, consumers who want a notebook at those kind of (low) price points have to compromise and as a result don't enjoy a full PC experience, particularly around the graphics and media capability of the machine," Meyer said. "And likewise people who wanted a thin and light machine had to pay a lot of money, typically well over a thousand dollars."

Upcoming inexpensive ultra-thin notebooks will meet the need for a small, thin, lightweight laptop that is more powerful than a Netbook, Meyer said.

This sentiment is actually backed up to some extent by Intel's recent behavior. Intel CEO Paul Otellini, in that company's earnings conference call last week, spoke oddly of Netbooks in the past tense. He said the buzz around Netbooks at the Consumer Electronics Show "validates our view that (the market) had a high potential for growth and it was an exciting segment, in particular in this kind of economic environment." (Emphasis added.) Otellini did add, however, that he expected Intel "would do very well in the Netbook market in the course of the next couple of years."

Whether his use of tense is just a way to refer to the Netbook market to date or a Freudian slip tied to Intel's intention to bring out new mainstream Core architecture chips for inexpensive thin notebooks later in the year, is not clear. This chip platform could potentially suck a lot of the enthusiasm out of the Netbook market.

And Intel has small plans for its Atom processor in 2009. Aside from a tiny increase in processor speed and a slight improvement in graphics, nothing big is slated for the platform. Is the demise of the Netbook market as we know it today something both AMD and Intel agree on? We'll see.

Advanced Micro Devices reported a much smaller loss for the third quarter and better-than-expected revenue.

The Sunnyvale, Calif.-based chipmaker reported third-quarter 2008 revenue of $1.776 billion, including process technology license revenue of $191 million.

Revenue increased 32 percent compared to the second quarter of 2008 and 14 percent compared to the third quarter of 2007.

A positive surprise is the net loss, which was significantly smaller than expected. The company reported a net loss of $67 million, or 11 cents per share. Analysts polled by Thomson Reuters had expected a third-quarter loss of 40 cents per share on $1.48 billion in revenue. The company also reached operating profitability in the quarter.

Analysts were impressed by the numbers. "Even in a normal environment this would be a pretty remarkable achievement. In today's environment, it's extraordinary," said Ashok Kumar, an analyst at investment bank Collins Stewart.

"Improved execution across all of our businesses," Robert J. Rivet, AMD's chief financial officer, said in a statement, "was punctuated by a refresh of our graphics product line-up, driving 55 percent sequential revenue growth and market share gains. In addition, customer adoption of our quad-core microprocessors was strong, with unit shipments increasing 46 percent sequentially."

In the second quarter of 2008, AMD had revenue from continuing operations of $1.349 billion and a net loss of $1.189 billion. In the third quarter of 2007, AMD had revenue from continuing operations of $1.558 billion and a net loss of $396 million.

Third-quarter 2008 gross margin was 51 percent, or 45 percent excluding process technology license revenue. This compares favorably to both the second-quarter 2008 non-GAAP gross margin of 37 percent, and the third-quarter 2007 gross margin of 41 percent.

"We achieved a significant milestone with the recent announcement of our Asset Smart strategy, which will transform both AMD and the industry," Dirk Meyer, AMD's president and CEO, said in a statement.

Earlier this month, AMD announced that it was splitting into two companies: one for designing chips (AMD), the other for manufacturing them (The Foundry Company). The capital-intensive business of manufacturing chips had been weighing on AMD as it reeled under a $5 billion debt load, partially due to its purchase of ATI Technologies in 2006.

The investment is expected to allow AMD to remain directly involved in chip manufacturing--crucial for competing with Intel.

AMD said it has secured $5.7 billion of "confirmed, pledged investment," with some of the money earmarked for a future manufacturing facility in Malta, N.Y. It will own part of the new manufacturing entity, and Advanced Technology Investment Co. (ATIC) will own the rest.

In addition, ATIC will commit a minimum of $3.6 billion and up to $6 billion in additional funds over the next five years for the upgrade and expansion of fabrication facilities in Dresden, Germany, and construction the Malta, N.Y., facility.

One of the largest investors, Mubadala Development, now owns 19.3 percent of AMD.

Hector Ruiz accomplished many important things during his tenure as the CEO of Advanced Micro Devices, but no executive can escape the bottom line.

AMD's CEO Hector Ruiz is stepping down from his CEO spot; he'll remain the chairman of the company.

(Credit: AMD)

In just more than six years with Ruiz as the leader of AMD, the chip company has lost a staggering $6.3 billion according to generally accepted accounting principles. He announced plans to step down Thursday as part of what the company is calling a planned succession to new CEO Dirk Meyer, even though Ruiz was under the impression as recently as December 2007 that he would be around this entire year.

"A lot has changed at AMD since then," an AMD representative wrote in response to e-mailed questions about Ruiz's expectations last year. One thing that hasn't changed since then is the company's continued pattern of losses. But AMD has laid off thousands of workers and revamped its executive circle, which has strengthened the team around Meyer to the point where the board of directors feels the timing is now right for the succession, according to the representative.

Despite all the setbacks, it's still possible to argue that Ruiz leaves AMD a better place than it was before he took over. Sure, investors might have preferred to lose a little bit less than $6 billion in six years, but AMD is a brand that corporate executives know just as well as hard-core gamers, AMD's main audience prior to 2002.

All four major server vendors (Hewlett-Packard, Dell, IBM, and Sun Microsystems) have a relationship with AMD. Just about every major PC vendor in the world has a product based on AMD's chips, with the notable exception of Apple. Corporate purchasing departments don't shake their heads in confusion at seeing AMD's name on a purchase order, and consumers are quite used to seeing AMD-based systems on the store shelves at Best Buy and other stores alongside Intel systems.

In short, Ruiz made AMD relevant to a much wider segment of the computer buying population than it was before he became the company's CEO, and for sticking to his guns with AMD's bet-the-farm strategy for its Opteron chip. For that, he deserves credit. But the events that led to his demise are equally easy to chronicle.

Ruiz with Dell's Michael Dell in 2006, just after the companies signed their historic agreement to partner on servers.

(Credit: Ina Fried/CNET News)

AMD succumbed to the classic innovator's dilemma: once it was clear Opteron was a hit, especially in dual-core format, AMD failed to come up with a worthy successor.

It insisted on an integrated quad-core design for its third-generation Opteron processor, claiming that its customers were eager for such a design. But the project suffered from countless delays, and AMD allowed Intel to have the quad-core segment of the server market all to itself for more than a year, destroying the hard-earned pricing value that AMD had attached to Opteron for several years.

Once it was also clear that Intel had regained its footing after botching the Itanium strategy and the switch to dual-core processors, AMD panicked and spent $5.4 billion it didn't have on ATI Technologies in order to find its next big thing in graphics technology.

Ruiz was right, in a sense: graphics technology is going to be an ever-increasing part of a PC's arsenal and will probably one day end up getting integrated into the main processor like so many other discrete components from the past. Intel and Nvidia know this, and are spending tons of time and money improving the performance of their graphics products and finding new ways to unlock that performance.

But with Thursday's results, AMD has now written off $2.5 billion of goodwill related to that ATI purchase, basically admitting that it can't attach that $2.5 billion to anything of value related to the acquisition. That's an awful lot of money, and it has to come from somewhere, forcing AMD to raise capital from outside investors to keep the lights on.

Ruiz introduces AMD's Barcelona processor in September 2007. Already very late, Barcelona wouldn't ship for another six months due to a separate problem.

(Credit: Tom Krazit/CNET News)

Ruiz's greatest legacy to the processor industry might still be off in the future. His decision to file an antitrust lawsuit against Intel in 2005--and work a short rant about illegal monopolies into just about every speech since--has the larger chip company on the run around the world as governments take a closer look at Intel's business practices during the past decade. Any trial resulting from that case in the U.S. still appears to be years away, however.

Leaders are judged on many things after their moment in the sun passes. Ruiz brought some stability to AMD--at least in the public eye--after decades of swashbucklin' quote-makin' Jerry Sanders. His personal story, rising from a poor town on the Texas/Mexico border to lead a Fortune 500 company, is inspirational both on its merits alone and on Ruiz's stubborn reluctance to play up his ability to overcome adversity as if he was filming a segment for Dateline.

But his tenure was chaotic, a roller coaster ride up and down the stock market charts that saw AMD arrive on the world stage and fall just as quickly off to the side. Running the No. 2 company in an expensive, fast-moving industry dominated by an American institution is not an easy job, and Dirk Meyer will have his hands full during the next several years. Ruiz will remain at AMD as chairman, but he's leaving a day-to-day role at the company at a time when it is trying to get back to basics, to focus on execution and discipline rather than trying to take down giants.

So perhaps it's fitting to remember the words of football legend Bill Parcells when assessing Ruiz's legacy: "You are what your record says you are."

Hector Ruiz

(Credit: AMD)

Advanced Micro Devices CEO Hector Ruiz is stepping down from the helm of the troubled chip company, and Dirk Meyer is taking over.

Ruiz announced the leadership change Thursday during AMD's second-quarter financial earnings conference call. He will remain as executive chairman, but Meyer will immediately take over as the sole executive leader of AMD. "The time is right to turn the company over to a new leader."

Ruiz announced last year that Meyer was the designated successor to the CEO position, but he also said that he planned to stay on the job through 2008. Amid continued heavy losses, however, it seems the situation was too much for the company's board of directors to bear.

Ruiz praised Meyer as he introduced AMD's third-ever CEO.

"He is a talented business executive who is known to make decisions quickly and just as quickly turn those decisions into action. In short, he is the right leader at the right time for this company," Ruiz said, in announcing his own departure from the executive chair.

Dirk Meyer

(Credit: AMD)

Ruiz replaced legendary founder Jerry Sanders as AMD's CEO in 2002, after joining the company in 2000 as president and chief operating officer from Motorola. His tenure was a whirlwind that saw AMD leap from an afterthought among the world's top PC companies to a top player in the chip business on the strength of its Opteron processor, only to slide underwater once again after botching the introduction of a quad-core processor.

Meyer's engineering talents are unquestioned within the chip industry, having presided over several very important processor designs during the last 20 years.

"Dirk is an experienced and prolific engineer with over 40 patents and many chip designs to his name including the ground-breaking DEC Alpha processor," Ruiz said. "He led the design of our industry-transforming AMD64 architecture--and then took the reins of what was then the Computation Products business--doubling its revenue, expanding its customer base, partner and R&D footprint, and changing the face of the microprocessor industry as we know it."

Ruiz's new role as executive chairman will find him overseeing AMD's "asset-smart" transition, which has taken forever to unfold. Ruiz first broached an "asset-light" idea in the first quarter of 2007, but the company has said absolutely nothing about its possible plans to do less chip manufacturing in-house and more work with third-party foundries. The company hopes to have more to say about that plan this year.

He will also likely remain the face of AMD's antitrust battle against Intel in both the U.S. and abroad. AMD filed suit against Intel in 2006 charging that the world's largest chipmaker has used a pattern of selective rebates and intimidation to coerce PC and server vendors into limiting their use of AMD's chips, charges that Intel has denied.

AMD will focus on recapturing market share and product leadership in high-volume categories such as PCs and servers with one or two processors under Meyer's reign, he said. Meyer faces significant challenges in getting AMD back on track financially as it tries to regain the upper hand against a much more wary Intel, which has adjusted its product strategy to make more frequent changes to its chips in order to prevent AMD from catching it napping again.