Business Tech

commentary Hector Ruiz was quick to display righteous indignation about Intel's alleged unscrupulous business practices. Now--in one of life's delicious ironies--he's a central figure in the biggest scandal to hit Silicon Valley in years.

In a letter from Ruiz that still sits on AMD's Web site and is still signed above the title "Executive Chairman and Chairman of the Board Advanced Micro Devices," he rails against Intel for "breaking the law." And on another Web page bearing his photograph, there are more accusations leveled at Intel for its alleged "illegal" behavior.

In the coming months, Ruiz may face the same kind of scrutiny for illegal behavior that he campaigned against so zealously during his six-year reign as the CEO and chairman of AMD.

The 'truth' about Intel that Ruiz campaigned to expose. Ironically, the truth about the former AMD CEO is now at the center of a Silicon Valley scandal.

(Credit: AMD)

And one of the operative phrases in that letter, "pattern of abuse," may turn out to be little more than facile argument that can easily be turned back on Ruiz himself, if it is established that he abused the trust placed in him by stockholders.

In short, if Ruiz was connected--however indirectly--to Raj Rajaratnam and the Galleon Group, then his--and his former company's--constant haranguing of Intel and the never-ending appeals to governments to go after Intel, lose some of their punch. Especially if it is little more than a stratagem to gain market share.

Based on the U.S. Attorney's allegations, Ruiz exhibited a pattern of behavior that would rightfully invite scrutiny on any CEO. As the deal to spin off AMD's manufacturing operations got closer, Ruiz allegedly talked freely with Danielle Chiesi, who worked for the New Castle hedge fund, about details of the deal, which at that time were confidential, insider information items. And Rajaratnam and Chiesi allegedly made large investments in AMD based on this information.

Ruiz was the man driving the spin-off of AMD's manufacturing operations. In earnings conference calls, while he was still chairman of AMD, he was the go-to man for information about AMD's efforts to streamline its manufacturing operations--which AMD at one time called "asset lite"--and ultimately the person spearheading the deal with Advanced Technology Investment and Abu Dhabi-based Mubadala Development, who invested billions in the spin-off.

And what's the greatest irony of all? As the U.S. government reportedly readies an antitrust case against Intel, the government may also be forced to examine the unscrupulous behavior of one the principals who pushed the government to move against Intel. That's some pretty heavy irony.

The former CEO and chairman of Advanced Micro Devices, Hector Ruiz, has been linked to the Galleon insider-trading case, according to a report in the Wall Street Journal on Tuesday.

Hector Ruiz

(Credit: AMD)

This revelation comes after an unnamed executive at AMD was cited repeatedly in a complaint filed by the U.S. Attorney for New York's Southern District earlier this month.

The case revolves around Raj Rajaratnam, who founded the Galleon Group, a New York-based hedge fund that manages $7 billion in funds. Federal prosecutors charged Rajaratnam and five others with securities fraud, alleging they were involved in insider trading of well-known tech companies, including Intel, Google, AMD, and IBM.

"We are thoroughly reviewing the situation," AMD spokesperson Drew Prairie said. "We are not aware of any allegation of criminal misconduct on the part of any current or former AMD employees, nor have any current or former AMD employees been charged with a crime."

Ruiz is currently chairman of Globalfoundries, the chip manufacturing concern that was spun off from AMD in October of last year. A Globalfoundries spokesman had no comment.

AMD was prominent in the U.S. Attorney's complaint, which alleges Rajaratnam and others engaged in insider-trading activity when AMD was trying to reorganize and spin off its manufacturing operations last year--which eventually became a multibillion-dollar deal. The U.S. Attorney's complaint makes the first references to an AMD executive in June 2008. At that time, AMD, seeking a buyer for its manufacturing operations, entered into negotiations with investors based in Abu Dhabi.

As the announcement of the spin-off got closer, Danielle Chiesi, who worked for the New Castle hedge fund, is alleged to have said that "she had spoken with the AMD Executive, who told her that 'Wall Street will be shocked,' and that AMD will 'definitely make the announcement...before they print (quarterly earnings).'" Alan Kaufman, Chiesi's attorney, said his client would plead innocent to the charges.

The spin-off was ultimately announced on October 6 when an investment was secured from Advanced Technology Investment and Abu Dhabi-based Mubadala Development. At that time, AMD said the new company had secured about $5.7 billion of "confirmed, pledged investment."

Ruiz served as CEO and chairman of AMD until July 2008, when Dirk Meyer was appointed CEO. He remained as chairman of AMD until October when AMD's manufacturing operations were spun off. At that time, he become chairman of Globalfoundries.

Intel is accused of monopolistic business practices pretty much all of the time. So much so that the big bully boilerplate isn't worth repeating.

The latest reports of charges against Intel are interesting because of the timing. According to this March 10 headline, the Korean Fair Trade Commission has ruled against Intel. That would be news if it hadn't been news eight months ago. Here's an English-language summation of the case that was news in June 2008. (CNET News report here.)

Not that all complaints about Intel business practices are unfounded. Certainly not. But how many times do we have to hear the "news" that Intel leveraged its market position to finesse a deal? (Answer: ad nauseam.) In this case, the American Antitrust Institute selectively translated text from an old 133-page report to show that Intel coerced Samsung (and others) into using Intel chips instead of those from Advanced Micro Devices.

Again, worth putting out there eight months ago but probably not today.

And let's remember that, of course, Nvidia and AMD never do this in the graphics chip market when they're trying to reel in a customer. No enticements, no sweeteners to close the deal. Absolutely not. Perish the thought.

But I shouldn't rush too quickly to Intel's defense. There will be plenty of real news related to Intel's market dominance in the coming years. The intensified focus now on Intel's business practices is happening against the backdrop of the severe financial straits of its sole competitor. No one wants to see AMD go away. (No stronger advocate of this than AMD itself.)

That said, the question should always be asked: is it really unfair competition or is it merely unfair as Intel's less-successful rival sees it? The grumblings I most often hear about are MDF and bundling. Different parties' interpretations of Intel business practices (real or imagined) connected to Market Development Funds and bundling are too varied and too byzantine to cover here. But that two-second Intel jingle at the end of a Dell, Hewlett-Packard, or Sony TV commercial can have, for AMD, an ominous ring to it.

All of the above gets (very) complicated because of Intel's dominant market position. One question is, where does MDF end and alleged brass-knuckles, restrictive bundling begin?

"So, Mr. Computer Maker, want some peppier graphics in that Netbook? We got this thing called the GN40...So you might want to reconsider that Ion thing." Nvidia may have a point here. But are they being out-bundled or simply out-maneuvered by Intel? You decide.

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.