AMD CEO Hector Ruiz Out After Poor Q2

Advanced Micro Devices CEO Hector Ruiz is stepping down from his leadership post and President Dirk Meyer will take over the leadership of the struggling chip maker.

The news that Ruiz would step down came after AMD reported a $1.19 billion loss during the second financial quarter of 2008. In addition to the quarterly loss, AMD announced that it would divest itself of its consumer electronics division, which the company inherited after the ATI acquisition in 2006.

Following a number of technical and financial missteps, rumors started to swirl that Ruiz would be forced to step down from his CEO position. In the last year, AMD has lost a number of top executives and the chip maker now plans to cut 10 percent of its 16,500 person work force.

In speaking to analysts July 17, Ruiz announced that he would step down as CEO but plans to remain as executive chairman of the board. Meyer will immediately assume the CEO title. During his tenure, Ruiz led AMD to develop some of its best processors and the company managed to take market share away from Intel, but the continuing financial losses, Intel's resurgence and the missteps with delivering the quad-core Opteron chip in 2007 have put the company in a tough position.

"We have not been living up to that potential, but, looking forward, we will," Meyer said, adding that the key to success of AMD in the future is to "execute, execute, execute."

While Meyer will take day-to-day control of AMD, Ruiz said he will help the company with its "asset-smart" strategy and lead AMD's fight against what he called Intel's "illegal monopoly" of the worldwide x86 microprocessor market. The European Commission filed additional complaints July 17 against Intel's practices in the European market.

"On the one hand, they started planning this transition two years ago to transfer the CEO title from Hector to Dirk and this move was already on the way," said Roger Kay, an analyst with Endpoint Technologies Associates. "On the other hand, AMD has had a couple of tough years and this is a definitive changing of the guard."

While Meyer, an engineer by training, can help AMD change its fortunes in the marketplace, Kay said the company's financial struggles have turned AMD into a potential takeover target.

During the second quarter, which ended June 28, AMD sustained a financial loss of $1.19 billion or $1.96 per share compared with the $600 million loss or $1.09 per share it posted in the second quarter of 2007. AMD's revenues were $1.35 billion this quarter compared with $1.3 billion a year ago.

Wall Street analysts had been calling for a 52 cent per share loss during the second quarter with revenue of $1.4 billion. Intel, AMD's main rival in the x86 chip market, posted a 25 percent net increase in net income during the second quarter thanks to better-than-expected PC sales.

Now, AMD plans to rid itself of its Consumer Electronics division, although the company's executives did not offer any detailed plans for the business. The loss from these discontinued operations amounted to $1.52 a share.

In a call with financial analysts, Meyer said the company still plans to return to some sort of profitability by the end of 2008. For now, Meyer said AMD would focus on the strongest parts of its core business, which include processors for servers along with chips and graphics for desktops and notebooks.

Meyer said he expects notebook sales and back-to-school sales to add much-needed profit to the company's bottom line during the third quarter. AMD launched its "Puma" notebook platform in June.

John Spooner, an analyst with Technology Business Research, wrote in a July 17 research note that in addition to traditional notebooks, Meyer is planning to develop a line of processors that will address the type of low-cost laptops Intel is targeting with its new Atom processor.

"Meyer will work quickly to focus the company’s product development, marketing and sales efforts toward specific goals, including expanding its share of the enterprise client segment and growing its share of the global notebook market," Spooner wrote.

"We expect part of its efforts in mobile to involve unveiling an Internet access notebook (aka netbook) strategy backed by an as-yet unannounced product lineup, which Meyer referred to during the company's July 17 earnings call. We believe that Meyer will also make increasing AMD's share of the discrete PC graphics market with new, higher-performing products a main area of focus as well."

Editor's Note: This article was updated to include additional comments from an analyst.