AMD's Tale of Woe
It'd be difficult to imagine a more stark contrast in financial numbers between industry rivals than what we saw this week with Intel and Advanced Micro Devices. Actually, AMD and anyone else in the tech industry, for that matter.
Intel, already in the news for launching its Centrino 2 mobile platform, announced July 15 that it saw second-quarter revenues drive pass the $9 billion mark. Other companies, from Microsoft to Google to IBM, saw strong quarters despite the sagging U.S. economy. By contrast, AMD--hobbled by its ill-advised $5.4 billion acquisition of ATI in 2006 and by the delay in getting out its quad-core Opteron chip last year--announced yesterday that it lost $1.9 billion in the quarter. It was the final nail in the coffin of CEO Hector Ruiz, who stepped down to make way for Dirk Meyer, who had served as AMD's president.
It was the latest sad chapter in what only a few years ago was one of the great stories in the industry. An embattled AMD rocked powerful rival Intel with the introduction of Opteron, which enabled 64-bit x86 computing and highlighted the folly of Intel's embrace of its own Itanium processor. Opteron also was in on the beginning of the push for green technology.
In the middle of all this was Ruiz. While much of the groundwork for Opteron was laid before he assumed the CEO job, he was instrumental in pushing the technology and making Intel scramble for a couple of years to respond. But respond Intel did, and that combined with a series of poor management decisions returned AMD to its pre-Opteron days.
But probably nothing hurt AMD more than the ATI acquistion, overpaying for a company at a time when the economy was souring and the chip maker already was struggling with its own internal problems. The resulting financial problems have been overwhelming. As BusinessWeek's Arik Hesseldahl said in a post yesterday, AMD can point to Intel--as it has done in its antitrust lawsuit against its rival--as the reasons for its woes, but in truth, many of the problems can be traced to AMD itself, particularly the ATI decision.
"Saying 2006 was a lousy time to buy ATI is something of an understatement.
But this latest loss is nothing sort of catastrophic: $1.19 billion on revenue of $1.35 billion. That brings total losses for the fiscal year so far to nearly $1.6 billion on sales of $2.8 billion. And while the operational loss was only $269 million, it's hard to spin this number as anything else. Some $920 million of the loss alone stems from discontinued operations at ATI that had been focused on selling graphics chips for handhelds and digital TV sets.
This is on top of fiscal 2007 when AMD lost $2.8 billion on $6 billion in sales. This kind of performance is simply unsustainable, and it has been clear for some time that a change at the top was needed."
I don't envy Meyer's position as he takes over as CEO. A number of people have argued that AMD needed new blood at the top, someone from the outside. But having talked with Meyer and other AMD officials in the past, there's little doubt that those inside the company like and trust him. And as I've said before, I hope AMD can pull out of this tailspin. It's "Awakenings"-like resurgence with Opteron not only gave businesses a much-needed option to Intel, but also made Intel a better company, which benefited the entire industry. It'd be good if the company could keep doing that.