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Like just about every other company in IT, Advanced Micro Devices Inc. is burdened with the challenges of an economic slowdown and drop in IT spending. But unlike anyone else, to turn itself around, the Sunnyvale, Calif., semiconductor manufacturer must win over end users and computer makers thoroughly aligned with chief rival Intel Corp. But AMD has a plan. And as it licks the wounds from its third consecutive quarterly loss for the third quarter, the tenacious chip maker is focusing on the future–the first half of 2003, to be exact. Thats when the company releases its first 64-bit processors based on the Hammer architecture. The chips, which will be priced comparable to 32-bit chips and backward compatible with 32-bit apps, are the keys to AMDs turnaround and future, according to President and CEO Hector de Ruiz. eWEEK Executive Editor/News Michael R. Zimmerman and Editor in Chief Eric Lundquist caught up with Ruiz at Comdex in Las Vegas recently for a candid conversation about AMDs challenges, its future and Intels influence in the market.
eWEEK: What is AMDs most pressing issue today given all the things youre faced with?
Ruiz: Well, how do you measure that? You measure that when you lie awake at night thinking about what it is that occupies your mind the most. And frankly, its just assuring our people are focused and motivated. Theres hope that, in this time of a tremendous difficult environment, that we have a strategy that they feel is within their [reach and are] motivated to follow through. And Id say, just the hope of our employees is the biggest thing Id like to see is for them to not lose focus, not lose track.
eWEEK: If we were to narrow it down to in-house business challenges vs. external challenges, which garners more of your attention?
Ruiz: There are two sides to that. Internally, we try to focus on things we can control, intensify our effort from every angle we can on those things. We would like to tell employees there are some things that we cannot control. We really cant control whether well go to war with Iraq, and all that sort of thing. So we place focus on things we can control, and one of them has some external elements to it, and that is our customers. To a large degree we have to work hard and win our customers, in addition to … making sure we meet our milestones and targets. But there is an element of control on the outside. It has to be customers–we have to convince them we have a winning plan, our products are not only good and competitive today, but theyre going to be good and competitive in the future.
So theres two pieces. Theres an outside element that we dont control and we dont worry about it. Theres an outside element that really is a function of how well we do internally. And so we tend to not to lose sight of that.
eWEEK: Would you agree that theres a somewhat less positive perception of AMD by enterprise customers and certain OEMs when compared to the perception they have of Intel?
Ruiz: No, I dont agree with that. Let me explain what I mean by that. We have for about three years now been doing surveys almost every six months of the perception of the enterprise customers of AMD to understand what are we doing that we should be doing and what are we doing that we shouldnt be doing, etc. And the rate of change has been so large in the three years that I would say the momentum is strongly in our favor right now. We went from 20 to 30 percent of the enterprise customers having a positive image of AMD to today, [where] the last survey we just did said that 80 percent of the enterprise customers have a very positive image of AMD. Thats not much different than our competitors numbers. So, OK, weve gotten out to the point where that issue doesnt seem to be as strong as it was three years ago. The next step, of course, is turning that into real business.
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eWEEK: The reason I ask is because there are a number of OEMs out there that wont consider AMD.
Ruiz: You [bring] up an entirely important point. We have these people in the middle that are responsible for delivering to the enterprise the boxes. And these people in the middle frankly are, and Ill just be totally blunt with you, theyre scared to death to respond to the enterprise positively of AMD for fear of retaliation by Intel. Its just as simple as that. I could give you numerous examples of enterprise people who say they would love to see boxes with AMD products in them. But they expect the PC maker to provide that option to them, and they dont. Although, its changing, HP [Hewlett-Packard Co.] is now providing commercial units in this space. … Its changing. But theres no doubt that these PC makers are frankly being held hostage by the tremendous market power of our competitor.
eWEEK: So what can you do proactively to try to change that?
Ruiz: At some point in time, I think it is getting very close to that, the compelling price/performance difference is so huge. … Were not talking about a 5 percent difference, were talking about a gigantic difference that just fiduciary responsibility to shareholders demands that some of these PC makers have to pay some attention to it.
eWEEK: Im hearing from PC makers that customers are just not asking for AMD. So where does the education process begin, with customers or PC makers?
Ruiz: There is a big difference between saying, “Our customers are not asking for it,” vs. “Our customers are not willing to accept it.” I think people are playing [tricks with words] with this issue. There is not an enterprise customer Ive talked to, and Ive talked to many, who wouldnt say, “Things are now pretty even, well be willing to consider AMD as a solution, but we need the PC maker to offer us that solution.”
eWEEK: Its a chicken and egg situation.
Ruiz: Absolutely. But I feel weve made a lot of progress on that side. We now have to figure out how to work with the PC makers, and say, “Look were going to give you …” I mean, Ill give you an example. If I could just say some numbers off the top of my head. If Intel makes 100 million units, which is about roughly right, and the average price is about $200, were talking about $20 billion in revenue. If everybody that bought Intel parts would switch over to AMD, just that alone would save the industry $10 billion. I think theres a lot that PC makers could do with an additional $10 billion. Maybe make the boxes better, more attractive …
The reason that wasnt an issue before was because the total cost of ownership of the enterprise, the CPU part used to be almost negligible. And so the cost of ownership was a lot bigger. I saw some data from McKinsey several years ago where the CPU portion of total cost of ownership was less than 5 percent. But that has changed. Now, with the IT industry and the CIOs becoming much more savvy about whats going on, thats becoming an important part. And I think theyre asking the right questions. So, were in the throes of this thing changing.
eWEEK: What would you say to an end user or an OEM that said AMD is a risky proposition?
Ruiz: Well, when we hear that what we do we is present all the data. We hired an individual a couple of years ago. His total focus was, Lets get these enterprise people familiar with AMD and start to show them … they really would not object to an AMD solution. Were now collecting enough data. Were holding CIO summits regularly to do this. Now when a customer expresses some of that concern, by the time they do that at a high level, weve already worked with lower-level people. …
eWEEK: How often do you have the CIO summits?
Ruiz: Every six months. Between Austin and Sunnyvale.
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eWEEK: What does it mean to you personally, though, when a Gateway or an IBM not just stop, but announce that theyll no longer be offering AMD as an option?
Ruiz: I think its terrible, obviously. Its terrible. I think if you were to talk with Ted Waitt at Gateway, and ask him, “Whyd you do that?” and if he would really tell you why, its a question of hes being bribed to do it. Now, hes got to look out for his own hide and the company thats probably in great difficulty has got to listen to the huge amounts of money that can help him do that.
But you know what I find amazing, think about the power, is that despite all that, which obviously we really get emotional about the fact that somebody like Gateway gets bribed into doing that, is that despite that, according to Dataquest last week, were still holding a 19 percent share of the market. That to me tells me were in the throes of breaking this open.
eWEEK: Why does AMD seem to have more software support for Hammer than hardware support? For example, with IBM, they back out on the hardware, then turn around and support it in software with DB2.
Ruiz: I dont know if this is a surprise to you, or if you even believe it or not but the fear of Intel is pretty incredible. I mean when somebodys … livelihood is dependent on making sure Intel supports as well, now thats because theyre so dominant with that supplier. At some point in time thats going to change. I keep telling people the best antidote for that is to get to 50-50, then you dont have to worry about it. Im beginning to see significant buy-in on the part of PC makers to say, “Hmmm.” Because heres their fear. Prior to Hammer it wasnt as big a fear. But now with Hammer the difference in the enterprise from Hammer relative to price/performance is so compelling that the fear is that one of them is going to jump ship. And whoever does is going to garner the biggest piece of it because were relatively small at the moment. If one of those big guys were to jump ship, wed have to support that one guy pretty heavily until we had enough capability to support others. And I think one of these guys is beginning to think, “Ha, I wonder,” and you can sort of sense it, “whos going to be the first one in.” And frankly theyre going to benefit tremendously because there really is a compelling proposition.
eWEEK: Can you characterize the price/performance advantage?
Ruiz: Sure. … Im going to talk about the volume server market, not the real high end. The volume server market is in the throes of considering where do they go from here. They made a huge investment back in the late 90s as the Y2K thing was coming around. And now theyre looking at the fact that in spite of what you hear, broadband is slowly getting accepted, databases are growing, theyre not getting smaller. All of a sudden they say, “OK, how do we address this?” Here comes Hammer, which prices at a 32-bit system–that means you get 64-bit for free. And on top of that, heres a factor of two in performance with our competition. So thats really beginning to get their attention. If you look at the benchmarks on Hammer, [they] are so overwhelming, theyre not even close.
eWEEK: What is the deal with Oracle?
Ruiz: Their enterprise software is something theyre interested in porting to Opteron.
eWEEK: What other software is on the horizon?
Ruiz: Of course, Linux is already way ahead and on top of Opteron. Their far ahead of anybody at the moment because these people have no religion of their own. And its great for us. But they love it. They love Hammer. Its a great product for them.
eWEEK: And your relationship with Microsoft Corp.?
Ruiz: The relationship is very strong, and I think one of the things Microsoft would like to ensure is the tremendous opportunity Hammer presents for them to continue the evolution of the X86 investment is awesome. If you can imagine, put yourself in Microsofts shoes, you see instead of having to do a right turn, 90 degrees, with the Itanium stuff, now they can see a way of evolving all this investment and technology and continue to be in that dominant position theyve had and probably even make it stronger. So Microsoft is obviously selfishly, incredibly interested in making sure Hammer is a success.
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eWEEK: What does Intels Banias chip mean to you with respect to the faster clock speed equals better performance debate?
Ruiz: It basically says, its not really the speed that counts; its performance. Because theyve lowered the speed and tried to improve it from a solution perspective, its more of a complete solution for mobile as opposed to just the CPU. But its a significantly lower frequency, but the performance is considered reasonable for mobile. So it does say there is something to this performance thing.
eWEEK: Doesnt it validate what AMDs been saying for a long time?
Ruiz: I think it does. Theyll never admit it. But I think it does.
eWEEK: What would the addition of Apple [Computer Inc.] to the 64-bit industry mean to AMD, to the industry?
Ruiz: First of all, I have no indication that Apple is even considering what we make. Ive heard rumors going around. But you know it would be interesting because at some point in time if Apple is going to do a 64-bit version, theyre going to face the decision, what do they do for it? I cannot picture Apple putting an Itanium in their stuff. So I think if theyre going to do that theyre going to figure out some way to get a PowerPC version of that. Or theyre going to have to consider one of the alternatives we offer and see theres many more than that.
eWEEK: So theyre not in talks with you, theyre not evaluating the chip as far as you know?
Ruiz: You know, if they were I couldnt tell you, and if theyre not I shouldnt tell you. But I think it would be an interesting relationship if that ever really happened.
eWEEK: Intel has officially announced that it is going to abdicate the desktop 64-bit market, leaving it essentially IBM, with its PC970, and AMDs Clawhammer and Opteron products. What is that two-horse horse race going to mean to AMD in 2003?
Ruiz: First of all, I dont believe that Intels abdicating anything. They would like to influence the market. See it go in a certain direction. But the market, which is actually made up of customers are going to do what makes sense for them. And I think 64-bit at the desktop is going to happen. I really think its going to provide consumers a value that theyll appreciate. And its not going to happen overnight, and its not going to happen next quarter. But I think it will start really avalanching in the beginning sometime late next year, early 2004. And it could start with the early adopters, people like the gaming folks. Those people are really dumping tons of data into broadband and then from there it will go.
eWEEK: So you think therell be faster adoption on the server end?
Ruiz: I think the immediate desires is the server computer. The enterprise really wants to move into that direction fast because they can really exploit this bandwidth capability. So thats definitely true. Personally I think its going to happen faster than people think. But its not going to be next year. I think its going to start at the end of next year. … The reason I think is not because its 64-bit, thats not it. The reason is because its compatible with 32-bit. … I think people are going to say, “Wow, Im buying a 64-bit system capable of running 32-bit products.”
eWEEK: What was the reason for the delay in the release of Clawhammer?
Ruiz: Nothing more than these product road maps are just so complicated, the technology evolution is gigantic. … The product is pretty solid. Never in my career, and Ive been in the industry 29 years, have I seen a project of the complexity of Hammer work the first time. When silicon came out the first time, it worked. It worked fully … and thats pretty amazing.
eWEEK: What prompted the customer-centric philosophy?
Ruiz: Its our belief that more and more the difference between where the customer ends and the supplier begins is getting closer and closer. And the more relevant that interaction is and the more enhanced, the more both people benefit. We have this awesome engineering talent that maybe we can put it, in some indirect way, at the use of our customers so that our customers can think of us as their friend and partner. … So were putting ourselves always to continuously asking questions, “What would the customer think of this? What would they want? What would they say?” Frankly, I think its generated a lot of enthusiasm in the company to be … hopefully more relevant when it comes to our customers.
eWEEK: But the note that you made that the admission that the industry as a whole is guilty of building technology for technologys sake seemed to strike a cord.
Ruiz: Oh, absolutely. I mean if you look at the PDAs, its taken 20 years to finally get to where the Palm Pilot finally made an impact. But it was 20 years after trying and trying and trying, because they werent paying attention to the customer. With all due respect to the awesome power of our competitor, the Itanium is one of the least customer-driven technology developments Ive ever seen in my life. I have yet to talk to a customer whos said, “Ive been pushing for that for 10 years, cant wait for it to come.” And you look around at so many of these things, at consumers and customers in general, and I say, technology is now not an issue. You can do almost anything you want to with technology. Can we now make it more useful? Can we make it more practical? It goes all the way from things like automobiles, televisions, cell phones, etc. One of the reasons Nokia became so successful in the early stages people attributed to the digital effort they did. And although that was very important, the other part was is that their software was friendly. You look at a Nokia phone, you dont need to read the manual to actually figure out how to pick up the phone and follow it.