AMD Tries to Redefine Processor Business

After AMD CEO Hector Ruiz leaves his post and President Dirk Meyer takes day-to-day control of the chip maker, AMD will embark on a less ambitious agenda that will focus on chips for servers and PCs as well as processors for the low-cost notebook market.

Former Advanced Micro Devices CEO Hector Ruiz never lacked an ambitious agenda for the small but innovative chip maker when he took the top leadership role in 2002.

During his six years as AMD's CEO, Ruiz oversaw the development of the Opteron, which gave the company a way to enter the lucrative multisocket system market thanks to the processor's backward-compatibility and integrated memory controller. When Intel was pushing new architecture with its Itanium chip, Opteron seemed the perfect alternative and that chip helped push AMD's share of the x86 market upward and forced Intel to rethink its road map.

At the same time, Ruiz was AMD's leading voice in fighting against what he considered Intel's abuse of its market position, and the results have led to investigations in South Korea, Japan and the European Union and, most recently, to a U.S. Federal Trade Commission probe.

Now that Ruiz has left the CEO's office and his handpicked successor, President Dirk Meyer, is taking over day-to-day management of the company, it's hard to see AMD with the same sort of ambition it had just a few years ago.

AMD reported its seventh consecutive quarterly loss July 17, and the company plans divest itsself of the consumer electronics division it inherited during the 2006 acquisition of ATI. While Ruiz's successes were notable, AMD stumbled badly when technical problems hampered the release of the quad-core Opteron in 2007 and the $5.6 billion AMD paid for ATI has cut into the bottom line for nearly two years.

In a call with analysts, Meyer said he would refocus AMD's chip research and development on the company's core PC and server products as well as graphics for notebooks and desktops.

"I think we have to focus a little more narrowly on some of the volume sweet spots," said Meyer, an engineer by trade who helped AMD develop its Athlon line of processors for PCs.

During the call, Meyer mentioned several times that Intel had more money and more resources than AMD and that reality might force AMD to make tough decisions about which markets it decides to put its limited resources into. Meyer and Ruiz have each promised to return the company to profitability by the end of 2008.

"It appears these difficult times have finally necessitated more structural shifts with AMD exiting non-core operations, changing management and apparently narrowing the company's focus to reflect its spending capabilities," Ross Seymore, an analyst with Deutsche Bank, wrote in a July 18 research note.

While AMD is cutting back, it still plans to deliver several products in 2008 and 2009. The first of these is "Shanghai," the company's 45-nanometer version of Opteron, which is due in volume by the end of 2008. After Shanghai, AMD's next step is what the company calls Accelerated Computing, which will combine the CPU and GPU (graphics processing unit) on the same piece of silicon. Meyer said the first of these chips will start shipping as samples to customers in 2009.

During the same call, Meyer also hinted that AMD would enter the low-cost notebook market and compete against Intel and its Atom processors for both "netbooks" and mobile Internet devices or MIDs. Meyer did not announce a product name but said AMD would talk about the chip at an analyst meeting in November.

The Register reported July 18 that the chip Meyer was referring to is "Bobcat," which AMD first began talking about in 2007, but about which there has been little said since then. Whether AMD's entrance into this market will help or not is yet to be seen and even Intel has been greeted with some skepticism recently about Atom and whether it could create a lucrative market for these chips.

Nathan Brookwood, an analyst with Insight 64, said he does not believe that AMD will enter the low-cost notebook market anytime soon. Instead, he believes AMD will pursue the midmarket part of the PC and server market. If that's the case, Brookwood believes AMD will yield to Intel when it comes to processor benchmarks and world records but will try to offer features that appeal to buyers in this market.

"AMD is convinced that it has to be in the midmarket," said Brookwood. "That's where they are convinced the volume is and where issues like performance matter less than features such as power efficiency."

While Meyer will provide a fresh voice in the AMD versus Intel debate, it's not clear how much AMD will change under his leadership, since Meyer and Ruiz were close and have similar backgrounds. Ruiz himself will remain as chairman of AMD's board and will oversee the company's yet-to-be-explained "asset-smart" strategy, which should ease the company's chip manufacturing burden.

In a research note, Glen Yeung, an analyst with Citigroup, predicted that Ruiz will head a new venture formed after the asset-smart plan starts and that AMD already has a buyer in place for its consumer electronics division.

"There has been some speculation that Ruiz will play an executive role in any new joint venture formed as a result of AMD's asset light strategy," Yeung wrote. "We do not anticipate dramatic changes at AMD as a result of this move but view it as a precursor to 1) asset light strategy and 2) the divestiture of AMD's consumer businesses."