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AMD's Troubles Had Been Building
By Alex Handy

August 15, 2008 — An unending spiral of bad luck, poor management and hasty decisions added up to seven straight quarters without a profit at AMD. But the company’s troubles go deeper than that. They run so deep that even former employees could see them appearing well before the world came tumbling down around a former Silicon Valley success story.

In mid July, the company reported a US$1.19 billion loss, and that board chairman Hector Ruiz would yield his CEO duties to then-COO Dirk Meyer.

AMD’s myriad troubles have been building for a long time, but it wasn’t until it acquired graphics card manufacturer ATI in 2006 that things began to go completely sideways. That $5.4 billion purchase pushed the company into a heap of debt that has resulted in seven straight quarterly losses, broken fabrication processes and a forthcoming 10 percent reduction in its worldwide workforce. It also has again dropped behind Intel after once offering the first dual-core desktop processor.

“They’re competing with a company 10 times their size,” said James Staten, principal analyst at Forrester Research. But while AMD has had success in the past against Intel, it has, of late, been attempting to compete with Intel on all fronts, said Staten. The company needs to pick its battles wisely, said Staten, rather than rushing into every market, such as mobile, graphics and server CPUs with direct competition to Intel’s products.

New CEO Meyer will have a large task in front of him in the coming days. Gary Silcott, spokesperson for AMD, said that the new general has already addressed his troops. “Every quarter we have an internal meeting that’s Webcast around the world, and that’s usually after earnings. We had one of those after our most recent earnings where Dirk was welcomed by Hector as the incoming CEO,” said Silcott. Meyer’s message: execution, execution, execution.

Execution has certainly been a problem for AMD since Hector Ruiz took over as CEO in 2002. One of his first major moves was a major layoff . He expanded the company’s operations in Texas, effectively shifting the focus away from the Sunnyvale, Calif., headquarters, and oversaw the taking-public of the joint AMD/Fujitsu venture, Spansion, in 2005. That company acquired a large number of AMD equipment and employees as the calls came from AMD management to lighten the overhead.

In a marketplace that’s increasingly about multicore chips, AMD was caught without the technological capabilities to mass-produce such processors, as Intel quickly took back market share it had lost since 2005. AMD’s 2005 offering of the first dual-core desktop processor put the company out on an early lead as it had been in the 64-bit market. Unfortunately, the costs and technological difficulties of producing multicore chips, compounded with the waning interest in 64-bit on the desktop combined to push AMD out of its leadership role.

To stem this hemorrhaging, AMD decided to purchase ATI Technologies, which Staten said offered high-tech multicore fabrication process and capabilities. Unfortunately, those processes turned out to be much more difficult to integrate than Ruiz and his team expected.

As a result, AMD’s first round of quad-core server chips, codenamed Barcelona, was late to market. As ship dates for the faster 2.5 GHz chips slipped past its slower siblings, AMD had fallen victim to a constrained timeline and incompatible work environments. Those 2.5 GHz chips, when they finally arrived in December of 2007, had bugs that required patching.

Victims Past
Lou Kann, former technician at AMD, was one of the first casualties of Hector Ruiz’s initial cuts back in 2003. Kann had worked at AMD for 18 years, coming on board when the chipmaker purchased Monolithic Memory in the late 1980s. She said that the company was a great place to work in those days, but even then, she knew there was a problem.

“I thought the company was really good. For a long time the stocks were up past $40 per share, the company was doing really well. It thrived,” said Kann. “The morale was good, and there was a lot of celebrating. Everybody was happy to work at AMD.

"But AMD’s problem is that they don’t have good management. They don’t hire good managers. When the going gets tough, they fire the factory workers as opposed to a CEO or manager who’s making $250,000 to $300,000 a year. They’re not consistent like Intel.”

Consistency was a problem cited by John Stevens, who’d been with AMD since the late 1970s. He was also laid off in 2003, when Ruiz first took control of the company. He said that AMD probably had about as many vice presidents and directors as Intel, which is a much larger company.

“If you compare AMD to Intel—which is maybe not a fair comparison—Intel is consistent. They may not make gobs of money, but they’re consistent. They’re profitable every quarter. AMD is either feast or famine. Last week they announced a huge loss, seven quarters in a row. There’s something wrong with the management of the company when they keep saying ‘we’ll turn it around next quarter,’ ” said Stevens.

That mentality may have been what prompted AMD to purchase graphics chipmaker ATI in 2006. At the time, ATI was locked in a life-or-death struggle with a single competitor of its own with nVidia. But when rumors began circling inside ATI about a coming acquisition, one former employee said that most folks expected Intel to be behind the offer.

This former employee, who wished to remain anonymous, said that the morale at ATI dropped upon the acquisition news, and only fell further as the two companies came closer together.

The employee was in a position to see billing information at AMD, and said that multiple bills, some as high as $2 million, were piling up unpaid. Workspaces that had once been used to tally payable and receivable accounts were left to gather dust. Much of AMD’s larger fabrication and test equipment was, and had always been, rented instead of purchased, but even the unpaid rental fees were stacking up.

A Building’s Demise
Perhaps just as telling is the tale of AMD’s warehouse at 3635 Peterson Way, in Sunnyvale, Calif. That building housed the company’s shipping, receiving and reclaim departments. Lance Taylor, former head of reclaim for AMD, once joked that his was the only department at AMD that turned a profit, being the department that sold off old equipment.

But today, 3635 Peterson Way is no longer a part of AMD; it’s used by a company called Abbott Vascular. The story of how it left the AMD’s possession is a perfect illustration of the mismanagement rife within.

In late 2006, as ATI was still being integrated into AMD, word came down from management that the company’s IT operations and some other departments would be moving to the Peterson building. As Thanksgiving passed and Christmas drew near, IT was packed and ready to go. Suddenly, word came down directly from Ruiz, via e-mail, that the 3635 Peterson Way building would be vacated and sold off immediately.

Such lack of direction prompted many ATI employees to leave. “Nobody really liked the new AMD policies,” said an anonymous former AMD employee. “The employee policy booklet is really thick, it’s impossible for anyone to read through it. A lot of my friends left and went to nVidia or Intel. A few went to Cisco and Marvell.”

Stevens once thought that Ruiz would be the company’s salvation. He said of AMD’s previous and only other CEO: “Jerry (Sanders) was flamboyant. He’s a marketing guy, he wasn’t a technical guy. I don't think he was the best manager. If you heard him speak he could get everybody fired up. But Hector (Ruiz) is much more technical. I thought he was a better guy for the job,” said Stevens. “He seemed more serious and more technical and more hands-on than Jerry was. But by the same token, AMD has been a Sunnyvale-based corporation. Even a lot of the production was going on in Sunnyvale. Hector was living in Texas. I’m not saying he was absentee; I don’t think that Hector had his finger on the pulse.”

Related Search Term(s): multicore, processors, AMD, ATI, Intel

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