Analysts: It's time for AMD to step up to the plate

CEO Ruiz admits company 'blew it' in 2007, but predicts 2008 turnaround

After Advanced Micro Devices Inc. officials gave analysts more of a scolding than details about a product and business road map at its analyst conference Thursday, some attendees said the chip maker still needs be quick to finally ship its quad-core chip and get back in the race.

Hector Ruiz, CEO and chairman at AMD, did confirm for analysts some widely held suspicions that bugs had derailed the long-expected launch of Barcelona, its quad-core server chips. Bugs also have been plaguing the Phenom desktop chips, he said. The delays have dragged on the company as it struggled through a year of financial and market share struggles.

Ruiz, though, was quick to take aim at the cause of the problems, and his primary target wasn't himself or his company.

The CEO said he was angry with how Wall Street has punished his company over the last year, cutting its stock price by half from more than $20 a share to just under $10 today.

"At the risk at sounding like I'm really ticked off, I am," said Ruiz, in the webcast of the company's presentation. "How in the hell can anyone conclude that our company is worth 40% less today then it was just a few weeks ago; no way, it just doesn't make sense."

Dean Freeman, an analyst at Gartner Inc., said Wall Street has simply reacted to AMD's lack of action.

"There are things you say you're going to do and if you don't do it, how can you keep the trust of all the analysts and Wall Street?" Freeman asked. "They haven't executed. They're late on their quad-core chips, which is allowing Intel to clean up with their new chips. They also haven't done a great job … of integrating ATI, the graphics company they bought. They also haven't executed on getting their next-generation technology out well. If I look at all of that, that's basic fundamental blocking and tackling."

Ruiz said he understood that the company made some unmet commitments on its quad-core chip. "Shame on us," he said. "We blew it, and we're very humbled by it, and we learned from it, and we're not going to do it again." However, he also reminded analysts gathered for the morning-long presentation at the New York Stock Exchange that the company has had "four years of nearly flawless execution" and a growth rate that he claimed had exceeded competitors.

He also told analysts that AMD is on a path to break even financially by the second quarter of 2008, and return to profitability by the end of the third quarter.

However, Dan Olds, an analyst at Gabriel Consulting Group Inc., said the past year's poor performance is what's sticking out in analysts' minds these days. And now people want to know what is coming and … when.

"No, they didn't give us much detail yesterday. That says to me that either they don't truly know how this stuff is going to lay out or that the news is going to be a little worse than anticipated," said Olds. "The problem now is getting Barcelona out there and getting more performance with it. If they had hard and fast fixes and timelines, they'd be laying them out for everyone to see. That's the very best way to stop any erosion in the stock price and restore customer confidence."

Olds added, though, that even if AMD finally pushes out Barcelona early in the new year, the company will still be months and months behind chief rival Intel.

"AMD needs to pull a rabbit out of its hat, followed by a duck, a lion and a giraffe," he added. "We're not necessarily talking about survival but getting out of this vicious circle. If they're close to Intel's performance, they can get a pretty good price for their chips. If they trail in performance, then their margins go way the hell down. They could still sell a bunch of chips, but they'd have to do it pretty darned cheap."

AMD execs are clearly anxious to put this year behind them. The company fundamentally changed the server market with its 64-bit x86 processor, but Intel is now way ahead of AMD in releasing a quad-core chip. On Thursday, AMD offered some insight on its road map, saying the company will deliver an eight-core chip by 2009. Barcelona, a 65-nanometer chip, will be succeed Montreal chip is slated to ship in quad-core and an eight-core implementations.

Nathan Brookwood, an analyst at Insight 64, said that delivering on its promises again would go along way toward helping AMD out of its rut.

"AMD needs to reestablish some credibility," he said. "What is it they say about reputations taking years to build and moments to destroy? AMD had built up a real reservoir of credibility and they've drained a lot of that away this year. They need to start filling that again, and you do that by meeting your commitments."

It was widely reported, including here, that Ruiz had received a recent pay raise despite his company's poor performance this year. A company spokesman says that was not the case, and that the confusion arose from a Form 8-K that was filed with the SEC. The report noted that Ruiz had received a pay raise in 2006, and to date in 2007 his salary was adjusted upward by about $24,000 that had previously been alotted in his benefits package for a car allowance. The total was moved to his base pay because of new company-wide human resources rules.

Copyright © 2007 IDG Communications, Inc.

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