New AMD chief knows the chips are down

July 18, 2008, 3:50 AM UTC
Incoming AMD CEO Dirk Meyer is known as a top-notch chip designer. Image: AMD
AMD stock is hitting lows it hasn’t seen in more than a decade.

Hector Ruiz is out as CEO of Advanced Micro Devices , Dirk Meyer is in. It’s not a shock; not only has the company openly groomed Meyer for the top spot, but the chipmaker is bleeding cash and its stock is circling the drain. In situations like this, Wall Street protocol calls for the CEO to fall on his sword.

The latest disappointment came in Thursday’s earnings announcement. AMD lost $1.19 billion in the second quarter on $1.35 billion in revenue, missing Wall Street targets.

With Meyer in charge and Ruiz fading into a role as executive chairman, the company is getting a different sort of leader. Known to be a hands-on engineer, Meyer took prominent roles in the design of two now-legendary chips: DEC’s Alpha, known as a processor-design masterpiece in the 1990s; and the Opteron, which helped AMD snatch market share from Intel five years ago.

Apparently, Meyer intends to stay close to the chip design process as CEO. After a management shakeup announced in May, the buck now stops with Meyer himself when it comes to the crafting and development of processors, with the new central engineering organization and computing solutions group reporting directly to him.

“Having worked with Dirk for a number of years, one of the benefits I clearly see is his expertise in the design engineering function – it’s a great asset to have him closer to that area,” AMD computing platform chief Randy Allen told me last month.

AMD’s chip development clearly needed the guidance. Because of mistakes in the testing process, AMD blew deadlines last year for a server chip code-named Barcelona, injuring its reputation and chances at profitability all at once. “We just grew to fast and didn’t have the right processes in place,” Allen said.

After an exhaustive review of what went wrong, management devised a more thorough system where seasoned engineers look over the team’s work, rather than relying so much on computers to do the checking. But Meyer will face plenty of challenges besides glitchy chips.

Intel is not only the dominant company in the chip business; it has a sophisticated marketing operation to match. The giant’s “Intel Inside” co-marketing program makes it convenient for PC makers to choose its chips over AMD’s, and orchestrated confabs like the Intel Developer Forum, coming next month, give it a platform to assert its technology supremacy. A couple of years ago AMD crashed Intel’s IDF party, setting up an ice cream stand outside the convention recalls Richard Doherty, analyst with Envisioneering Group. But that sort of thing only works once.

“They’ve got to get back to their success in 2004/2005, when they totally surprised Intel with their chips for desktops and servers,” Doherty said.

How long a honeymoon will Wall Street grant Meyer? It looks like the pressure’s on from Day One. AMD stock plunged more than 7 percent after hours to less than $5 per share Thursday when the company announced earnings; if the stock stays at those levels, it will be the lowest point since 1992.

Even so, Meyer isn’t backing off of his promise to restore AMD to operational profitability by the end of the year. If he wants to start out on the right foot with Wall Street, delivering in spite of the economic turmoil would be a nice way to do it.