Comment After hearing about AMD's first quarter bloodbath, Carly Fiorina and Kevin Rollins must wonder what's wrong with Wall Street. No analyst has yet to place the call for Hector Ruiz's head.
AMD's Q1 blows away anything faced by HP ex Fiorina or Dell ex Rollins. The chipmaker lost $611m as processor sales collapsed by 38 per cent. To offset this dysfunction, AMD will ignite an “asset light” strategy that obviously includes lots of buzzwords, a reduction in staff and more dependence on chip fabbing partners such as IBM and Charter.
AMD keeps blaming a “channel issue” for the first quarter fumble. The story line behind this excuse centers on AMD's transition from serving mostly channel customers to serving mostly OEMs. The strength of AMD's 64-bit product line opened a flood of new business with companies such as IBM, HP, Sun Microsystems and Dell. These demanding types caused AMD to lose focus on its old channel friends. As a result, channel sales dropped and dropped hard during the first quarter.
This scenario might make sense to some of you, but it confuses us. AMD claims to have no supply issues as far as pumping out chips goes. It just didn't get the chips to the right places in time. As far as we can tell, that sounds like a FedEx problem, but Ruiz failed to finger FedEx during his post earnings call with financial analysts.
Ruiz, and his army of executives, did point to pricing pressure, weak consumer electronics demands and those pesky “mix and delivery” issues – aka the FedEx conundrum – as the main drivers behind a “perfect storm” that crushed AMD's quarter.
“The game is really quite different and frankly complex,” said Dirk Meyer, AMD's President. “We suffered some major growing pains.”
Intel Inside Our Gripes
In the good old days, AMD always blamed Intel for its problems.
AMD pumped out Opteron in 2003 and spent the next 18 months or so chiding Intel for the chip's slow adoption. IBM was the only major OEM that wanted anything to do with the chip, and that was Intel's fault. AMD filed an anti-trust lawsuit to prove it.
Blaming Intel became a bit tougher as HP, Sun and then Dell signed on as Opteron customers. Then, the chip started pulling gobs of server market share away from Intel, making the blame game even tougher.
Still, AMD always found time to hurl some anti-trust barbs at Intel, claiming that Opteron would have ruled the world were it not for the mean stares and marketing dollars handed out by Chipzilla's sales folk.
These days AMD doesn't blame Intel for its problems much at all.
“Our competitor did everything in their power to protect their monopoly,” Meyer said, during the call with analysts, but that was as far as the Intel bashing went. Ruiz decided against anti-trust complaints altogether, opting instead to talk about how AMD is “pretty pumped” about its asset light “opportunity” and how the company has learned from Charter, IBM and ATI.
We guess it's harder to blame a rival for your woes after trouncing said rival for four years. If you still can't win after that, the criticism has to go elsewhere. But has AMD slotted the new form of blame in the right, er, socket?
Ruiz deserves some credit for not turning to the Intel excuse during one of AMD's darker hours. No one wants to hear an underdog whine.
But was the “channel mix did us in” really the right refrain?
AMD has spent the last four years adjusting to the new OEM-driven business model. You'll recall that IBM, HP, Sun and Dell didn't hop on board overnight. Instead, each vendor made its way to AMD in a long, drawn out fashion, giving AMD plenty of time to digest their business.
In addition, AMD has spent the past two years bragging about the success of its channel programs. Have a look for yourself. The chip maker even crafted a home in Second Life and developed virtual reality style presentation software for touching the channel crowd – money well spent, as you can tell.
But here's Ruiz in April of 2007 talking about how AMD has struggled to manage “this more complex world” and how “the way we manage accounts will be different” - a change meant to reflect the channel to OEM shift.
You'd think it would be easier to manage things with sales off by 38 per cent rather than at Opteron's peak, no?
It could be the case that the ATI acquisition, AMD's reluctance to ship a non-native four-core version of Opteron and a general resting on laurels are more to blame for the first quarter miss than a channel issue. And, of course, a resurgent Intel hasn't helped matters either. But, as mentioned, AMD only likes to blame Intel for its problems when things are going well. (Funny that – Ed)
Wall Street became so infatuated with AMD during the company's run-up that the analysts appear reluctant to put any pressure at all on Ruiz now. Perhaps they're all hoping that the four-core Barcelona, due out at mid-year, will restore the natural order and send AMD's shares sky high again.
From where we sit, Ruiz has failed to demonstrate the competitive fire needed to combat an inspired Intel. The CEO's confidants might disagree with this appraisal, but we're in WYSIWYG mode.
Ruiz's anti-trust rants used to fuel the troops and gave the executive a Jerry Sanders type edge. Now, we're left with a CEO that bickers over channel minutiae, while claiming he can't wait to pursue an “asset light” model and learn things from partners. His Second Life avatar chews on similar offal.
All Fiorina and Rollins did to get canned was present lower than expected profits. A $600m loss doesn't compare to those track records terribly well. ®