AMD's Ruiz mulls chip firm's future

WE TOOK THE TIME to listen to the analyst conference call AMD made last night.

Rob Herb and Hector Ruiz, the AMD CEO, both made the right noises about the firm being positioned for the future, but the picture may be a little more complex than they outlined.

We regularly talk to a number of different industry players at the INQUIRER, many of which certainly want AMD to be successful. If AMD produces good products at the right price, this helps distributors, system integrators and third parties to negotiate the better with Intel. Many, if not most, have a relationship with both of these companies.

For the last three months we have heard a number of negative comments about AMD - not from the point of view of the technology, but more related to the way the company is relating to them, and also to the sometimes bizarre pricing designs the firm made during the second quarter.

Earlier this year, a number of system integrators at the Monaco Gartner conference, told us they were finding themselves being undercut because of grey market product.

Ruiz said that AMD took some product back from the channel, and had managed its operations to reduce stock generally. Returns from the channel were in some cases sold again, during the same quarter, and those returns, presumably, meant that the firm decided to slow down on manufacturing. Some returns were through OEMs, some through traditional distributors, and some through brokers, accord to Rob Herb.

AMD shipping product "through brokers" infuriates its traditional distribution channel.

Ruiz said that Q2 is a typically weak quarter but that the magnitude of the slowdown this year was far greater than expected - a point echoed by a number of other manufacturers including Intel, Via, SIS, and a spate of memory companies.

There's another factor at place here. Intel's performance and "execution" has clearly dramatically increased over the last six or seven months. We do not believe that it is a coincidence that Paul Otellini has held the reins for the same length of period. It has taken steps to woo the channel and is also spending considerable marketing and advertising money on persuading many vendors and partners to stick with it.

AMD's Achilles' Heel has always been that it cannot spend anything like the same percentage of money that Intel can.

Gross margins for AMD's products were only seven per cent for Q2, but on the positive side, Ruiz said that flash memory was continuing to ship in greater volumes, with nine per cent more sold during Q2 than in the previous quarter.

Ruiz said that it appeared that AMD had lost two per cent market share to Intel during the second quarter. It's clear from his comments that AMD is doing its best to keep costs and expenses down.

He said: We don't have any sloppy businesses we can sell or fabs to shut down. We're confident the market will return and we believe we're in the sweet spot in many important segments."

AMD's head count is 13,700 employees, a drop from 15,000 employees a year ago, Ruiz said.

The CPU roadmaps stay on track, he said, and the firm will ship 2400+ and 2600+ Athlon XPs during the second half of this year.

AMD will continue to reduce stock in Q3 and factories are showing good yields on all fronts, with Fab 30 in Dresden converted to 130 nanometers, and Fab 25 totally converted to flash. The move to 130 nanometer technology is ahead of schedule, he said.

AMD will have 90 nanometer semiconductor samples by the end of 2002, with production staring around this time next year.

Ruiz said: "PC customers are looking for performance, not megahertz. Our Hammer programme is on target and we've been sampling customers for several months. We expect to ship Hammer based Athlon products by year end and formally introduce it in Q1 next year."

AMD is well positioned for the PC market when it recovers, he added.

Ruiz said the long term view continued to be to gain share against Intel and in Q1 of next year AMD will be top performer with its Hammer products. In the short term AMD will hang on to its position, and in the long term continue to gain share.

Where is the two per cent loss in market share? We rather suspect, as one analyst said towards the end of the Q&A yesterday, that Intel's efforts and big expenditures on marketing, may well have paid off in the "white box" end of the market.

One AMD source told us at the Monaco system integrator conference we mentioned earlier that every marketing effort and initiative his company made was being shadowed by Intel marketing, adding up to extra frustration for the X86 contender.

AMD's Herb said that it was having feedback from industry players including ISVs that suggested its Hammer approach had more future than Intel's Itanium platform. That suggests perhaps it has some big software wins other than the only big win we know about so far - IBM's DB2 for Linux.

AMD could continue to grow its market share by making more tier one wins and moving deeper into the corporate market, Herb added. µ