AMD searches for a new No. 2

Summary:The struggling chip maker is embarking on a difficult executive search -- successor will face intense pressure to deliver Athlon chip.

Advanced Micro Devices Inc. is embarking on what may be the hardest executive search among big technology concerns -- so difficult, in fact, the chip maker is widely expected to give up on finding an outside candidate.

S. Atiq Raza shocked investors and analysts Wednesday by resigning as president and chief operating officer, and heir apparent to W.J. "Jerry" Sanders III, AMD's (NYSE:AMD) chairman and chief executive. Raza, 50 years old, cited unspecified "personal reasons" for the surprise move. But industry executives believe Raza's decision is at least partly traceable to conflicts with Sanders, a strong-willed salesman whose style and strategies could give executive recruits pause.

Internal candidate likely
To land a strong outside candidate, AMD, of Sunnyvale, Calif., would have to give assurances the recruit would have a free hand in managing the company, these people said. Sanders, 62 years old, has strong influence over the board and isn't expected to willingly bow out before a planned retirement in three years.

"The only way they can get someone great is to make them chairman and CEO" immediately, said Jeffrey Christian, president and CEO of high-tech recruiters Christian & Timbers in Cleveland. The chip industry "is pretty far down the list of industries people want to join," he added.

As a result, most AMD watchers expect the company will promote an internal candidate. The most frequently mentioned name is that of Robert H. Herb, a senior vice president and co-chief marketing executive who has worked for AMD since graduating from college. AMD Director Robert Palmer, former CEO of Digital Equipment Corp. and a chip-industry veteran, is mentioned among outside candidates, but is considered a long shot. Herb and Palmer couldn't be reached for comment.

Sanders also wasn't available for comment. During a conference call with analysts Wednesday, he didn't discuss reasons for Raza's departure, but said "Atiq is a unique individual, and he will be hard to replace."

Company pressures
Sanders has a unique legacy. When rival Intel Corp. (Nasdaq:INTC) built markets for microprocessors, AMD swooped in to woo computer makers with copycat chips. While Intel lionized egghead engineers, Sanders built a sales-driven culture where parties and big salaries were the norm.

Despite recent losses and shareholder criticism of his compensation, Sanders had a $1 million salary in 1998, and the company paid $113,000 for his vehicles and $96,000 for personal security services.

Any successor to Raza will face pressure to deliver a chip called Athlon, which is considered crucial to turn around losses that totaled $162 million for the second quarter.

Another pressing issue is a $1.8 billion plant in Dresden, Germany. Sanders pushed for the big factory to help give AMD the capacity to supply 30% of the microprocessor market. One person familiar with Raza's thinking said he clashed with Sanders over plans for the plant, which has boosted AMD's debt load and was a big factor in its losses.

Dramatic impact on company
During the second quarter, the company got a waiver from bankers from an obligation to hold a public offering by June 30 to raise funds to finance the construction. Backing off on the factory would carry a big penalty, since AMD received subsidies from the German government that it would have to return if it scuttled the plant. But Raza was concerned demand for the Athlon chip wouldn't grow fast enough to fill both the Dresden plant and AMD's existing factory in Austin, Texas, this person said.

In the conference call, Sanders said there "were absolutely no changes" to the company's plans for Dresden.

Another big decision ahead is whether the company's next CEO should come from sales, like Sanders, or engineering disciplines. Raza, who joined AMD when it bought a smaller company called NexGen, helped bring a technical orientation to the company. Some analysts fear other AMD engineers may follow him.

"It seems the culture couldn't accommodate either of us," said Vinod Dham, a former AMD vice president and NexGen executive who left to run start-up Silicon Spice Inc. "Long term, there will be a more dramatic impact on the company than a lot of people see right now."

--WSJ's Joann S. Lublin contributed to this article.

Advanced Micro Devices Inc. is embarking on what may be the hardest executive search among big technology concerns -- so difficult, in fact, the chip maker is widely expected to give up on finding an outside candidate.

S. Atiq Raza shocked investors and analysts Wednesday by resigning as president and chief operating officer, and heir apparent to W.J. "Jerry" Sanders III, AMD's (NYSE:AMD) chairman and chief executive. Raza, 50 years old, cited unspecified "personal reasons" for the surprise move. But industry executives believe Raza's decision is at least partly traceable to conflicts with Sanders, a strong-willed salesman whose style and strategies could give executive recruits pause.

Internal candidate likely
To land a strong outside candidate, AMD, of Sunnyvale, Calif., would have to give assurances the recruit would have a free hand in managing the company, these people said. Sanders, 62 years old, has strong influence over the board and isn't expected to willingly bow out before a planned retirement in three years.

"The only way they can get someone great is to make them chairman and CEO" immediately, said Jeffrey Christian, president and CEO of high-tech recruiters Christian & Timbers in Cleveland. The chip industry "is pretty far down the list of industries people want to join," he added.

As a result, most AMD watchers expect the company will promote an internal candidate. The most frequently mentioned name is that of Robert H. Herb, a senior vice president and co-chief marketing executive who has worked for AMD since graduating from college. AMD Director Robert Palmer, former CEO of Digital Equipment Corp. and a chip-industry veteran, is mentioned among outside candidates, but is considered a long shot. Herb and Palmer couldn't be reached for comment.

Sanders also wasn't available for comment. During a conference call with analysts Wednesday, he didn't discuss reasons for Raza's departure, but said "Atiq is a unique individual, and he will be hard to replace."

Company pressures
Sanders has a unique legacy. When rival Intel Corp. (Nasdaq:INTC) built markets for microprocessors, AMD swooped in to woo computer makers with copycat chips. While Intel lionized egghead engineers, Sanders built a sales-driven culture where parties and big salaries were the norm.

Despite recent losses and shareholder criticism of his compensation, Sanders had a $1 million salary in 1998, and the company paid $113,000 for his vehicles and $96,000 for personal security services.

Any successor to Raza will face pressure to deliver a chip called Athlon, which is considered crucial to turn around losses that totaled $162 million for the second quarter.

Another pressing issue is a $1.8 billion plant in Dresden, Germany. Sanders pushed for the big factory to help give AMD the capacity to supply 30% of the microprocessor market. One person familiar with Raza's thinking said he clashed with Sanders over plans for the plant, which has boosted AMD's debt load and was a big factor in its losses.

Dramatic impact on company
During the second quarter, the company got a waiver from bankers from an obligation to hold a public offering by June 30 to raise funds to finance the construction. Backing off on the factory would carry a big penalty, since AMD received subsidies from the German government that it would have to return if it scuttled the plant. But Raza was concerned demand for the Athlon chip wouldn't grow fast enough to fill both the Dresden plant and AMD's existing factory in Austin, Texas, this person said.

In the conference call, Sanders said there "were absolutely no changes" to the company's plans for Dresden.

Another big decision ahead is whether the company's next CEO should come from sales, like Sanders, or engineering disciplines. Raza, who joined AMD when it bought a smaller company called NexGen, helped bring a technical orientation to the company. Some analysts fear other AMD engineers may follow him.

"It seems the culture couldn't accommodate either of us," said Vinod Dham, a former AMD vice president and NexGen executive who left to run start-up Silicon Spice Inc. "Long term, there will be a more dramatic impact on the company than a lot of people see right now."

--WSJ's Joann S. Lublin contributed to this article.

Topics: Intel, Government, Hardware, Processors

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