AMD CEO Ruiz out; Can Meyer turn it around?

Updated: AMD CEO Hector Ruiz has stepped down and the chipmaker has named chief operating officer Dirk Meyer as its new leader. The news comes amid the latest financial miss for AMD--a second quarter loss that missed estimates by a wide margin. Meyer's job: Restore credibility.

Ruiz added on AMD's earnings conference call that it was a good time to go. He said:

Barcelona is shipping. Product momentum is picking up in both our graphic and microprocessor business and our conversion to 45 nanometers technology is well on track. We have made enormous progress on our asset smart strategy. This is why the time is right to turn the company over to a new leader, one who as earned the trust and respect of AMD customers, partners and employees worldwide and one who I know will do what it takes to earn your confidence as well.

The key word in that statement is confidence. Ruiz lost investors' confidence a year ago (as a conservative estimate). Ruiz lost a lot of credibility after AMD botched the launch of its Barcelona platform and spun a positive picture even as the company reported a series of poor quarters. In shareholder meetings and analyst powwows Ruiz managed to say a lot without saying much. I'm still waiting for details on AMD's alleged asset light model yet Ruiz keeps mentioning it over and over.

This exchange from the conference call transcript illustrates the problem with Ruiz:

Tim Luke - Lehman Brothers

Hector I was wondering if you could provide us with some of the parameters around which you are considering that the asset light strategy you talked about some of the progress there. Maybe you could share with us some of your thoughts around how we should think about the progress and how you perceive that developing. Is it something you think you would be likely to conclude in the calendar third quarter? Separately, Bob perhaps you could give us some color on how you perceive your balance sheet in terms of any needs for incremental capital going forward.

Hector de J. Ruiz

I can tell you we are very pleased with the progress. We have made enormous progress. We are looking forward to being able to share that with you. Certainly have incredibly high level of expectation we will be able to do that before the end of the year.

Tim Luke - Lehman Brothers

In terms of progress could you give any color on how you measure that or what you consider to be the elements of that progress?

Hector de J. Ruiz

I really can’t.

Then why mention it at all Hector? Is asset light just mean that you sell $200 million in equipment to boost margins in the quarter?

Ruiz did note he'll stick around "to continue to lead our initiative to break our industry free from the grips of an illegal monopoly." Intel would beg to differ, but at least Ruiz has the EU on his side.

Meyer's challenge will be to right the ship, restore credibility by going deeper on the details than Ruiz did and better compete against Intel, which delivered solid results on Tuesday. First on Meyer's list will be to put together a string of improving quarters. The company has its quad-core lineup set as well as its notebook platform. AMD's roadmap is also set. However, those items along with management changes haven't helped AMD's financial picture yet.

AMD said that “Dirk’s election to CEO is the final phase of a two-year succession plan developed and implemented jointly by AMD’s board of directors and executive team."

AMD posted a second quarter loss of $1.19 billion, or $1.96 a share (statement). Revenue was $1.35 billion. Excluding items--a one-time gain of 16 cents a share--AMD lost 60 cents a share. Wall Street was expecting a loss of 52 cents a share.

Here's the picture Meyer is facing:

• AMD has a solid customer base and the company is committed to turning a second half cash profit (but it's unclear how it'll get there). On the conference call, Meyer said "we still believe on the strength of the momentum we’re seeing in the marketplace based on the new products we introduced in Q2 that we can expect to remain profitable at the operating level in the second half."
• The company trails Intel's technology roadmap.
• AMD has struggled to integrate the acquisition of ATI and is still taking charges as a result. AMD's graphics unit (ATI) had a second quarter operating loss of $38 million. Executives cited pricing pressure.
• Gross margins are improved to 52 percent in the second quarter compared to 41 percent in the first. Note this margin tally was boosted by an equipment sale: The real number was 37 percent.
• AMD can't match Intel's R&D or marketing spend.
• The company has cash and equivalents of $1.56 billion, but long term debt and capital lease obligations of $4.95 billion.

At least Meyer has the chops to make a dent in AMD's transformation. He led AMD's original Athlon effort that made the company a viable competitor to Intel. He also knows the technology and R&D involved. The big question is whether Meyer has enough resources to bring AMD back to its glory days just a few short years ago.