Big Surprise, Not: AMD Is Having a Hard Time Hiring a New CEO
Oracle President Mark Hurd, EMC President and CEO-in-waiting Pat Gelsinger, and the Carlyle Group’s Greg Summe have apparently all turned down approaches by the chipmaker Advanced Micro Devices to be its next CEO, according to a report this morning from Bloomberg News.
This is exactly the sort of problem I predicted in January. That Hurd, who is also a former CEO of Hewlett-Packard and of NCR before that, and Gelsinger, a former CTO of Intel once considered a possible successor to Paul Otellini, have been approached is not surprising, given their tech and managerial bona fides. Nor is the fact that they turned the job down.
The third name jumps out at me simply because I’m not familiar with Greg Summe. His bio on the Carlyle Group site says he spent 20 years as chairman and CEO of PerkinElmer, the $2 billion health sciences company, and before that, he ran the Avionics business at AlliedSignal, now part of Honeywell.
The search is being run by Heidrick and Struggles, Bloomberg says, and the fact that Summe was approached indicates how widely the company is casting its net. The clock, however, is ticking. When I last spoke to someone at the company, not directly involved with the search, I was told that the plan was to have a new CEO named before its next earnings report, scheduled for July 21. That’s 36 days away.
Historically, this is unlike AMD, which has always taken care to have a managerial bench, and like most big companies, has typically had a CEO successor waiting in the wings. Former CEO Dirk Meyer (pictured) was named COO in 2006, tapped by then CEO Hector Ruiz, who had himself been recruited from Motorola’s Semiconductor unit (now Freescale) to succeed AMD’s founding CEO, the colorful Jerry Sanders. Ruiz, however, had been recruited in 2000 because of the surprise resignation in 1999 of AMD’s heir apparent, Atiq Raza, who’s now a tech investor, backing, among others, Violin Memory.
That’s not to say there aren’t internal candidates who could step up. Rick Bergman, senior vice president and general manager of AMD’s products group, has been mentioned as on the list for consideration, though the board has favored an external candidate from the start. But the company has been bleeding talent. Two other internal contenders bolted in February — Bob Rivet, AMD’s onetime COO under Meyer, and Marty Seyer, the well-regarded senior vice president for corporate strategy, who in 2006 personally landed the deal to sell the first AMD server chips to Dell (until then an Intel-only shop) and had been known to occasionally jam with Ruiz on the electric guitar. Other senior managers are bailing out as well. Just last week Jeff VerHuel, corporate vice president of platform strategies, left AMD to join SMSC as its head of engineering.
Meyer’s sudden departure is said to have come after a row with the board of directors, impatient that AMD is not showing up in any meaningful way in the market for chips for mobile devices. The days when it was dealing perennial market leader Intel bruising punches in the punishing business of selling server chips are over. And its overall share of the market for PC and server chips has slipped to 13.2 percent versus Intel’s 86.5 percent as of March, according to Mercury Research. It still makes a compelling case as an alternative supplier for chips in notebooks and desktop PCs, as The Wall Street Journal reported yesterday, but Intel’s lead, given its powerful manufacturing infrastructure — AMD no longer owns its own factories, opting instead to farm those duties out to GlobalFoundries, its onetime manufacturing arm — will as the years progress prove ever more difficult to erode even incrementally.
And even trying will increase the operational costs of an already profit-challenged company. AMD delivered profits in 2009 and 2010, but only after undergoing a massive restructuring to rid itself of its manufacturing operations. Still, the profits are thin: In 2010, AMD reported income of $471 million on sales of $6.5 billion. Compare that to Intel’s $11.5 billion profit on nearly $44 billion in sales, and you see how hard a time even the new, leaner, fabless AMD has competing with Intel.
Competing with Intel for share of its traditional markets is hard enough. If AMD’s board is determined to push the company into the business of selling chips for mobile devices, the path to success looks nearly impossible. Just look at the troubles Intel is having in that space competing with ARM Holdings and its numerous licensees, which include Nvidia, Qualcomm, Broadcom, and Texas Instruments to name but a few. When it comes to mobile devices — tablets and smart phones — ARM-based chips are as ubiquitous as x86 chips are in PCs and servers: They are the standard. Intel’s low-power Atom-based chip has so far been largely unsuccessful in penetrating that business. And if Intel is not scoring any significant wins there, why would anyone want to take on the job of leading AMD into a likely failure? No wonder potential candidates are finding it easy to say no. Bloomberg quotes Gelsinger: “I said no, and I said no again.”
So where does that leave AMD now? There are two paths. First, consider an internal candidate to lead the company. As more external candidates spurn AMD’s approaches, the list of objections AMD’s board may have to hiring internally could shorten. Bergman may get a second more serious look.
The other is to sell the company to someone bigger. That’s another complicated question, mainly because with the terms of its settlement with Intel (or what I like to call the Treaty of Maui) and the terms of its complicated patent-cross licensing agreements that date back the the 1980s, any buyer would have to first pass muster with Intel or find themselves in a very expensive lawsuit. Then there’s the fact that AMD is 20 percent owned by Mubadala Development Company, the investment arm of the Arab Emirate of Abu Dhabi. Buying AMD — at current valuations it would take about $7 billion — would be, to paraphrase Steve Jobs, a “big bag of hurt.”
Even private equity players who specialize in buying troubled companies, fixing them up and spinning them off at a profit, are wary of AMD, having learned well the lessons of the disastrous 2006 buyout of Freescale by the Blackstone Group, Carlyle, TPG Capital and Permira Advisers.
Ultimately there will be no easy options at AMD. No surprise, its shares are trading down by 11 cents or more than 1 percent as of 9:45 am New York Time this morning.