The Man Who Killed AMD?

We summarize Hector Ruiz’s career, and point out that he still has one big card left to play.

The plug got pulled on Hector Ruiz.

Why? It’s not too far-fetched to say he “died” not only for his own sins, but Jerry Sanders’ sins, too. You can’t fairly judge Ruiz unless you understand what he was handed and what he had to do with it.

What am I talking about? AMD has one huge flaw, always has: lack of money compared to Intel, and that’s primarily because AMD is a victim of (secular) original sin.

Why is that? Just like Adam, Jerry Sanders made a big mistake at the creation when he decided to get into the CPU business. Rather than compete with Intel toe-to-toe from the dawn of the PC era, he was happy to reverse-engineer and make easy money cloning Intel chips.

It certainly saved AMD a lot of early R&D money, probably made Jerry Sanders a lot more money, and if AMD had gone toe-to-toe from the start, they may not have made it out of the Eighties.

However, the cloning strategy also doomed AMD to be a trailing also-ran, and permanently forfeited CPU leadership to Intel.

By the time the AMD Cloning Era ended, AMD was a financial midget compared to Intel. In an industry where Money Mattered, it was hopelessly weaker than Intel, with no prospect of overcoming or even getting close to Intel’s ability to invest in R&D and especially production capacity.

It isn’t unfair to say that AMD’s efforts since the end of the cloning era have been mostly dedicated to undoing that grave initial error.

Lack of money is as ingrained a part of AMD corporate culture as the color green. It is the fundamental bottleneck of the company, and plays a large if unacknowledged part of its decision-making process. Because they can’t throw money at situations or problems like Intel, they end up having to do things on the cheap, cut corners, gamble, pick their spots.

Yes, it was like David and Goliath, except this David couldn’t afford a lethal sling. No matter what AMD did, no matter how much better an AMD CPU was than an Intel chip, Goliath had a guaranteed 75%-80% share of the market. Unlike the Biblical David, AMD had no chance of taking out Goliath with one shot. The only way this David could beat this Goliath, or even level the playing field, was to gnaw him down to size, and that would have taken five or more years of AMD superiority.

Still, during the last half of the nineties and the first few years of the new century, David was capable enough to at least stay on the same battlefield as Goliath, and even get a few kicks and punches in, especially when Goliath got drunk on arrogance and lay around in a stupor after running a CPU design into the ground.

This was all good fun, but even a befuddled Goliath could still use his bulk and just roll over on David and half-smother him to death when he started getting dangerous, rules or no rules.

Even worse, this David and Goliath competition was also an arms race, and the cost of the latest weapons skyrocketed. Looking down the road, it didn’t take a rocket scientist to see that eventually, no matter how nimble David was, Goliath would win so long as David stayed so small.

David had to bulk up, and that was the imperative when Jerry Sanders handed over the reins to Hector. AMD had determined that if they didn’t get a lot bigger, Goliath would eventually get them. And they were not wrong to think that.

But . . . they had no money in an industry that required it. What could Hector do?

Jerry Sanders certainly had more than a little of the Wizard of Oz about him; the problem was everyone knew that and took him with some blocks of salt.

Hector at first seemed to be a different story; he seemed to be a very sober, business-like type, quite unlike the personally flamboyant Sanders.

But just like the best spies are the last people anyone around them suspect would be spies; Hector was a stealth Wizard of Oz. The Ruiz strategy was simple, “If you don’t have money, act like you do. Fake it ’til you make it.” For a while, it worked.

Sanders had left Ruiz with a risky but rewarding CPU design (Hammer), and a new circuit design approach (SOI) which proved very troublesome but gave AMD some cooling relief while Intel chips were having heat stroke.

The combination of AMD achievements and Intel ineptitude gave AMD the better chips for a while, but still, again, no matter how much better the AMD chips were, Intel would still have 75% of the market since AMD could only make 25% of the chips.

However, this situation (along with lots of very easily obtained money) let AMD borrow its way into acting big. Instead of one fab, we’ll have two, two plus. Don’t worry Dell, we can supply you. Intel, it’s time to be sued.

The momentum strategy was working quite well, but then two bad things happened.

First, Hector and Company were so busy chasing big business (often to the cost of small businesses) that they forgot why they were getting the business to begin with. They either didn’t or couldn’t keep up the pace of innovations that had put them ahead. In contrast, after running the PIII and PIV designs to destruction largely because they didn’t want to do the hard job of fixing ever-more-leaky transistors, Intel bit the bullet and did the expensive work they had avoided so long to make CPUs far more efficient and less leaky than the later Pentiums.

Even more importantly, AMD didn’t get while the getting was good. They relied on borrowed money rather than raise equity when their stock price was high. AMD could have easily raised $8-10 billion at that time. Sure, it would have diluted the stock, ticked off the then-current shareholders and maybe most importantly, hurt the value of the execs’ stock options), but it would have made AMD financially strong and easily capable of building fabs and fending off any Intel price wars with a smile.

No, instead of shoring up AMD’s finances when they had the chance, Ruiz and Company did the exact opposite and greatly weakened them by buying ATI. Many will say this was Ruiz’s fatal error, and indeed, it was a huge blunder to pay over $5 billion dollars for a company on the verge of a long losing streak that probably could have been bought for $2 billion or less a year later.

But the bigger catastrophe wasn’t paying too much for ATI, bad enough as that was. That was paying for it by emptying the piggy bank and filling it with IOUs rather than paying for it out of a stock issue. This was the financial equivalent of AMD putting a sign on its butt and saying to Intel, “Kick me.” And Intel did, with price wars and C2Ds.

That was the tragedy. Anything after that was farce. The technical failures surrounding K10 would have been a disaster under the best of hands, but they were compounded by the spin strategy from hell. While AMD has always been an overly secretive company prone to hiding its weaknesses through deception, all previous records were shattered in 2007. Oz couldn’t turn himself off.

The irony of all this is that while we’ve given two very good reasons why Ruiz deserved to be fired, that probably wasn’t the reason why he was fired. The man literally talked himself out of his job, but that kind of talk was the reason why he initially got the job.

But it should never be forgotten, despite all his errors, that he did what he did to undo somebody else’s colossal mistake made decades earlier.

The Last Part of the Legacy

Hector isn’t quite dead nor even gone yet. He’s got one last card to play to atone for sins.

Forget leading whatever “Asset Smart” strategy there is; that’s just financial finagling. Hector’s last chance to retrieve his reputation is to beat Intel in the courts and among the regulators.

Dirk Meyer cannot make AMD healthy. The most he can do is to retrench, stabilize the ship, show enough improvement to somehow get the extra money for enough further fabbing to stay in the game, and hope to fight another day, another year.

There is no quick fix for AMD. The only “quick fix” is to sell the company to someone with serious money and a willingness to spend it, yet still be able to make x86 processors under the AMD-Intel cross-licensing agreement.

Short of a sugar daddy, though, all by itself, AMD at best will resume a hand-to-mouth existence for a few more years, and more likely will face a slow, lingering drift into niche irrelevancy.

Unless, of course, GOD intervenes and cuts Goliath down to size, GOD as in “Governments Overriding Destiny.”

As we’ve said before, Intel may well be fined for past behavior, may well deserve to be fined, but fines aren’t going to make AMD healthy, nor will the proceeds from lawsuits.

No, what will matter is the degree (if any) to which governments will decide to intervene in the CPU business, either directly or indirectly, which really means to what degree will governments decide to throttle Intel.

There are so many possible variations on this theme that there’s no point even starting to list them, dozens of possibilities and variations of those possibilities arising from multiple places, all interacting with each other and almost all occurring behind closed doors.

What is clear, though, is that AMD is going to have to be rescued/bailed out, in some way, shape or form by outside parties, or it will just shrivel up.

In some ways, AMD has become a litigation machine that makes computer equipment on the side. It isn’t a unique situation, you could have called MCI that before it won its lawsuit against AT&T.

That’s Hector’s last chance, and if he leads AMD to victory in that war, all his mistakes will be forgotten.

But if he doesn’t, he’ll probably be remembered as the man who killed AMD.

Ed