A Classic AMD Piece in "Fortune"
I saved this long ago. Now I know why.
" AMD is the only company to appear on FORTUNE's list of America's worst boards for each of the past three years. The California Public Employees' Retirement System (Calpers) recently named AMD to its "focus list" of governance targets for the third time. Our competitors at Business Week this year deemed AMD's board America's worst. Here's what's going on.
AMD makes microprocessors in direct competition with Intel, which has ten times AMD's revenues and 62 times its market cap. For years this one-sided battle has followed a pattern: AMD announces a new chip design. As its introduction approaches, hopes rise, as does AMD's stock. The chip arrives, customers order it, the stock rises higher. Then Intel retaliates by cutting prices, and AMD announces it's having trouble manufacturing the chips in quantity. The stock tanks, and the cycle repeats. The stock chart looks like a photo of the Himalayas, but whether you measure from peak to peak or valley to valley, performance over any substantial period has been awful.
AMD's board appears to work not for the shareholders but for CEO and founder Walter Jeremiah Sanders III. Many in Silicon Valley think he should have been replaced long ago; instead the board has given him a remarkable 33-page employment contract. Among many other provisions, it obligates AMD to repay up to $3.5 million Sanders might borrow from anyone for any reason and guarantees him a performance bonus after he's dead. The board also seems to be having trouble with its No. 1 duty, choosing a successor to Sanders, who is 63. Last summer President Atiq Raza resigned abruptly, shocking Wall Street, which had believed he was heir apparent. The company recently hired a new president, Hector Ruiz (ex-Motorola). He was able to get a promise of two years' extra salary if he isn't made CEO within a couple of years.
AMD's stock is high now because it has introduced its latest chip, the Athlon. History says that this is where the cycle turns down. Over the years AMD executives have sold large numbers of shares just before the price begins to fall--and in this year's first several weeks, they sold or registered to sell more shares than ever." |
