In the foxhole with AMD's Hector Ruiz
By Dean Takahashi
Red Herring
May 24, 2001
Hector Ruiz has to follow in the footsteps of some giants. As president and chief operating officer of Advanced Micro Devices (NYSE: AMD), he's slated to be the replacement for the chip maker's colorful longtime CEO, W.J. "Jerry" Sanders III, who is expected to retire in mid-2002. Mr. Ruiz also has to lead the charge against Intel (Nasdaq: INTC), which despite its recent blunders in the microprocessor market still commands about three-fourths of the worldwide market share for the $30 billion-plus industry.
So far, so good. AMD had about 21 percent of the PC microprocessor market in the first quarter, up from 17 percent in the fourth quarter, according to market researcher Mercury Research. Red Herring senior writer Dean Takahashi recently spoke to Mr. Ruiz about the challenges ahead for himself and the company.
AMD is facing a price war with Intel during this chip downturn. How do you face that prospect?
We feel that we're in a continuous war all the time, so when somebody says we're going to have a war soon, I look around the foxhole and say, Jesus Christ, what has this been so far? Prices always drop competitively. Today you can go out and buy a 1 GHz computer with a microprocessor from either company and pay less than $1,000. The competition has been tough all along, and I don't expect it to be any different going forward. Logically, it makes no sense for them to engage in a price war if their chips are bigger than ours and cost more to make. They could harm the competitor, but they could hurt themselves even more.
Intel won the last price war when it competed against your K6 and K6-2 microprocessors. What's different now?
A lot is different. AMD learned a lot with the K5 and K6 microprocessors. Our core competence in designing chips is on par with Intel's. Our older chips had a short life cycle. With our Athlon family, we now have a multiyear road map. We're going to move to better manufacturing technologies like "silicon-on-insulator," and we've already done copper. Combine that with a very strong product design, and I think we can be competitive for a very long time.
A TALE OF TWO STRATEGIES
How do you compare your strategy in the semiconductor market downturn with Intel's? Intel has stated it will continue spending heavily on capital spending and research and development this year.
I can't tell you exactly what Intel is doing. We have a plan in technology and product development that we think is very strong, very powerful. As we experienced a deceleration of the growth of the business in the fourth quarter, we definitely [contained costs where we could]. We've even moved some of our capital spending on manufacturing technology ahead. We used to have a plan to be [operating] in the first half of 2002 on 0.13 micron production [which can etch circuits with finer details]. We have now moved that up to the fourth quarter of 2001, so we are definitely pretty committed to a road map that we think is really strong, and we're not deviating from that. We are delaying things like advertising and painting the buildings. But on the big things, we're pretty aggressive.
You're usually a quarter behind Intel in manufacturing technology. Is that still the case going forward?
We seem to be a quarter or two behind our competitor on introducing a new technology. But we complete our conversion way ahead of when Intel finishes. We're very adventurous in terms of our speed.
Intel is moving to 300 millimeter production quickly. Are you doing so as well?
No, we're lagging the date that our competitor has published. We think moving on an accelerated schedule will result in capacity that is just overkill.
INTEL BLUNDERS. WILL AMD BE NEXT?
Your predecessor, Atiq Raza, was known for establishing the excellent design execution at AMD. He's been gone for some time, and some of the talent left with him. What are the indicators that show that your team's design execution is as good as ever?
We did have some people leave to go to the dot-coms and the communications companies. But now that the market has changed, some of them are starting to come back. And a lot of the team that built the Athlon actually came from Digital Equipment Corporation. The leadership there is still in place. The cadre of talented people is still pretty much here. As for delaying one or two chips, we did so in reaction to market demand. We [delayed] a chip called Mustang because customers didn't see a need for it. We've made what I consider to be market-driven decisions that will pay off.
If you look at Intel and their recent execution problems on so many chip designs, do you draw any lessons from it?
They've got great folks. I think they've tried to do too many things at one time. Their effort to diversify beyond the computer business has spread them thinner than I'm sure they would like. They basically have said they took their eye off the ball.
Intel and AMD took very different strategies on communications. Intel bought about 30 companies, and AMD sold off much of its communications business. What's the outcome?
Well, for a company of Intel's size, above $30 billion in revenue, they had to grow faster in non-core businesses to justify their multiples. If microprocessors are only growing in single digits, then they have to find other ways to grow. Communications was an obvious segment for them to target. For the next few years, we need to stay very focused on microprocessors and flash memory. We can't afford to be distracted.
Do you think the sort of crash of the communications market right now shows that that strategy is paying off for you and maybe not for Intel?
I would love to say that it's because we're so smart and we knew this was going to happen, but I think the crash occurred because of market discontinuity, triggered by the irrational exuberance of Internet companies. I think it will settle down and the communications business will remain a good growth engine. We expect to play a role in it, through flash and other products.
LET THE 64-BIT WARS BEGIN
How will the competition between Intel's 64-bit Itanium family and your Hammer family unfold?
I can't wait for that to happen. I mean, I'm so inspired by that, I get goose bumps thinking about it. I'd love to see it happen soon. As both parts get into the marketplace and customers begin to look at them, I think it's going to be a lot of fun to compete against Itanium. I believe we have a great solution. Our customers and partners love it. We think our solution will get to the desktop sooner, while they focus on servers. Our product will be out in the second half of next year.
Some pundits say that the decline in the PC market is the onset of the post-PC era. Is there some slight chance that this is coming true, and should AMD therefore invest in some kind of information appliance chip strategy?
We're alert and prepared for any changes that the marketplace could bring, but we do not agree that there is a demise that ushers in the post-PC era. I think the PCs are going to morph themselves into a different kind of appliance. For example, I believe mobile computing is going to be quite an exciting place to be, but I don't think it's the end of the PC era. I think x86/Windows-based devices are here for a long, long time to come.
WITHER THE CHIP INDUSTRY?
What's your thought on the state of the overall semiconductor market? Are we kind of shifting away from the four-years-before-there's-a-downturn cycle, or is there a new cycle that you see emerging here?
I think this market will always be in a cycle of ups and downs, and I don't know that this is that much different than anything we've [had] in the past. There was an inventory issue with the network communications people that needs to be corrected, but if you look at network and communications giants such as Nortel Networks (NYSE: NT) and Cisco Systems (Nasdaq: CSCO), they're still going to grow. They're not going to grab the 50 percent growth that they thought, but they're going to grow. Semiconductors, in general, are so pervasive, and they are inside everything more and more going forward than ever before in the history of mankind. So it's impossible to imagine that industry not continuing to grow phenomenally for the next few years.
Analysts are saying the PC industry will lead the chip industry out of the slump. Do you share that kind of confidence?
We are optimistic about the second half. We believe that we're in a phenomenal readjustment of inventories in the communications side of the equation here in the first six months of this year. I think it is likely that those excess inventories will diminish by the third quarter. But I think the PC market is in a downward spiral and [that] we're seeing signs of a second-half return to normalcy, where you have third- or fourth-quarter growth that is significant over the previous year. We see the market for the whole year being in high-single-digits growth for the PC. |
