Hector Ruiz, former CEO and current chairman of AMD (AMD), was undoubtedly the worst big company chief of the last decade. What he could not ruin with his modest intelligence he made up for with his foolhardy strategy for fixing the chip company. He has become such a rare species among American executives that he is likely to be entombed in the Smithsonian so that he can be studied by future generations of corporate managers.
Ruiz managed to take AMD shares from $40 less than three years ago to $4. He did this by taking on $5 billion in debt when he bought graphic chip maker ATI. The acquisition was a bust and AMD took its focus away from competing with larger rival Intel (INTC). It tool all of AMD’s resource to develop better chips and market them in an industry with cut-throat prices and low margins.
For the last two years, AMD has been talking about getting rid of its capital intensive chip manufacturing system. Well, the company finally got around to it. AMD will spin-out its factory operations. According to the FT "AMD plans to create a new enterprise, initially called The Foundry Company, with Abu Dhabi’s Advanced Technology Investment Company (ATIC)." Abu Dhabi will help finance the new operation and may put in as much as $6 billion.
Most important, AMD will get $700 million in cash and $1.2 billion of its debt will be transferred to the new entity.
For reasons which no one will be able to fathom, Ruiz will be chairman of The Foundry Company.
The shifting of assets and new capital coming into both the new company and the old one will not do anything to fix the central problem. AMD does not make chips which are viewed as competitive to Intel chips. Intel used AMD’s stumble to gain an R&D advantage which will be extremely difficult for smaller to close.
The old problem at AMD is the new problem as well….leadership.
Douglas A. McIntyre