AMD’s Six-Month CEO Search May Overshadow Profit Improvement
Advanced Micro Devices Inc. (AMD), expected to report its largest annual profit this year since 2000, may find its improving results overshadowed by the lack of progress in finding a new chief executive officer.
Six months after ousting Dirk Meyer over disagreements with the board about strategy, the computer-chip maker is conducting a second round of interviews with a number of candidates, said two people with knowledge of the hiring process. AMD won’t be ready to announce a new leader when it reports quarterly earnings this week, said one of the people, who declined to be identified because the plans haven’t been made public.
Meyer’s drive for better financial performance and on-time delivery of new products weren’t enough for AMD’s board, which pushed him out in January, saying the company wasn’t gaining market share or getting into the mobile-phone or tablet chip markets quickly enough. The failure to name a new leader after more than six months is undermining investor confidence even as profitability picks up.
“It’s urgent,” said Michael Yoshikami, chief investment strategist at Walnut Creek, California-based YCMNet Advisors, which manages $1 billion. “The company needs direction, and right now, without a CEO, they’re operating in transition and they need a very strong leader.”
The company had approached and been rebuffed by at least four candidates to replace Meyer, people familiar with the search said last month. Apple Inc. Chief Operating Officer Tim Cook, Oracle Corp. Co-President Mark Hurd, EMC Corp. Chief Operating Officer Pat Gelsinger and Carlyle Group Managing Director Greg Summe spurned the chipmaker’s approaches, the people said at the time.
Sunnyvale, California-based AMD will announce second- quarter earnings on July 21. It’s expected to report net income of $49 million, or 7 cents a share, and sales of $1.58 billion, the average of analysts’ estimates from a survey by Bloomberg. A year earlier, the company had a loss of $43 million, or 6 cents a share, on sales of $1.65 billion.
AMD is predicted to have earnings of 96 cents a share for 2011, according to the average analyst estimate. That would represent its highest annual net income since 2000. The company has reported a profit in only four of the past 10 years.
The semiconductor maker is looking for a CEO who can implement a change in direction mandated by the company’s board, led by Chairman Bruce Claflin.
With Meyer, directors questioned when the company might start selling chips that power mobile devices, a market where sales are surging even as personal-computer sales slump. Meyer, who succeeded Hector Ruiz as CEO in 2008, had said that AMD needed to return to profitability and re-establish credibility before starting to spend on new projects.
“The challenges of AMD are well-known, and for that reason I believe it’s going to take some time to find the right person,” Yoshikami said.
Founded in 1969, AMD has less than 20 percent of the PC- processor market. The company’s new range of chips, called Llano, will help it win market share in notebook computers against Intel Corp. (INTC), according to Longbow Research analyst JoAnne Feeney.
Rising profit hasn’t appeased investors like Daniel Morgan, an Atlanta-based fund manager at Synovus Securities Inc., who wants more evidence that AMD will be able to make a sustained challenge to Intel. The company needs leadership that investors can trust, Morgan said.
‘Sense of Credibility’
“You’ve got to create some sense of credibility with investors and analysts with your management team,” said Morgan, who last recommended his fund buy the shares in 2006. Synovus owns stock in Intel, the world’s largest chipmaker. “The history of AMD is that they’ve never been able to do it. Until they show that they can, it’s really hard for me to get on board.”
AMD Chairman Claflin, a former manager in International Business Machines Corp.’s PC division and CEO of 3Com Corp. from 2001 to 2006, has led the search for Meyer’s replacement. Claflin doesn’t want to take the job himself, said Drew Prairie, an AMD spokesman. The company’s interim chief executive, Chief Financial Officer Thomas Seifert, has also ruled himself out as a permanent successor.
“The search is obviously a priority,” Prairie said. “The board continues to make good progress while ensuring we take the time to select a person with the right vision, experience and track record to lead AMD into the future and increase shareholder value over time.”
AMD has dropped 29 percent since Meyer left on Jan. 10. That compares with a 4.5 percent gain in the Philadelphia Semiconductor Index, and a 12 percent gain by Intel shares in the same period. The stock rose 30 cents, or 4.9 percent, to $6.48 at 4 p.m. on the New York Stock Exchange.
For Synovus’s Morgan, the stock’s decline underscores a record of poor decision making by AMD’s leadership.
“Why is the board making decisions that don’t benefit the company but actually hurt it?” he said. “You just have a history that’s hard to overcome.”
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