AMD's Board Forgot Economics 101

Dirk Meyer left his CEO position at Advanced Micro Devices (NYSE: AMD  ) under murky circumstances, to say the least. The Wall Street Journal and others have unearthed some clues through their usual network of unnamed sources -- and I don't like what I see.

According to the WSJ, AMD's board of directors grew impatient with Meyer's lack of enthusiasm for mobile devices. He saw lots of demand for mobile processors, but told reporters at last week's CES gala that the margins in that space were too slim to be attractive. For that offense, he had to go -- and since the board has such immense faith in CFO Tom Seifert's ability to run the ship for a while, he left immediately.

If that's really how the deal went down, AMD needs a new board of directors. This mentality would make sense -- does make sense -- for processor market leader Intel (Nasdaq: INTC  ) . It would be irresponsible for Intel not to expand its horizons into the exploding tablet and smartphone markets.

But it's a different story for AMD. So what if the board is concerned that desktop and notebook sales are leveling off? AMD is an underdog, and it can grow comfortably even in a shrinking market by stealing share from Intel. Meyer wanted the mobile space to mature before he made any specific moves in that direction -- a perfectly reasonable approach.

Let the market define its own boundaries, and then you can shoot at a stationary target. Intel may or may not make a mint in mobile computing, but the incumbent leader ARM Holdings (Nasdaq: ARMH  ) and its many partners keep moving the goalposts. Meanwhile, MIPS Technologies (Nasdaq: MIPS  ) could usurp ARM's hegemony before Intel and its Atom chips go anywhere.

Meyer's ouster is a knee-jerk reaction from a nervous and impatient board. If I ran a large hedge fund, I'd put together a competing slate of directors for AMD's next round of shareholder voting, in which all nine of the directors risk their tenures.

But I don't have that power. Instead, I can only helplessly watch as AMD's board kicks out one of its finest assets.

Follow this edge-of-your-seat saga by adding AMD to your Foolish watchlist.

Fool contributor Anders Bylund owns shares of AMD but holds no other position in any of the companies discussed here. Intel is a Motley Fool Inside Value pick. The Fool owns shares of and has bought calls on Intel. Motley Fool Options has recommended buying calls on Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (10) | Recommend This Article (11)

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  • Report this Comment On January 12, 2011, at 3:54 PM, jkubinak1339 wrote:

    The AMD board was right to Panic a bit -- the landscape of their business is changing and its not just Intel and AMD anymore - ARM is enabling Nvidia, qualcom, ect to move "Upstream" they will hit computers and servers as well - AMD cant afford to move slowly when it seems everyone else is moving faster.

    Intel is in panic mode too - how many companies have they bought in the last year? why did they cough up 1.5bill for Nvidia graphics? because they are racing to get and keep a competitive advantage as they can see AMD is not the only competitor anymore. The AMD board things Fusion gives them a competitive advantage and they want that chip in the hot form factors - getting into netbooks late as others move to tablets and saying we can let the market mature before we enter is not they way AMD can excel in this landscape.

  • Report this Comment On January 12, 2011, at 4:23 PM, flippinwaffles wrote:

    agreed. why commit a ton of resources to R&D something that might be gone in 2 years? we haven't even seen how the market will react to tablets, Fusion or Bulldozer. there's as much chance for consumers to adopt the new platform in the netbook segment, after intel killed it, as there is tablets to dominate the landscape for an extended period of time. once the novelty wears off, who's to say tablets won't flop?? there's a lot less horsepower in one of those than there is in Ontario or Zacate.

    ARM is succesful because it never needed to tailor make a processor to fit the space, that's the market they target by default. Dirk had it right, the BoD are out in left field and should be sacked immediately. maybe Dirk would return.

  • Report this Comment On January 12, 2011, at 4:24 PM, wwis wrote:

    Meyer is not wise to just focus on the most formitable Intel. There are other green field, look what happen when NVDI enter the moble business. If AMD has something in moble, stock will be 15+ easily. Fight with Intel is not an easy war, and it has been proved for 30+ years.

  • Report this Comment On January 12, 2011, at 5:34 PM, BuyemHoldem wrote:

    AMD can not afford to sit on their laurels and expect to merely take desktop/server market share from INTC. the landscape is more dynamic than ever and it seems that everyone in the tech space is a WS darling except AMD, even though they are the only company that ever gave INTC a serious run for their money.

    they get no love and no shareholder value from their current proposition. their engineering is superior to INTC and they need a visionary leader to take them to the next level.

  • Report this Comment On January 12, 2011, at 7:04 PM, Robertlhayes wrote:

    Yes I agree The board did what they had to do.Yesterday,When the stock droped 9 % over the new's the board pushed out Meyer I bought more stock.Anders Bylund says it was a perfectly reasonable approach for Meyer to sit by and wait on a exploding mobile tablet and smartphone market to mature.No way. Meyer's should have already had amd in this market Slim Margin's or not.I say to Anders Bylund Dirk Meyer's was not amd's finest asset.No way.

  • Report this Comment On January 13, 2011, at 12:03 AM, Stotch101 wrote:

    AMD has tried to be Intel ( very) lite for years and AMD has ended up losing billions of dollars over those years.

    AMD's only hope for the future is to buy an ARM license and starting making and selling ARM based AMD processors.

    Nvidia has realized that taking on Intel on Intel's playing field using Intel's rules is guaranteed death.

    Nvidia is following Sun Tzu's rules of asymmetrical warfare and attacking Intel at its weakest point; mobile processors.

  • Report this Comment On January 13, 2011, at 3:16 AM, TheBlindCat wrote:

    @Scotch101 - "Nvidia is following Sun Tzu's rules of asymmetrical warfare and attacking Intel at its weakest point; mobile processors"

    Precisely!

  • Report this Comment On January 13, 2011, at 4:49 AM, asH95 wrote:

    I couldnt have said the following any better:

    http://www.firingsquad.com/hardware/int ... e_roadmap/

    What’s new with 32-nm

    Without a doubt, Intel’s key advantage over competitors is manufacturing: every two years Intel expects to introduce a new manufacturing process. This allows them to incorporate more transistors into their CPUs while also reducing die size and power consumption. In other words, Intel can use these additional transistors to integrate more processing cores, additional cache, and other performance-enhancing features into their processors more affordably and with lower power consumption than they could have under their previous manufacturing process, or they can focus exclusively on reducing power consumption. Intel’s high-end Westmere part will be the first desktop CPU to incorporate six cores, while system-on-chip (SoC) designs will allow for even smaller form factor PCs.

    Intel has gained approximately 30% increase in productivity in each die shrink; you have to ask yourself or be curious about the kind of productivity Zarcate or Fusion can yield going from 40nm to 32 or 28nm, a 2 jump shrink in intel's processing. This could have mind blowing possibilities for X86 programs, all day mobile computing- applications not apps – a life line for Microsoft- power to run x86 programs (Surface OS). This could explain Intels run to security, Apple’s mac book strategy- A product should have been ready at CES – Acer, Microsoft, AMD (someone, or 2, wasnt ready). Logic dictates the x86 version of the Microsoft version mobil O/S be ready before an ARM version; they only own the arena. If the above is possible, Why didn’t Dirk see it?? Bottom line is, AMD believes they have a real game changing product, while the stock’s volatility suggests otherwise- and that’s the CEO’s responsibility. My vote, based on probability, is with the board.

    asH

  • Report this Comment On January 13, 2011, at 4:51 AM, asH95 wrote:

    I couldnt have said the following any better:

    http://www.firingsquad.com/hardware/int ... e_roadmap/

    What’s new with 32-nm

    Without a doubt, Intel’s key advantage over competitors is manufacturing: every two years Intel expects to introduce a new manufacturing process. This allows them to incorporate more transistors into their CPUs while also reducing die size and power consumption. In other words, Intel can use these additional transistors to integrate more processing cores, additional cache, and other performance-enhancing features into their processors more affordably and with lower power consumption than they could have under their previous manufacturing process, or they can focus exclusively on reducing power consumption. Intel’s high-end Westmere part will be the first desktop CPU to incorporate six cores, while system-on-chip (SoC) designs will allow for even smaller form factor PCs.............................

    ------------------

    Intel has gained approximately 30% increase in productivity in each die shrink; you have to ask yourself or be curious about the kind of productivity Zarcate or Fusion can yield going from 40nm to 32 or 28nm, a 2 jump shrink in intel's processing. This could have mind blowing possibilities for X86 programs, all day mobile computing- applications not apps – a life line for Microsoft- power to run x86 programs (Surface OS). This could explain Intels run to security, Apple’s mac book strategy- A product should have been ready at CES – Acer, Microsoft, AMD (someone, or 2, wasnt ready). Logic dictates the x86 version of the Microsoft version mobil O/S be ready before an ARM version; they only own the arena. If the above is possible, Why didn’t Dirk see it?? Bottom line is, AMD believes they have a real game changing product, while the stock’s volatility suggests otherwise- and that’s the CEO’s responsibility. My vote, based on probability, is with the board.

    asH

  • Report this Comment On January 13, 2011, at 4:20 PM, melegross wrote:

    I agree with this article. I've been saying for a while that this board is incompetent. Three members headed what are now failed companies. I'm sure their advice is really helpful.

    What they don't seem to be willing to accept is that Intel's R&D budget is about AMD's yearly sales. Small companies like AMD need to concentrate of fewer product lines, and get them perfect. AMD needs to concentrate on its server chips as they've been successful. They should drop those lines that are not so successful.

    Is it really possible that they can compete in tablets and phones? Not likely. Arm's pretty much got that sewed up, and it's not even known if Intel will be able to profitably compete. And the word to remember here is "profitably". How long would it take AMD, from a standing start, to come up with a chip line that's competitive? How much would it cost them, and how successful would they be convincing the major players to adopt it?

    He was the best guy running that company they ever had. This was a disaster!

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