High-Tech’s Naysayer : Jerry Sanders of AMD Has a Dire Message but Many Aren’t Listening

In an industry brimming with flashy personalities and major league egos, few can match W. J. (Jerry) Sanders III, the fast-talking founder and chairman of Advanced Micro Devices.

The dapper 52-year-old, who is given to wearing all-white suits that match his long, wavy hair, has carved out a second career letting the world know what is best for the beleaguered U.S. semiconductor industry.

These days in particular, Sanders is spending a lot of time on the stump, preaching a dire message that few want to hear or believe.

Frightened by swelling inventories and slowing orders, both at his own company and at his competitors, Sanders has repeatedly issued warnings of gloom and doom for semiconductor makers, especially those catering to the personal computer industry.

At AMD’s corporate headquarters in Sunnyvale, in the heart of the Silicon Valley, Sanders has already announced plans to lay off 2,400 workers worldwide and close one factory before the end of the year. Although the company will be profitable for the year, with about $1 billion in sales, losses are expected in the current quarter. And Sanders doesn’t see much chance of a turnaround until at least mid-1989.

Say He’s Wrong

“It smells like 1984,” he says, alluding to the final days before the chip industry plunged into a two-year spiral that proved to be its worst-ever decline. “No one wants to believe this, but read my lips: Everyone is going to have layoffs.”

Sanders is at least partly right; no one believes the industry is as bad off as he has claimed for the last two months. In fact, many analysts believe that Sanders is projecting AMD’s own distinct problems onto the rest of the chip making industry.

“Sanders shoots from the hip,” says Andrew Kessler, an analyst with Paine Webber Group in New York. “When things are bad for his company, he wants to drag the rest of the industry with him.”

Adds Christopher Kirby, an analyst with Rothschild Inc. in New York: “The semiconductor industry has a problem now; there’s no question of it. But it’s hitting AMD harder than the entire industry.”

Sanders will hear none of it. He notes--quite accurately--that when he issued his first warnings in September, he was a lone naysayer. In the weeks since, however, three other chip makers have ‘fessed up to excess inventory problems.

Intel, one of the industry’s premier companies, acknowledged that sales of its popular 80386 personal computer microprocessor have slowed. National Semiconductor said its sales had taken a sharp turn south. And Texas Instruments announced plans to furlough workers for a few weeks at its Sherman, Tex., chip plant to trim mounting inventories.

Even the Semiconductor Industry Assn., traditionally a last bastion of bright forecasts, is predicting that sales growth next year will hit just 10%, a far cry from the torrid growth rates of about 25% over the past two years.

Seen as Adjustment

“If I ever questioned my prescience, I no longer do,” Sanders says. “I don’t mean to sound arrogant, but it’s clear to me we’re in a decline. . . . And when I say sales will be flat, I mean that will be the ceiling, not the floor.”

Still, the question persists whether the decline Sanders sees--and the decline AMD is experiencing--accurately reflects the entire industry’s outlook.

Although most analysts have recently dropped their rosy outlooks and reluctantly admitted that the latest sales boom is over, few, if any, view the current slowdown as much more than a cyclical adjustment after two years of hyper-inflated growth.

Sanders’ problem, analysts say, quite simply is that AMD’s product portfolio contains no blockbusters targeted for the current market. The lineup seems caught between fading, older technology and emerging state-of-the-art electronics that have yet to catch on completely.

For example, AMD’s line of microprocessors--the brains of a personal computer--consists primarily of a sophisticated, reduced-instruction chip that has yet to reach its sales stride and the Intel-licensed 80286 chip, once the hottest microprocessor but now eclipsed by the newer 80386 model.

AMD and Intel are in a protracted fight over Sanders’ claim that AMD has the right to produce the newer chip, but unless the dispute is decided in AMD’s favor, Sanders is stuck with the older product.

“AMD is being hit harder because it doesn’t have a lot of new technology,” says John Girton, an analyst with the Van Kasper & Co. brokerage in San Francisco. “AMD hasn’t addressed the stronger growing current markets. . . . And they haven’t come out with the critical parts to drive sales.”

Matters weren’t helped at all when Sanders’ $422-million acquisition of Monolithic Memories Inc., another Silicon Valley chip maker, didn’t work out as planned. Sanders was particularly interested in Monolithic for its programmable array logic chips, a market that was especially strong when AMD acquired the company in 1987. But since, that market has flattened considerably due to reduced buying from the defense industry.

Officer’s Departure

Further, AMD has yet to grow into the factory space it built four years ago before Sanders abandoned the market for dynamic random access memory chips in the wake of dumping of low-priced DRAM chips by Japanese makers.

The company took an unexpected blow late last month when John East, a key senior vice president who handled many of the day-to-day operating details at AMD, announced that he was leaving to become president and chief executive of Actel Corp., a new Silicon Valley chip design company.

“There’s no question we’re a ballclub that’s putting itself back together,” Sanders admits. “But I say, we can either wallow in our sorrows or work our way out of it.”

AMD chose the latter route, investing about $1 billion in research and development projects over the past five years, with some apparent success. Analysts are enthusiastic about several projects in the company’s R&D; laboratories, particularly a new set of chips for state-of-the-art fiber optic computer networks. Sanders has said he wants AMD to become the leader in the next generation of computer networking chips.

The first products using the new AMD chips are expected to be announced early next year. However, the chip set will take many months, and possibly years, to reach its full market potential.

“These products are potentially exciting,” says Paine Webber’s Kessler. “But so far, they’ve produced only a big goose egg in sales.”

Sanders is also pinning his hopes on persuading the federal government to help the semiconductor industry in its efforts to widen trade agreements with Asian countries, particularly Japan.

Sanders took to the stump on this issue again last month when he ran a full-page open letter to President-elect George Bush in both the Wall Street Journal and the Washington Post. The letter, addressed “Dear George” and signed “Jerry,” said gaining a foothold in the Japanese domestic market “is essential to the long-term survival and prosperity of American semiconductor manufacturers.”

The letter drew a fair share of tittering within the industry, as much for its flashiness as its presumptuous addressing of the President-elect by his first name.

“What a grandstand play,” observes Rothchild’s Kirby. “You’ve got to wonder: Just who is this guy, telling the free world how it should run the semiconductor industry? It’s all part of the hubris of Sanders.”

Another part of that hubris is Sanders’ well-known appreciation of the good life.

Long divorced, with grown children, Sanders maintains homes on San Francisco’s Russian Hill, a beach house in Malibu and a mansion in Bel-Air. He owns two Rolls-Royce cars, but the light of his automotive life these days, he says, is his new Aston Martin Valente.

Appreciates Beauty

Nevertheless, and with only a hint of humor, Sanders says he considers himself a “pillar of humility and a model for other Americans” because he has no debt, lives on his income of more than $1 million a year and manages to save money.

Still, others profess concern that Sanders’ outspoken and sometimes outlandish stumping on behalf of semiconductor makers has conveyed an inaccurate impression of the country’s premier electronics industry.

Sanders’ penchant for squiring beautiful women around town has contributed to his reputation as high tech’s Hugh Hefner. But that isn’t the whole picture, analyst Kessler notes.

Kessler says Sanders, a high-tech salesman-turned-entrepreneur, has lost Wall Street’s respect. Kessler himself says he thinks of Sanders as a “cross between High Hefner and Chuck Barris,” the creator of “The Gong Show,” the television anti-talent show that everyone loved to hate.

“People don’t take him all that seriously,” Kessler says.

Adds Rothchild’s Kirby, noting that AMD stock is currently trading in the $7-to-$8 range: “Wall Street usually speaks with its feet. The stock price gives you a sense of what Wall Street thinks of Jerry Sanders’ managerial abilities.” (AMD shares, which traded for more than $40 in 1984 and more than $30 in 1986, closed Friday at $7.875 on the New York Stock Exchange.)

As is often the case, Sanders will have the last word if not the last laugh. “This is not a dress rehearsal,” he responds to his critics. “If you say I’m flamboyant because I enjoy life, I’ll wear that to my grave.”