Chief Building a Team for AMD to Expand

Hector de Jesus Ruiz, the new chief executive of Advanced Micro Devices Inc., calls it the perfect storm.

Demand for AMD’s chips is woeful. Semiconductors are in oversupply. The world economy is in a slump. And the threat of terrorism and political instability abroad are sapping what little confidence U.S. consumers have left.

It’s a grim situation but hardly the first to face the 56-year-old engineer.

As a boy from Piedras Negras, Mexico, Ruiz cleaned houses in exchange for English lessons so he could attend high school in Eagle Pass, Texas. He was the class valedictorian, went on to study at the University of Texas at Austin and earned a doctorate in electrical engineering at Rice University.

When he met Jerry Sanders, AMD’s flamboyant founder and chairman, Ruiz was president of Motorola Inc.’s semiconductors division. Sanders persuaded Ruiz to work for AMD and succeed him as CEO.

Sanders and Ruiz are an odd couple. Sanders is outgoing, boastful and charismatic. Ruiz is quietly methodical and uncomfortable talking about himself.

If Sanders hadn’t founded AMD, he has said, he’d be an actor. Ruiz confesses that if he weren’t CEO, he’d be a football coach. A sports fanatic, Ruiz roots for the Houston Texans, a brand-new (read: underdog) National Football League team that won its first game last week--against the Dallas Cowboys.

It’s a fitting analogy for AMD’s position as the outgunned No. 2 chip company, behind Intel Corp.

Question: If you can’t outspend Intel, how will you compete with them?

Answer: It’s easy. We can outsmart them.

Q: OK. How about some examples?

A: I think Intel is an awesome competitor. They’re good, strong, well managed. Which makes it harder for us. We have to do things differently and with less people, less capital.

This requires us to partner with people, build what we call deep-rooted partnerships. For example, we work with Fujitsu in making flash memory chips. That relationship started 10 years ago. That has been good. But going forward, it has to be much deeper. It will become obvious in the months ahead that this partnership will include development of ideas and products.

For example, to succeed in microprocessors, you need the chipsets [the larger piece of silicon on which the central processing unit sits]. We don’t make chipsets. The thing we’re changing going forward is finding a smaller number of participants to jointly develop the microprocessor architecture so the chips and the chipset work better together. Every time I sell a processor, it will have been designed with our partners. Their success will be totally centered around our mutual work.

Q: What about innovation? Intel has thousands of engineers thinking about the future of processors. You have about 150 in your process engineering lab.

A: We think we’re more focused. Our efforts are strongly focused on microprocessors and flash memory. We have some bright people innovating solely on those two product families. In 2001 and 2000, we had over 1,000 patents issued through AMD, which is a significantly larger number than our competitor considering that we’re significantly smaller. We only do a few things, but we try to do them well.

Q: What’s your strategy for AMD, and how will it be different from what Jerry Sanders has done?

A: There are several levels to this. First, let’s look at personalities. Jerry’s a very strong, charismatic leader. He founded the company. It’s centered around him. AMD and Jerry Sanders are synonymous. But we are now a $3-billion company. We have to scale that up. We’d like to be a $10-billion company. To scale, we need a cadre of executives. My near-term goal is to ensure that AMD is represented by a team of strong representatives, as opposed to just one strong charismatic leader.

Secondly, look at the partnerships we have. We’ve never been large enough to do everything ourselves. We need to evolve our partnerships, take them into a much deeper mode.

Lastly, in terms of manufacturing technology, Jerry’s been quoted saying that real men own their own fabs [manufacturing plants]. Well, what we now see is a different scenario. AMD will have to partner with people who view manufacturing as their core competency. Our core competency is core processor design. Going forward, I’m modifying the model to avoid spending as much capital as we had in the past.

Q: How would you say you’re different from Jerry as a manager?

A: Those who know me know it’s difficult for me to talk about myself. I find it really awkward. I can tell you what I would hope people who work for me see, and that is a very strong desire in me to build a team. If I couldn’t be CEO of AMD, my dream’s to be the coach of a football team and win some games.

Q: How are your new Athlon chips or Hammer chips different from any other AMD product?

A: Athlon is the first product AMD has ever done that is totally independent of Intel’s technology. It’s not compatible with [Intel]. This was the first time AMD had to build everything itself. The motherboard, chipsets, software are all AMD-based. We launched Athlon in late 1999, and it was the most successful product we had ever built. We can easily see it three to four years from now still being a key product.

At the same time, it’s a 32-bit processor. We needed a 64-bit processor. So we took all the learning we did on Athlon, added features and created a 64-bit processor that we call Hammer. If you use Hammer, it’s a 64-bit machine that can run all the 32-bit applications that Athlon runs, and you don’t have to change anything.

Q: The economics of your industry are brutal. Performance rises even as prices drop. How is AMD going to weather the storm?

A: We’re in the most severe recession our industry has ever known. We refer to it internally at AMD as the perfect storm. Demand is not there. Inventories are high throughout the whole supply chain. We also have a global recession that has affected other industries. Then on top of that, we have the threat of terrorism, the threat of war.

So what do you do? We have to put what we view today in the context of where we’ll be in the future. We think we will be the leader in 64-bit architecture. So we will focus on Hammer. We intend to be the leader in flash memory. So we’ll focus on our partnership with Fujitsu. We believe in connectivity. So we will pursue ways to make connectivity easier.

Connectivity is key. I’m going to make what some people will think is a heretical statement. I think Moore’s law [that the cost of computing power falls steadily over time] is irrelevant. I don’t think it’s applicable anymore. What’s applicable is Metcalf’s law [which says the utility of a device increases exponentially with the number of other devices connected to it].

If you own a fax machine, but you’re the only one who does, it’s of very little use. If there are two, then it becomes useful. If you have three, then it’s even more useful. We’re looking at an incredibly connected world. We at AMD are in the sweet spot of that in providing the flash memory and the microprocessors that enable all that. How do we make sure we get there? We’re putting a lot of efforts into managing our balance sheets and not getting distracted.

Q: When do you think the chip industry will start to see a recovery?

A: It’s an incredibly challenging time. If you stand at the door of an electronics retailer and watch people come in, you see they have a certain amount of money to spend. They’ve got a tough decision to make because what’s available in stores is huge. It’s mind-boggling. You can upgrade your TV, get a new DVD player, a new MP3 player. Choices are huge, and the available dollars are flat because people are concerned about the future.

For a recovery to happen, employment has to go up, people have to feel more confident about the future. We’re all hopeful it’ll happen next year, but things have to settle down. Corporate governance issues need to go away, and the threat of terrorism has to settle down before people get that sense of optimism that will allow them to feel good about opening up their wallets again.