CRN Interview: AMD CEO Hector Ruiz

Advanced Micro Devices Chairman and CEO Hector Ruiz and Executive Vice President and Chief Sales and Marketing Officer Henri Richard shed light on AMD's channel plans, supply and financial issues, product road map and market strategy in an interview with editors Edward F. Moltzen, Paula Rooney and Heather Clancy from the company's annual Executive Forum for partners in Phoenix. Here is an excerpt from the discussion.

CRN: What's your key message to partners this week?

RUIZ: As we grow and acquire a larger footprint of customers around the world, this channel needs to know that to us they continue to be a strategic partner and that the fact we've grown our relationship with OEMs around the world is no reflection at all on the importance or significance of this channel. The message is that, frankly, being more relevant to OEMs around the world is actually an important thing for them because it makes us stronger, makes our brand better known, and they benefit from that.

CRN: What are you going to do to help partners grow their AMD business?

RUIZ: We are putting new programs in place for them and elevating the relationship to a higher level. The message to them is we're putting in things for them that are more relevant to products, that we're a different company, and with ATI we have a significantly larger set of products to deal with that they can support and need to make sure we accommodate that. The other message is there will be a transition to a new platform and product, and it's very important. I'd put it in the same category as the introduction of the Opteron three years ago, and it's important for them to be intimately aware of what we're thinking about.

CRN: Which platform -- Barcelona, AMD's upcoming quad-core processor?

RUIZ: I'm talking about Barcelona. It's important in so many different ways. From my point of view, it's four cores in a single piece of silicon and architected with new cores and micro architecture. It will bring a significant new level of performance per watt, and we believe the value to this segment will be really powerful.

CRN: Recently there have been a rash of reports about pricing pressure on AMD, a sharp decline in its stock value and cash flow issues. Can you comment on those difficulties?

RUIZ: The one thing that's hard to do is trying to correlate the stock price to anything a company does. It is very difficult. We're disappointed that our stock isn't performing better, but I won't correlate it to anything other than it's just one of those things. We're not in any way being driven to react to [negative news]. What we see in the marketplace with our product line today is that it's efficient and very competitive. We find that half of the time we win on performance and performance per watt, and in workload-specific areas we don't do as well.

CRN: Intel is said to be regaining a big lead in performance over AMD and gaining mind share with the channel. What do you say to that?

RUIZ: In spite of all the hype and hoopla, there is not really such thing that Intel has leapfrogged AMD. It's quite the contrary. As a matter of fact, despite all the perceptions of Intel closing the gap, half the time they do a little bit better and the other half we do. And all of that will end with the introduction of Barcelona because it's such a significant jump in performance and quality. I'm confident we will lead in that respect.

CRN: And Intel's gains with the channel?

RUIZ: As far as the channel, frankly, we had a supply logistics issue late in the year where we were not able to serve our customers as well as we would have liked to, and that not only includes the channel but also OEMs. We took our eye off the ball relative to channel and, unfortunately, that is the result.

But what happened was the challenge in the mix of our product. It moved so dramatically toward mobile platforms that we couldn't react fast enough. Our mobile platform grew 75 percent quarter over quarter and 95 percent year over year, well beyond anything we could forecast. And in an attempt to react to that, we were unable to supply the channel. We feel bad about it, and we're disappointed. That gave our competitor an opening to gain some mind share with the channel. It is our fault, and we'll deal with it. We'll recover, and we have plans to do that. Those [supply] issues are behind us.

CRN: And the pricing pressures?

RUIZ: The pricing environment will continue to be challenged because we're not backing off. The strategy of our competition is to get us to blink, and we're not going to. We're going to fight for every piece of business that we can, and we're very much emboldened and will hang in there. We ended up in 2006 at the highest market share in the history of our company, in the mid-20s, and we intend to fight like crazy to retain it.

NEXT: A cash flow problem at AMD? CRN: There have been reports saying that AMD's cash situation is difficult and that the company may have to approach the capital markets for help by summer. Can you respond to that?

RUIZ: I can't comment on this. We're always alert as to when it is appropriate to take advantage of windows of opportunity, [as] we have done in the last year and in the past. We've been pretty open that we are doing things to raise cash, and we've been open about systematically divesting ourselves of Spansion [AMD's memory spin-off]. We are doing things to improve our cash position, but at this point in time I don't see our balance sheet crying out for any unusual or desperate measures.

CRN: Will Dell revisit its relationship with AMD now that Kevin Rollins has left as Dell CEO and Michael Dell is back at the helm? Has AMD had any conversations with Michael Dell?

RUIZ: I think that the plans we have with Dell have been worked on for quite a long period of time, and Michael himself was very instrumental and involved in the discussions and all negotiations. I've had no conversations with Michael that led me to believe that there is anything different at the moment. We're rooting for them. They're going through a transformation of the company. We're a partner, and we'll do what we can to help.

CRN: You mentioned the importance of Barcelona. What will be its impact on AMD this year?

RUIZ: This is an incredibly important product transition. We don't expect the ramp [this year] to be dramatic because it's a new core, new micro architecture and platform. The biggest impact it will have is that we'll see a large number of customers and partners align themselves behind the technology. We expect that ramp to follow along the same lines as when Opteron began to get adopted. So I expect it to follow the same patterns. Over 2007, it will have a significant impact on what I call design wins. People are committed to the architecture and product, and [it will be] a very significant part of revenue and earning in 2008.

CRN: What has AMD done to address supply issues so they won't occur again?

RUIZ: It is one of those things I wish there was one silver bullet and it's over. But it's not. It's a number of things. First of all, the most dramatic shift to mobile was a big part of the challenge, and that trickled down into the supply chain. We had a change in demand for packages, and although we have great package suppliers, they have the same problem as us. So we said to them we have to take some risks and commit to higher volumes in supply chains, which we are doing. And we are getting a more effective engagement process with customers around the world so we're as up to date as possible.

When the third quarter began, the expectation for the transition to mobile was very different than what actually happened at the end of the year, and that's no fault of anyone. It's just the way the market dynamics moved. So what we put in place is a more effective engagement process, taking more risks with the supply chain, and we're getting more inventory. And that combination of things puts us in a good position. We feel pretty confident.

CRN: AMD told CRN recently that it will try to grow its SMB business in 2007 and will be targeting VARs aggressively. What's the plan?

RICHARD: When we embarked on our commercial business when we launched Opteron, we knew we needed first and foremost to win global accounts with a global OEM. You can't get credibility in the commercial space if you don't get marquee wins with large companies. It's not that we suddenly realized we needed to focus on SMB. We always knew how important the SMB market was, but you've got to start somewhere. So we started where we had the right products and partners to get the biggest bang for the buck and started a new marketplace for AMD. Now we're three years into it, and we've had some major wins and are now at about 50 percent market share of server space, and we have close to 80 percent of the Fortune 500.

Now that we've established AMD and Opteron as a credible play, it's time to go in and do a better job in the SMB market. That market has different channels, different needs and different product specifics. The reason we're focusing [on SMB] now is that there are only 500 Fortune 500 companies. We are aiming more of our marketing dollars and channel programs for that part of the market, and global OEMs are taking a great interest [in the SMB] market.

NEXT: What AMD has in store at the Executive Forum. CRN: What will be the big focus at AMD's Executive Forum?

RICHARD: Training and information. You'd be surprised how many people don't know about the programs AMD has.

CRN: Will you provide training for Barcelona, and how will it be integrated with the ATI chipset? Is there anything in terms of programs that AMD will offer to the channel?

RICHARD: One of the key advantages of the new AMD offerings to the SMB and channel is that we're the only company with an agenda of a balanced platform. We won't convince customers that the CPU is the center of all things. Clearly, the competition sees the world with that black-and-white view. We think that to deliver the best user experience, you need a combination of technology that involves a great CPU, chipsets, motherboards.

There needs to be a balanced approach. It's a game-changing event in terms of offering a platform. We think that the new AMD is positioned to help partners move quickly to take advantage of that technology transition and, frankly, one of the benefits of the channel is to be able to jump on the technology transitions faster than OEMs.

CRN: To what extent is AMD's Linux business growing?

RICHARD: Linux has always been a stronghold for us. People using Linux in the computer and server space are unconventional thinkers. So that often drives them to be AMD partners. One area Linux is well-known for is high performance, and the Opteron is [big] in HPC and large clusters. We're continuing to invest in that space. We recently opened a software development center in Redmond, Wash., and we continue to work closely with Red Hat and [Novell] SUSE and enhancements for Barcelona. You'll see in the next release of the Red Hat OS that there is optimization around the AMD platform, which is a first.

CRN: What will be the performance of Barcelona vs. Intel's quad-core?

RICHARD: It's in the speculation stage. [But] we know that we expect performance gains in the 40 percent to 70 percent range, and we know the scalability of our architecture is better than the competition. And it's no secret they have to introduce a new architecture at some point, so we know Barcelona will perform exceptionally well and will be outperforming the competition. The program is on track.

RUIZ: The best measure of whether Barcelona is going to be good, great or fantastic is really our customers, and the feedback from them is so strong.

CRN: When will Barcelona ship?

RICHARD: It's slated for introduction at the end of the second quarter and will be in the market in the third quarter.

CRN: What is AMD saying at the conference about enhancements to AMD Validated Solutions, the new nomenclature for the combined desktop and server program for system builders?

RICHARD: We're announcing a lot of things. It's an important event, and we'll spend more time listening than talking. We are making sure they leave here with confidence. It's a tough fight in the marketplace. But we're not blinking, and there's no intent to back off.

Secondly, we acknowledged Hector's point that we've had a couple of mis-executions, and we shared what we're doing. So they know we have this part of the equation under control and [that will] inspire confidence that we identified the issue and fixed it. Third, we believe that because of the technology transition, 2007 is the year the channel and system builders will shine. They always do well in tech transitions in the marketplace, and we want them to leverage assets.

CRN: What else?

RICHARD: They asked questions about what will happen in the area of security and manageability, and we have an initiative called Trinity around open standards. We'll share with partners everything we do around the new AMD-ATI and more [around CPU, chipset and open standards and our broad portfolio of offerings].

On the validated server platform, over the years our competition has a one-stop shop offering, and it's been simple for people to configure. And there are some constraints. We don't want to turn ourselves into a similar provider of solutions, but we want to make sure for the system builder selecting a complete AMD solution that it is as simple to configure that solution as if it's a single vendor, even though many partners are involved in the solution, and around validated platforms, how we tighten up the relationships and make it easy for partners to acquire the solutions, service the solutions and make money on the solutions. We're announcing initiatives around advanced return, validation of benchmarks, software validation. And there are a lot of things we want to deliver as a one-stop shop without getting into the business of making systems.

CRN: What will AMD offer in 2007 as the next generation of AMD Validated Solutions?

RICHARD: It's going to be a whole variety of solutions. We're providing customers with a small form factor for the desktop area. That's our DTX initiative, which has been well-received. There will be a whole series of solutions for customers that want to build small form factors, and we have more initiatives in the client space, server space and will keep working in the whitebook space. We're asking how [we can help partners] validate and compete in the notebook space. Ensuring quality in the notebook market is a very difficult challenge, because the notebook structure is very different. Right now, we're listening to the needs [of system builders], and we'll help them get closer to that nirvana, which is their ability to get high-quality global solutions that they can compete with. We don't have a solution today, but we're trying to help them in the mobile space because if they can't [compete], they can't win.