Mountain House (CA) – It is earnings season again and we are expecting both Intel and AMD to publish their second quarter results. Neither company released an unusual heads-up before the release, which leads us to believe that both companies will stay at least within their previously provided guidances. AMD is likely to post another loss and industry sources are heating up rumors about a possible departure of chief executive officer Hector Ruiz, if the company will miss its Q3 goal.

Next week will be shaped by financial news from numerous IT industry heavyweights, including Microsoft and Google, but there is a clear focus on Intel and AMD. There are big hopes on AMD, which originally said that it expects revenue to decrease from Q1 in line with seasonality and record a restructuring charge. However, the company appeared to have had a decent quarter as Barcelona quad-core servers were launched top-tier vendors, Phenom triple-cores gained almost instant acceptance in the desktop market and ATI Radeon 4800 cards began revenue shipments. The company also shaved off a few hundred positions from its payroll, which should have brought down the cost a bit.

No news from AMD so far is obviously good news, but it is unlikely that the company will reach profitability. For the first quarter, the company reported revenues of $1.51 billion and a net loss of $358 million. AMD was believed to need revenue of at least $1.75 billion to $2.0 billion to reach profitability at the Q1 cost level.
 
According to sources close to AMD, the company will announce yet another loss, which will be the seventh in a row. AMD’s position is already not that great as there are many businesses that only work with companies that are in the black. You just can’t afford to be in red for several quarters in a row - and AMD has done just that. And there will be many eyes on how high the Q2 loss will be, as Q2 could be considered a launch pad for Q3 and the time frame for which CEO Hector Ruiz has promised to take the company back to profitability. There have been several promises that have been broken and we have our doubts whether AMD can deliver on the promises to become profitable on an annual basis, but Q3 is a critical make-or-break time frame for AMD and Hector Ruiz. Delivering on the promise could restore a big portion of credibility while missing the target could eliminate what is left.   

As we are already in Q3, we are noticing increased high-level chatter on what might happen if AMD in fact misses its target. Industry sources close to AMD suggest that there will be a change of leadership at AMD.  But as it is the case so often with AMD, there is an interesting twist. AMD cannot fire Ruiz, as the company is not in the position to pay for the executive’s golden parachute. The only possible solution could be that Ruiz will resign from his post and “will pursue other interests” - or transition into another capacity with AMD, such as into a non-active position such as chairman of the board.

Our sources indicate that there are discussions about leadership replacements and how that can happen to shine a positive light on every one. Unless there is a major surprise, Ruiz’ successor is likely to be Dirk Meyer, who is currently serving as president and COO. However, if there is a change in leadership we are wondering whether a marketing or business personality would not make more sense. Names such as Henri Richard or John Leahy come to mind. But whoever may be considered as a new CEO, it is clear that the first task will be to rally AMD’s employees to assemble the energy that is needed to pull through the difficult time.
 
AMD declined to comment on the rumors.

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