AMD’s David takes on the Intel Goliath

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Hector Ruiz’s actions speak far louder than his words. The unassuming chief executive of Advanced Micro Devices would have plenty to shout about on the microprocessor maker’s advances against its giant rival Intel – if only he felt at ease when sitting down and talking about his successes.

They have been the result of his understated but effective management style, which has a willingness to delegate at its core.

“It’s incredibly important for me to feel that I have good people around me that I can trust and that these people are in the proper seat on the bus,” he says. “Then it’s important for me to get out of the way for them to get the job done.”

He shares a discomfort with media interviews with his opposite number at Intel, Paul Otellini. In this respect, both men stand in complete contrast to their shoot-from-the-hip predecessors, Jerry Sanders and Craig Barrett.

“I don’t know what to say. This just happens to be a difference in style,” is his comment on the comparison.

Other executives are more forthcoming. Henri Richard, AMD’s head of sales and marketing, refers to Mr Ruiz’s subtle but supportive style and praises his attitude to risk: “He’s always saying: ‘Under my watch, make sure you get speeding tickets, not parking tickets.’ He’s encouraging us to take risks and we’re in a culture where we know risks come with mistakes and as long as you don’t repeat them and you exercise strong business judgment it’s OK.”

If Mr Ruiz is short on colourful soundbites, he has nonetheless made sure there has never been a dull moment for his company over the past 12 months.

Intel and AMD have almost 100 per cent of the market for the “x86” processors that dominate the PC world. But Intel has traditionally had the lion’s share, providing the chips for four out of every five PCs sold. Intel has 100,000 employees worldwide compared with AMD’s 10,000 and its market capitalisation – at about $125bn (£67bn) – is also 10 times that of AMD.

Yet, from the opening of AMD’s multi-billion dollar microchip plant in Dresden, Germany, a year ago to the $5.4bn acquisition of ATI, the Canadian graphics chipmaker, due to be completed this month, Mr Ruiz has been relentless in pursuit of his arch rival.

The Mexican-born CEO realised soon after joining AMD in 2000 as president and chief operating officer that the company had to improve and expand on its reputation as a maker of cheap processors for desktop PCs. “Five years ago, we were a company that only had one product and was skewed towards the consumer market,” he says.

“We wanted to improve the product and address the server space – in the same way that if you can meet Japanese manufacturing standards, you can meet anybody’s, we felt if we could meet server requirements, we could do well in other segments.”

AMD successfully launched its Opteron processor in 2003 for the kind of servers that run company networks. By concentrating on quality and this mission-critical area, it improved its reputation for reliability and its credibility with big corporate customers.

Furthermore, it began to win market share from Intel with a series of technical innovations and firsts that gave it a performance advantage over its rival’s microprocessors.

It created its Direct Connect Architecture – a way of addressing computer memory to speed processes and eliminate bottlenecks. It also beat Intel in moving from 32-bit to 64-bit processors and in launching the first dual-core ones – processors with two “brains” on the same chip to handle multiple programs running at the same time and increasing response times.

By the second quarter of this year, the company had 26 per cent of the server market for “x86” processors, up from less than 10 per cent at the beginning of last year. It also had a 25 per cent share of the desktop market.

Mr Ruiz attributes AMD’s advances as much to listening to its customers as to the skills of its research and development team. “If we can anticipate and understand our customers’ needs perfectly then we would never need to worry about the competition,” he says. “Focus on the customer is critical, we are firmly committed to making that the centrepiece of our strategy.”

Mr Ruiz has been entreating his customers for help ever since he opened up a new front against his rival in June last year – filing antitrust lawsuits against Intel in the US.

AMD’s allegations include Intel forcing big customers into exclusive or non-exclusive deals, making rebates and other incentives conditional on customers not buying from AMD, forcing PC makers to boycott AMD product launches and threatening retaliation.

“I believe the day of reckoning is coming to Intel’s board. More than 60 companies have opened their files to us to electronic discovery. The goal is to stop Intel abusing its monopoly.”

But any day of reckoning is unlikely to happen before 2009, after a judge last month put the trial date back until April of that year and added that claims of monopolistic practices abroad were outside US jurisdiction. It was a double setback for Mr Ruiz.

AMD is also under challenge from Intel’s manufacturing juggernaut. Paul Otellini said last month that 40m Intel processors had shipped on smaller, more cost-effective 65-nanometre circuitry while its competitor was still shipping on 90 nanometres. He said Intel would be first to launch quad-core chips, releasing them in November.

AMD expects to be shipping quad-core chips on 65nm circuitry by the middle of next year from its state-of-the-art Dresden facility. It opened a factory there last October to double output over three years and then announced a further $2.5bn investment in May to expand production.

On top of that, it said in June an option to build a multi-billion dollar plant in New York state that would be the most advanced chip factory in the world. The huge sums being committed and the uncertainty of future demand make this a high-risk business.

“We are in an industry where we can’t figure out a way to do it differently,” says Mr Ruiz. “It takes two years to build a factory and two years to fill it up. It’s a modified version of Russian roulette – you pull the trigger and four years later you find out if it worked or not.”

Mr Ruiz cut his losses last December in the company’s flash memory chip business, spinning it off as a savage pricing environment undermined profits from microprocessor revenues. Intel may follow suit in selling off its own flash business.

“We wanted to refocus totally on x86 [microprocessors],” says Mr Ruiz.

That concentration paid off in May when AMD made its biggest customer breakthrough – winning business from Dell, the largest PC maker and an Intel stronghold, for the first time. “Dell saw it to their advantage to have two suppliers.”

AMD itself had always seen an advantage to having two suppliers – ATI and Nvidia – for the graphics chips for its microprocessors. But in July, Mr Ruiz decided to buy ATI, stretching the company’s finances with the $5.4bn price tag and, again, taking on Intel in matching its rival’s in-house graphics capabilities.

“Everything in our industry has a level of risk, but I didn’t see this as gambling but part of our strategy of anticipating the future. We believe processing technology is going to develop as a graphics technology,” he says, alluding to growth of online video and the high visual demands of the new Windows Vista operating system.

Intel appears to have achieved technology leadership with its Core 2 Duo processors, but Mr Ruiz says he believes that such leadership will flip back and forth and the right strategy will be more important.

“We believe the market needs a level playing field. The math seems to show that the monopoly breaks at about 30 per cent [revenue share] of the market. So we need to get to that number, that’s the milestone. We hope to do it sooner or later, not only for us but for consumers and customers.”

Passage to Texas and AMD

Mr Ruiz was born in the town of Piedro Negras on the Mexican side of the US border 60 years ago. He learned English from a Methodist missionary he ran errands for and she persuaded his parents to allow him to walk across the border every day to attend high school in Eagle Pass, Texas.

He went on to earn electrical engineering degrees from the University of Texas at Austin, a city he now resides in and where AMD has a significant manufacturing base away from its Silicon Valley headquarters of Sunnyvale.

He joined the company in 2000 after spending five years at Texas Instruments from 1972 and then the next 22 years at Motorola. At TI, he worked on the team that developed the first single-chip calculator. At Motorola, he eventually became president of its semiconductor products division.

He joined AMD as president and chief operating officer and was groomed by Jerry Sanders, its flamboyant founder, to succeed him as chief executive in April 2002, later becoming chairman of the board as well.

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