AMD CEO looks to Spansion IPO, quad-core chips

SAN FRANCISCO - The last five years have not been easy for Hector Ruiz. As Chief Executive Officer of Advanced Micro Devices, he has presided over some tough times at the Sunnyvale, California, chipmaker. Formerly in charge of Motorola's semiconductor division, Ruiz took the helm at AMD just as the PC industry entered into a major slump. But after racking up well over $1 billion worth of losses over several money-losing years, his company finally turned things around in 2004. With the launch of its first dual-core Opteron processors last week, AMD has the jump over its rival, Intel's server chips, an area where AMD has been slowly gaining market share over the past years.

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Though microprocessor sales helped AMD turn a profit in 2004, things weren't so rosy in the company's Spansion flash memory unit, which makes chips used in mobile phones. Under price-cutting pressure from Intel, flash prices were battered over the year, dropping as much as 30 percent for certain products, according to AMD. Spansion is operated as a joint venture between Fujitsu and AMD.

Now AMD is looking to persuade other investors to put their money into that same flash memory business, in an effort to free up resources for its microprocessor division. Earlier this month, AMD filed papers with the U.S. Securities and Exchange Commission (SEC) to take Spansion public. The IPO is expected to raise $600 million, but it may be a tough sell, given the state of the flash memory market. And Ruiz's colorful comments on Spansion, made during a January conference call, may not exactly inspire investors. "In our flash business, we had an awful quarter," said Ruiz at the time. "It makes me puke to lose $39 million."

On Monday, Ruiz shared his thoughts on multicore processors, the Spansion IPO and the future of his company with IDG News Service correspondents Robert McMillan and Tom Krazit. Following is an edited transcript of that interview.

IDG News Service: Spansion is coming off two bad quarters. Given that it has significantly contributed to AMD's bottom line in the past, why move toward an IPO?

Hector Ruiz: It takes so much work and effort to file an S-1, I wouldn't want anybody to think we timed the filing to a bad quarter.

When I joined the company five years ago, if AMD had a shot of becoming a relevant player in the microprocessor business, we had to focus more and more of its efforts on that [business]. The intent of Spansion was to separate the businesses. The businesses are completely different: the customers are different, the business models are different. Flash is low margin, low G&A [general and administrative expenses] low R&D [research and development expenses]. The microprocessor business is high margin, high G&A, high R&D. And so we took that step to create the joint venture.

When we did that, we also thought we should consider moving it into an IPO or an outright sell. When it became clear that Mirrorbit [AMD's flash memory technology] had solidified its position, we concluded that with this powerful technology, it made sense to take the next step and IPO the business.

IDGNS: Given the performance of the business in the last few quarters, how do you plan to attract investors?

Ruiz: If we do decide to continue with an IPO, by the time we're ready to do that, who knows what the market's going to look like? That thing could be printing money, and then you would probably think we're geniuses.

IDGNS: So is this a good business or a bad business to be in? On the one hand you're shopping around Spansion for an IPO, but on the other hand you're clearly getting out of flash memory yourselves.

Ruiz: Well it's going through a couple of really rough quarters. Unfortunately, due to the S-1 filing, there's not an awful lot I can tell you. But I can tell you that we would not have gone into a separation strategy that started over two years ago, had we not thought this business was going to be a good business.

IDGNS: What is it going to take to get Dell to sell Opteron?

Ruiz: Dell is a very shrewd and excellent company. They're not a technology company, but they do respond to customer needs very strongly when they see large segments of the market they want to go after.

Right now their relationship with Intel is very strong, and it's financially very tight. The only thing I can see that would change that, frankly, is if our end-users start insisting that our customers start providing AMD-based products. If that were to happen more and more, Dell, being a very business-oriented culture, they would have to respond to that.

IDGNS: What lies beyond dual-core for AMD? Is there any limitation to the current architecture that would prevent you from putting more than four cores on a chip die?

Ruiz: It's hard to tell right now beyond four cores. The probability of having a four-core product is very high. There's a lot of work going on with our engineering teams and with our customers to try to figure out where do we go beyond that. There are two or three options that look pretty attractive. We'll be narrowing down our choices, working with customers to [see] what's beyond the four-core piece.

IDGNS: It's interesting that you didn't say that four-core is a certainty. Are you looking at different ways of improving performance, other than simply doubling the number of cores on a chip? What would prevent you from going to four cores?

Ruiz: At the end of the day, for us, it's going to be what our customers want from us. Making transistors is pretty trivial. We can make hundreds of millions of transistors. Figuring out what the hell to do with those transistors is the challenge. One could chose, for example, to have heterogeneous cores. You could have two cores that are different instead of the same. That opens up a completely different array of possibilities.

IDGNS: Do you think we’ll be seeing more of these so-called "system on a chip" designs, in which many of the computer's capabilities are embedded in the microprocessor?

Ruiz: System-on-a-chip connotes a certain mindset that might not be accurate for the high-end of microprocessors, but it's that idea. What do you need to do for a particular segment of the market? It might be different [for some segments] than for others.

Today we have been able to get away -- both our competitors and us -- with the products being similar for all segments.

IDGNS: It sounds like you're saying that may not be the case in the future.

Ruiz: That's true.

IDGNS: Assuming you do move to four-core processors, what's the timeline for that?

Ruiz: I’m sure both our competitors and us will be capable of doing that in a couple of years. The question will be whether we actually do it or not.

IDGNS: What percentage of the market would you like Opteron to have this year?

Ruiz: We expect to grow. If you believe the IDC numbers, then we ended up the year around 8 percent share. I would be very disappointed, stunned, and surprised if we don't go out this year with at least a 50 percent growth over that, which puts us at a minimum of 12 percent.