AMD Lifted By Optimism Under New CEO

SAN FRANCISCO (MarketWatch)--Seven months after taking the helm at Advanced Micro Devices Inc. (AMD), Chief Executive Rory Read is leading the chip giant through a period of optimism even as analysts point to challenges in a changing market.

The upbeat views were reinforced over the past two weeks with two AMD initiatives, including an agreement to buy the microserver company SeaMicro.

The positive vibes are also evident on Wall Street where AMD's stock has risen more than 40% since the beginning of the year. The stock has outpaced rival Intel Corp. (INTC), which has risen about 12%, and the Philadelphia Semiconductor Index (SOX) which is up 16%.

Read, who previously served as chief operating officer at Lenovo, was named CEO in August, ending a long period of uncertainty at AMD.

At first, Read's effort to paint a generally rosy picture of AMD was met by a fair degree of skepticism among analysts who were still worried about the company's position in a shifting landscape.

Bernstein Research analyst Stacy Rasgon observed how Read "tends to talk a lot and not say much." Analyst Cody Acree of Williams Financial Group cited the boyish-looking executive's penchant for speaking "in broad strokes."

"It was initially a bit of a concern," he said.

But "right now, we see action that provides details to some of the high level discussions," Acree added.

Rasgon echoed that view, saying, "It's been a long time since they had someone in the driver's seat who's capable of actually selling the AMD story."

In fact, Read took over at a time when the direction of the AMD story wasn't that clear. The chip company is wrestling with a more aggressive longtime rival Intel in the personal-computer market.

Meanwhile, there are concerns about the future of the PC market itself as the industry struggles with the rise of more popular mobile devices led by the smartphone and the tablet. Analysts and tech executives have begun referring to the post-PC era.

AMD has bet on a new PC chip family, dubbed Fusion, which combines the capabilities of core computing chips and graphics processors.

But that push suffered a setback last year because of capacity constraints at GlobalFoundries, the company spun off from the chipmaker's manufacturing operations. Essentially, GlobalFoundries could not produce Fusion in the volumes that AMD needed to meet demand mainly for notebooks and desktops.

AMD has fixed that problem. This week, the company announced a new wafer supply agreement that some analysts say could potentially improve the chipmaker's profitability.

What's gotten more analysts excited is AMD's newly unveiled plan to buy SeaMicro, a small company with a highly regarded technology that allows servers to operate more efficiently while consuming less power.

The move is seen strengthening AMD's position in the server-chip market at a time when companies are embracing cloud computing, in which businesses access computing power through a network, instead of setting up their own data centers.

"It's a huge deal for AMD," Evercore analyst Patrick Wang said. "The SeaMicro deal is very meaningful and significant, reflecting AMD's new foundation for its server business."

Longbow Research analyst JoAnne Feeney said in a note that the SeaMicro acquisition "has the potential to place AMD at the center of the fastest growing segment of the server market."

Acree argued that it also highlights a change in AMD's approach. The company historically has played second fiddle to Intel in the PC and server markets.

"AMD has historically been a fast follower in the microprocessor market," Acree said. "Rory has come in and in just a few months has really instilled the new mind set for AMD, to take the leadership position."

However, Wang cautions that AMD still faces enormous challenges, given the changes in the market, including the rise of tablets and new form factors, such as the Intel's Ultrabook concept for high-performance, low-notebooks.

Today, AMD must compete not only with Intel, but also with a broader range of players, including Qualcomm Inc. (QCOM), Apple Inc. (AAPL) and Texas Instruments Inc. (TXN), he said.

"They're competing with a very vibrant and healthy landscape of companies out there," he said. "It's a very crowded and challenging market."

But he and other analysts also agree that Read has brought a new excitement to AMD.

"I think what AMD is doing is actually very exciting," Wang said.

Rasgon cited Read's own enthusiasm as AMD's new boss. "He's obviously excited to be there," he said. "When he says he wants to win, I think he's serious."

-By Benjamin Pimentel, MarketWatch; 415-439-6400; AskNewswires@dowjones.com

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