New Details Emerge On AMD's CEO Dismissal
It's been two days since AMD's Board of Directors announced it was firing then-CEO Dirk Meyer and new information on the board's reasoning has begun to appear. As we suspected, it was Meyer's decision not to focus on a new ultra-mobile processor that incurred the board's wrath. The particular incident in question is believed to be the decision to sell AMD's Imageon technology to Qualcomm in January of 2009 for $65 million. Qualcomm took the ARM-based Imageon core, integrated it with the company's own Snapdragon SoC, and has produced a line of profitable handsets. This, apparently, cheesed the BoD at Sunnyvale right the heck off.
This information has sparked fresh conversation over whether or not Meyer did the right thing back in '09 and if the board was justified in firing him. The charts below explore this question by examining AMD's financials from several angles.
Note: All of the charts below were generated by YCharts. In many cases, the charts only run through the end of 2009 / early 2010. While we'd prefer charts that ran through 2010, the majority of financial websites don't offer the same degree of comparison or track as many separate statistics. Since we'll be focusing on 2006-2008, the time range is adequate.
Note that this is profit margin not gross profit margin. Gross profit margin is calculated by measuring the difference between the manufacturing price and the selling price of a product. Profit margin is how much money the company makes after all other expenses are accounted for. While AMD's profit margin was negative from September of 2006 through September of 2009, the critical crunch was in September of 2008. At that point, the company was losing an average $1.24 for every product that it sold.
AMD's revenue changes from quarter-to-quarter are measured above. In this case, negative revenue growth means that sales fell during the period in question; positive revenue growth means that revenue increased. Again, we see AMD struggling badly from midway through the second quarter 2008 through Q3 2009.
The current ratio is a measure of a company's ability to pay short-term debt and current liabilities for an estimated one year period. A value of two is considered healthy. A value of one (which AMD nearly hit in September of 2008) would mean the company had one dollar of assets for every $1 in liabilities.
Here's the last graph we'll reference; it's a comparison of AMD's long-term debt to the amount of cash the company had on hand at any given point. Cash on hand reflects a company's solvency (could AMD repay all debts by selling all assets) and liquidity (can AMD meet its ongoing costs without sacrificing physical assets like equipment, fabs, etc). In September 2008, AMD had four times as much long-term debt as it had cash. That was actually a ten year record—but the company broke it in December of that year when the ratio rose to 4.42x. The debt situation is much better now—the company was carrying just $2.19B in Q3 2010—but the company's cash on hand has shrunk to 620M.
From Hindsight to White Washing
Pick virtually any measure of financial health you want, and AMD's nadir was between Q3 and Q4 of 2008. What the charts don't reflect is that AMD was selling property hand-over-fist through the same period. From August to December, AMD sold 200mm fab equipment to Angestrem for $192 million, Xilleon to Broadcom for $150 million (down from an initial $192M), and decided to sell Imageon to Qualcomm for $65 million. Without the $407M in cash from those sales, the picture would've been even worse.
When Dirk Meyer took over, AMD's continued existence was factually at risk. Shanghai was still six months away and the GlobalFoundries spinoff hadn't been finalized yet. Financially, the company was a wreck. It had just written off $2.2 billion in assets, had no cash reserves to leverage, and virtually no room to maneuver on any front. The only thing Meyer had to peddle was his promise that Shanghai would deliver, he'd slash costs, sell non-core assets, and turn the company around.
The great irony of this story is that Dirk was canned for his solutions to problems Hector caused. Scroll back up and look at the same charts but eyeball early 2006 instead of mid-2008. In March of 2006, AMD abandoned its plan to aggressively pay down long term debt and instead borrowed approximately three billion to pay for ATI. Then the economy crashed, Barcelona turned out to be a sick joke, Bulldozer, Bobcat, and Fusion were all delayed, and Intel's Core 2 Duo turned the Athlon 64 into mincemeat.
If AMD had paid fair market value for ATI, the company's long-term debt would've been much lower or it would've had the cash on hand to respond more proactively to the problems that struck in 2007-2008. Even if the company's sales and launches had played out the same, its negotiating position would still have been improved. When Hector bought ATI he put a noose around the company's neck betting that the platform wouldn't drop out from under it. It's quite possibly the worst bet AMD ever made.
After checking the financial data we're even more unsettled by Meyer's 'retirement.' Even if selling Imageon was a genuine cock-up, the decision was made during the worst crisis AMD's suffered at a time when the company's future existence was in question. Worse, firing Meyer strongly implies that the Board of Directors is willing to play a twisted game of Let's Pretend with both Meyer's initial decision to sell and AMD's actual chances of whipping up a new mobile part that's market competitive anytime soon. It's not just our opinion—the finances don't back this up.
This information has sparked fresh conversation over whether or not Meyer did the right thing back in '09 and if the board was justified in firing him. The charts below explore this question by examining AMD's financials from several angles.
Note: All of the charts below were generated by YCharts. In many cases, the charts only run through the end of 2009 / early 2010. While we'd prefer charts that ran through 2010, the majority of financial websites don't offer the same degree of comparison or track as many separate statistics. Since we'll be focusing on 2006-2008, the time range is adequate.
Note that this is profit margin not gross profit margin. Gross profit margin is calculated by measuring the difference between the manufacturing price and the selling price of a product. Profit margin is how much money the company makes after all other expenses are accounted for. While AMD's profit margin was negative from September of 2006 through September of 2009, the critical crunch was in September of 2008. At that point, the company was losing an average $1.24 for every product that it sold.
The current ratio is a measure of a company's ability to pay short-term debt and current liabilities for an estimated one year period. A value of two is considered healthy. A value of one (which AMD nearly hit in September of 2008) would mean the company had one dollar of assets for every $1 in liabilities.
Here's the last graph we'll reference; it's a comparison of AMD's long-term debt to the amount of cash the company had on hand at any given point. Cash on hand reflects a company's solvency (could AMD repay all debts by selling all assets) and liquidity (can AMD meet its ongoing costs without sacrificing physical assets like equipment, fabs, etc). In September 2008, AMD had four times as much long-term debt as it had cash. That was actually a ten year record—but the company broke it in December of that year when the ratio rose to 4.42x. The debt situation is much better now—the company was carrying just $2.19B in Q3 2010—but the company's cash on hand has shrunk to 620M.
From Hindsight to White Washing
Pick virtually any measure of financial health you want, and AMD's nadir was between Q3 and Q4 of 2008. What the charts don't reflect is that AMD was selling property hand-over-fist through the same period. From August to December, AMD sold 200mm fab equipment to Angestrem for $192 million, Xilleon to Broadcom for $150 million (down from an initial $192M), and decided to sell Imageon to Qualcomm for $65 million. Without the $407M in cash from those sales, the picture would've been even worse.
When Dirk Meyer took over, AMD's continued existence was factually at risk. Shanghai was still six months away and the GlobalFoundries spinoff hadn't been finalized yet. Financially, the company was a wreck. It had just written off $2.2 billion in assets, had no cash reserves to leverage, and virtually no room to maneuver on any front. The only thing Meyer had to peddle was his promise that Shanghai would deliver, he'd slash costs, sell non-core assets, and turn the company around.
The great irony of this story is that Dirk was canned for his solutions to problems Hector caused. Scroll back up and look at the same charts but eyeball early 2006 instead of mid-2008. In March of 2006, AMD abandoned its plan to aggressively pay down long term debt and instead borrowed approximately three billion to pay for ATI. Then the economy crashed, Barcelona turned out to be a sick joke, Bulldozer, Bobcat, and Fusion were all delayed, and Intel's Core 2 Duo turned the Athlon 64 into mincemeat.
If AMD had paid fair market value for ATI, the company's long-term debt would've been much lower or it would've had the cash on hand to respond more proactively to the problems that struck in 2007-2008. Even if the company's sales and launches had played out the same, its negotiating position would still have been improved. When Hector bought ATI he put a noose around the company's neck betting that the platform wouldn't drop out from under it. It's quite possibly the worst bet AMD ever made.
After checking the financial data we're even more unsettled by Meyer's 'retirement.' Even if selling Imageon was a genuine cock-up, the decision was made during the worst crisis AMD's suffered at a time when the company's future existence was in question. Worse, firing Meyer strongly implies that the Board of Directors is willing to play a twisted game of Let's Pretend with both Meyer's initial decision to sell and AMD's actual chances of whipping up a new mobile part that's market competitive anytime soon. It's not just our opinion—the finances don't back this up.
