Men who coach sports teams use one strange trick to get what they want.
After a winning season they, or their agents, quietly put out the word that they might move. Top college coaches talk of going pro, those in lower leagues talk about going to bigger leagues. Publicly, the rumor is denied, but often the contract is quietly renegotiated, with a big raise.
Advanced Micro Devices (NASDAQ:AMD) President Dr. Lisa Su is the hot coach of the moment. So a rumor that she might be headed to International Business Machines (NYSE:IBM) roiled the stock after earnings.
There was nothing to it. A quickly-tweeted denial sent the shares up 3%. The Aug. 12 opening AMD stock price bid of $34 per share is close to the stock’s all-time high.
But franchises will keep calling, and AMD shareholders are right to ask what life might be like after Dr. Su.
What Hath Su Wrought On AMD Stock
Under its previous management going back over 40 years, AMD stock was the Los Angeles Clippers of the chip world. They were losers, perennial also-rans behind mighty Intel (NASDAQ:INTC), which dominated that world the way the Los Angeles Lakers dominated LA basketball.
But Su has turned new designs into monster hits. AMD’s Ryzen chips continue taking share from Intel. The latest version of its EPYC chip, dubbed Rome, has even cracked Intel’s cloud monopoly, with both Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) now among customers.
Meanwhile, AMD’s Radeon graphics chips are riding the wave created by Nvidia (NASDAQ:NVDA), which expanded their use into data centers and artificial intelligence. A new version of AMD’s graphics card is now launching.
AMD was hit by the chip slump, but it seems to be pulling out of it quickly. Sales for the second quarter fell 13% from a year ago but gross margins rose to 41%.
Advanced Micro Devices Is Still a Small Team
The problem is, to continue our sports analogy, AMD stock isn’t in Intel’s league.
Intel has more than 10 times AMD’s sales. It has five times more cash and short-term investment on the books. It delivered nearly $30 billion in operating cash flow last year. AMD had barely any. If AMD is Rice University, my alma mater, Intel is the University of Alabama.
If Dr. Su were a sports coach, there would be big teams coming for her every day. If Intel were to roll up the money truck for her, it’s hard to see her saying no. But business, sadly, is not sports, even if sports is a business. Intel chose a finance guy, Robert Swan, as its CEO in January.
The IBM rumor was also silly. Analysts do expect CEO Virginia Rometty to retire, but her replacement is widely expected to be Jim Whitehurst. IBM spent $34 billion on Whitehurst’s Red Hat and he has sound ideas for changing IBM’s corporate culture, which is what that company needs.
If Su were to be hired instead, IBM stock would tank.
Bottom Line On Advanced Micro Devices Stock
CEOs aren’t paid like founders. After eight years running Apple (NASDAQ:AAPL) Tim Cook still isn’t a billionaire.
AMD stock was hit by the earnings release. Some are calling it overpriced. Dr. Su is facing another season where she must prove the doubters wrong.
Besides, CEOs are mostly paid through stock options, golden handcuffs that anyone hiring them away would have to replicate. Would Intel really swallow its pride and pay the big bucks for an outsider, a woman, for its turnaround?
It’s unlikely, but I do wish they’d think about it.
Dana Blankenhorn is a financial and technology journalist. He is the author of the mystery thriller, The Reluctant Detective Finds Her Family, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AAPL and MSFT
