Can AMD Save Itself?

“Jump or we push” resignations are always something of a surprise, and the announcement that Advanced Micro Devices' (NYSE: AMD) CEO Dirk Meyer was resigning was certainly not widely expected. Still, given the performance of the company, just how surprised can anyone be?

A Look Back

Mr. Meyer had the top slot since 2008, and he does deserve some credit for at least stabilizing a company that has seemingly always been among the walking wounded. Spinning off GlobalFoundries in 2009 was a logical move, and the $1 billion-plus settlement with Intel was a good move as well (though one that arguably doesn't look so special now that Nvidia (Nasdaq: NVDA) struck an even better deal).

All in all, at least on a surface level, Meyer is leaving the company in better financial shape than he found it. By the same token, he took the position after many years of mismanagement, so he did have the benefit of somewhat low expectations.

Too Little Excitement?

Although I do not know the man, Mr. Meyer strikes me as something of a caretaker CEO. I cannot immediately recall him making any incendiary statements or spelling out any sort of bold vision for the company. In fact, the decision to focus on server chips instead of Fusion, and losing share to Intel in servers anyway, is perhaps reflective of the problem. Mr. Meyer would appear to be a CEO who can fix the obvious problems and restore a company to profitability, but I just don't see where he had a vision to make AMD relevant or interesting again.

Consider this – while AMD was working on spinning off GlobalFoundries and moving into server chips, ARM Holdings (Nasdaq: ARMH) was working with Qualcomm (Nasdaq: QCOM), Texas Instruments (NYSE: TXN), Apple (Nasdaq: AAPL) and a host of others to design the chips that power the smartphones and tablets that are now taking the world by storm. While its true that Intel has also been taken somewhat flat-footed by the change in the market, Nvidia is already there. So it is not as though every old-school chip company was surprised by the move.

All in all, though, the price of Meyer's term is that AMD is still more or less what it used to be – and what AMD used to be was a second-rate chip company forever playing catch-up and trying to convince the Street it had an identity and a vision. Considering how companies like Nvidia, Silicon Labs (Nasdaq: SLAB), Analog Devices (NYSE: ADI), and Maxim (Nasdaq: MXIM) have all managed to reposition, reinvent, or reengineer themselves in recent years, that is a fault that validates the board's apparent decision to force him out.

What Now?

So what's AMD's future? The question of whether AMD can compete with Intel in PCs and notebooks almost seems moot now – particularly with Nvidia getting into the combo chip business as well with a recent licensing deal with ARM. In fact, AMD is now arguably in a position where it HAS to do something radical – the phone/tablet market is undermining that core PC/notebook processor business with or without Nvidia's increased competition.

As for the server business … well, maybe the Bulldozer architecture will make the Interlagos and Valencia chips more interesting relative to Intel. But is AMD going to really stand out against the likes of Cavium (Nasdaq: CAVM) and NetLogic (Nasdaq: NETL) when it comes to investor expectations and enthusiasm?

AMD has some difficult decisions to make. Innovation costs money and the company can't have it both ways – do they want free cash flow or do they want to invest in R&D and stay relevant? Along similar lines, the company could try to take a big step forward (perhaps by trying to acquire Cavium or NetLogic) but that only makes sense if the company is willing to back that up with a long-term commitment to R&D spending and careful attention to customers' needs.

The right move might be a hybrid – figure out how to run the legacy businesses at peak efficiency and wring as much cash from them as possible, and then use that cash to fund the R&D to have the right products in the pipeline for the “next iPhone/iPad”.

As is, there's no reason to be all that excited or optimistic that the company will do this – that certainly isn't consistent with the company's past. Still, I'm curious to see who the board selects as the next CEO and whether that person is willing to lay out a strategy that represents real change for the company. If the AMD of tomorrow is the AMD of yesterday, I'm not the slightest bit interested. But if the new CEO is willing to take a page from Silicon Labs, Nvidia, and Maxim and make some real changes, almost anything could be possible.

I would suggest HOLD AMD shares at this point - at least until a new CEO is named.