The proxy for
Advanced Micro Devices
, due out in several weeks, should be unusually good reading in light of the company's inability to get out of its own way. Here you have a chipmaker that finally helps break
lock on the PC market and keeps blaming poor earnings performance on manufacturing problems.
had a good
spin on this the other day, but the real question is: How does CEO Jerry Sanders get away with it? The stock hasn't done anything for the better part of 15 years, yet Sanders boasted a $1 million salary in 1997. While he wasn't paid a bonus, he took home an additional $617,000 owed from prior years and $257,000 in the form of cars and personal security.
"The only thing he ever excelled in over Intel was his pay," scoffs long-time critic Graef Crystal, who writes the online newsletter on compensation
"That's the one thing he could beat Andy Grove in." To be sure, in 1997, while he was still CEO, Grove's salary was $465,000 (with a $2.7 million bonus).
So, again, how does Sanders get away with it, and how long will his reign continue? Actually, by contract, his leadership is scheduled to last until 2003, and, even then, it's unlikely to end unless AMD's board changes.
"Clearly, Jerry has always dominated his board," says S.G. Cowen analyst Drew Peck, who has a neutral rating on the stock. Those board members include longtimers Freidrich Baur, president of a German consulting firm; Charles Blalack, dean of the
University of Southern California's
School of Engineering and Joe Roby, president of
Donaldson Lufkin & Jenrette
-- on whose board Sanders sits. (How cozy!)
Peck says AMD's aggressiveness under Sanders sparked Intel to become a much better manufacturer in recent years. The latest snafus caused AMD's stock to lose nearly half its value over a period of several months. It closed Wednesday at 17 3/8. A spokesman says the company isn't satisfied with its manufacturing execution, but that it's at a disadvantage by being one-tenth Intel's size; it simply doesn't have the resources Intel has. (Because the resources are all going to Sanders, no?)
Okay, cheap shot, but Peck warns that if the stock keeps going down, perhaps to the $13 range, it wouldn't be unreasonable to think that some deep-pocketed foreign firm with better manufacturing capabilities could do to AMD what
Royal Philips Electronics
is trying to do to
-- make a hostile offer.
The AMD spokesman says the company prefers to be independent. As if it had any choice? (He also declined to comment on issues concerning Sanders' reign and said that board members generally don't comment on internal affairs. I tried to contact two board members, who haven't yet returned my call.)
Wrapping Up Loose Ends
Lowpoint for Brightpoint?: Brightpoint , a cell phone distributor, has taken its lumps in this column over alleged aggressive accounting and channel stuffing. Each time the company denied the charges, but in the meantime, the stock slipped as low as 5 after having reached 17 and change in July. It then recovered to its recent trading price of around 13 after the company told Wall Street, on Jan. 28, that biz was fine. At the time, it never warned that the Brazilian devaluation would be a problem, or that other parts of the world posed problems. That brings us up to postclose Wednesday, when Brightpoint reported that its first quarter and all of 1999 will be (surprise, surprise) below expectations. Instead of reporting profits of around 20 cents per share, as analysts had been expecting, earnings for the quarter will be zero. Zero! Seems, according to the company, that that the Brazilian devaluation on Jan. 13 was a problem because all of the company's biz in Brazil is done in the Brazilian real. So, why didn't they say so when they addressed analysts on Jan. 28? And how is it that the company can throw in the towel on the whole year when the year has hardly just begun? A sure sign of trouble.
More McDermott: Wednesday's item on what will happen now that McDermott International has bid for the remaining stock of J. Ray McDermott prompted Schroder & Co. senior oil services analyst Jamie Stone to say that it's not really that surprising the deal is a stock offer, as another analyst suggested in this column since "this is probably the most tax efficient structure" for McDermott. It also allows J. Ray investors to retain some of their ownership in the biz. "The only real surprise is the meager premium being offered by McDermott," he says. Still, Stone doesn't believe J. Ray shareholders have much of a choice "and I don't think that McDermott management will be inclined to raise the offer very much, if at all," Stone says, contrary to this column's suggestion. "For JRM holders, the game is now changing to one of either acting like an arb or making a bet about the rest of MDR," he says. "I can tell you that most people that owned JRM, owned it instead of MDR because they did not want to own the power generation and government businesses" of McDermott. "While there might be good value in those businesses in the long run, loyal JRM holders will only stay on board if it looks as if management is going to use the cash to grow the JRM business through acquisitions." And on the subject of acquisitions, institutional investors who know the company think whatever acquisitions the company makes will be ultra low-key.
Maxtor minute: Okay, so let's just say for argument's sake that Maxtor's biz isn't as bad as this column has suggested, and let's just say life is a cabaret. What else could put pressure on its stock? Long-time disk drive analyst Bruce Seltzer, who works independently in California, remembered one, small matter: The possibility that Hyundai, Maxtor's biggest holder, decides to unload more of its stock. Hyundai, which started out with 44 million shares, sold 3.2 million shares last month in Maxtor's secondary. It sold another 12.5 million shares via a hybrid security trust that owned the shares. That leaves it with 28.3 million. As a result of the secondary, it can't sell any of those shares until May 10. Will it sell them, too? Hyundai officials couldn't be reached. But according to Seltzer, Hyundai has been in the process of restructuring assets and "the liquid Maxtor shares are a likely asset to be sold in the future." That prospect, he figures, would "limit any Maxtor stock rallies, as we have seen in endless other companies over the years from large insider selling." Maxtor closed Wednesday at 8 1/4; it went public in July at 7, and sold additional shares last month at 13.
Don't touch the wet paint: That's what it must've been like to the throngs of emailers Wednesday who were simply too tempted by this column's request NOT TO SEND EMAILS regarding Wednesday's column because it was merely suggesting what could go wrong with Internet stocks. Let's just say the Hostile React-o-Meter was spinning out of control, outa control, I tell ya. (Want samples? See our Email to the Editors section.)
Herb Greenberg writes daily for TheStreet.com. In keeping with the editorial policy of TSC, he does not own or short individual stocks. He also does not invest in hedge funds or any other private investment partnerships. He welcomes your feedback at firstname.lastname@example.org. Greenberg writes a monthly column for Fortune and provides daily commentary for CNBC.
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