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High-Tech's Naysayer : Jerry Sanders of AMD Has a Dire Message but Many Aren't Listening

December 05, 1988|CARLA LAZZARESCHI | Times Staff Writer

In an industry brimming with flashy personalities and major league egos, few can match W. J. (Jerry) Sanders III, the fast-talking founder and chairman of Advanced Micro Devices.

The dapper 52-year-old, who is given to wearing all-white suits that match his long, wavy hair, has carved out a second career letting the world know what is best for the beleaguered U.S. semiconductor industry.

These days in particular, Sanders is spending a lot of time on the stump, preaching a dire message that few want to hear or believe.

Frightened by swelling inventories and slowing orders, both at his own company and at his competitors, Sanders has repeatedly issued warnings of gloom and doom for semiconductor makers, especially those catering to the personal computer industry.

At AMD's corporate headquarters in Sunnyvale, in the heart of the Silicon Valley, Sanders has already announced plans to lay off 2,400 workers worldwide and close one factory before the end of the year. Although the company will be profitable for the year, with about $1 billion in sales, losses are expected in the current quarter. And Sanders doesn't see much chance of a turnaround until at least mid-1989.

Say He's Wrong

"It smells like 1984," he says, alluding to the final days before the chip industry plunged into a two-year spiral that proved to be its worst-ever decline. "No one wants to believe this, but read my lips: Everyone is going to have layoffs."

Sanders is at least partly right; no one believes the industry is as bad off as he has claimed for the last two months. In fact, many analysts believe that Sanders is projecting AMD's own distinct problems onto the rest of the chip making industry.

"Sanders shoots from the hip," says Andrew Kessler, an analyst with Paine Webber Group in New York. "When things are bad for his company, he wants to drag the rest of the industry with him."

Adds Christopher Kirby, an analyst with Rothschild Inc. in New York: "The semiconductor industry has a problem now; there's no question of it. But it's hitting AMD harder than the entire industry."

Sanders will hear none of it. He notes--quite accurately--that when he issued his first warnings in September, he was a lone naysayer. In the weeks since, however, three other chip makers have 'fessed up to excess inventory problems.

Intel, one of the industry's premier companies, acknowledged that sales of its popular 80386 personal computer microprocessor have slowed. National Semiconductor said its sales had taken a sharp turn south. And Texas Instruments announced plans to furlough workers for a few weeks at its Sherman, Tex., chip plant to trim mounting inventories.

Even the Semiconductor Industry Assn., traditionally a last bastion of bright forecasts, is predicting that sales growth next year will hit just 10%, a far cry from the torrid growth rates of about 25% over the past two years.

Seen as Adjustment

"If I ever questioned my prescience, I no longer do," Sanders says. "I don't mean to sound arrogant, but it's clear to me we're in a decline. . . . And when I say sales will be flat, I mean that will be the ceiling, not the floor."

Still, the question persists whether the decline Sanders sees--and the decline AMD is experiencing--accurately reflects the entire industry's outlook.

Although most analysts have recently dropped their rosy outlooks and reluctantly admitted that the latest sales boom is over, few, if any, view the current slowdown as much more than a cyclical adjustment after two years of hyper-inflated growth.

Sanders' problem, analysts say, quite simply is that AMD's product portfolio contains no blockbusters targeted for the current market. The lineup seems caught between fading, older technology and emerging state-of-the-art electronics that have yet to catch on completely.

For example, AMD's line of microprocessors--the brains of a personal computer--consists primarily of a sophisticated, reduced-instruction chip that has yet to reach its sales stride and the Intel-licensed 80286 chip, once the hottest microprocessor but now eclipsed by the newer 80386 model.

AMD and Intel are in a protracted fight over Sanders' claim that AMD has the right to produce the newer chip, but unless the dispute is decided in AMD's favor, Sanders is stuck with the older product.

"AMD is being hit harder because it doesn't have a lot of new technology," says John Girton, an analyst with the Van Kasper & Co. brokerage in San Francisco. "AMD hasn't addressed the stronger growing current markets. . . . And they haven't come out with the critical parts to drive sales."

Matters weren't helped at all when Sanders' $422-million acquisition of Monolithic Memories Inc., another Silicon Valley chip maker, didn't work out as planned. Sanders was particularly interested in Monolithic for its programmable array logic chips, a market that was especially strong when AMD acquired the company in 1987. But since, that market has flattened considerably due to reduced buying from the defense industry.

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