What makes the difference? AMD had a stunning quarter and year with huge upside surprises and near-legendary performance levels. Facebook (Meta), a far larger and more powerful company, got pounded for excessive costs, enormous material screw-ups, and what appears to be one of the worst reputations for integrity in the tech industry.
What you see in comparison is the difference between a well-trained and focused leadership team vs. a team that is neither well-trained nor focused.
Let’s talk about this contrast this week.
By any measure, AMD crushed earnings expectations and had a stunning year, particularly given that the industry was experiencing massive logistics and supply issues. Revenue was up a whopping 68%, gross margin was an impressive 48% for the year, and for what was a particularly difficult 4th quarter for the industry, revenues were still up 49%, and gross margin was up 50% year over year. Graphics revenue alone doubled year over year, and server revenue was up 75% year over year and 17% quarter over quarter. The outlook is more modest, projecting 45% growth, but 45% puts AMD in the top tier of growth in its class, making its stock significantly undervalued.
This is impressive work but not surprising for a company that has, during the tenure of Lisa Su and Mark Papermaster, both IBM-trained, executed nearly flawlessly. The advantage to an IBM-trained executive team is that they tend to be well-rounded, understand deeply the requirements of executive officers, and they both understand unreasonable risks and tend to avoid them.
The only thing that could hurt AMD now would be losing that leadership.
Facebook (Meta) Mistakes
In contrast, Facebook (Meta) took massive earnings hits. Revenues were in line with expectations, but costs were out of line with revenues, and the market is punishing the company even as I write this column. The company was renamed Meta for the Metaverse, which doesn’t exist yet outside of some initial trials and has little to do with Facebook’s social media base. Its social media property has been plagued by fake news, scam ads, and misbehavior. This last has the company under a microscope and at risk of significant antitrust repercussions.
These days, Facebook reminds me a lot of Netscape, which was also massively mismanaged and failed when it, too, lost track of its market and became extinct instead of becoming Google and failed when it, too, lost track of its market and, instead of becoming Google, became extinct. At Facebook, Zuckerberg uses an unusual management structure which basically makes him king of the company and prevents his removal or any unagreed limitation. He is not an experienced or trained CEO, his social skills are impressively bad (suggesting he doesn’t truly understand the service he provides), and ethics appear to be a foreign concept to him. In short, Facebook’s biggest problem is that its CEO is the company.
One very visible failure was their ill-conceived cryptocurrency effort which had no chance of succeeding but consumed an impressive amount of Facebook’s resources at a time when the firm should have been fixing its endemic problems with its social media platform.
The only thing that could help Facebook truly recover is a leadership change.
I write a lot about the importance of good governance. For good governance, you need executives who are well trained and ethically focused. Even with the right people, you need strong controls to ensure that executives make reasoned decisions, don’t self-deal, and are well-grounded in the firm\’s business. This isn’t a multiple-choice issue. When Intel had an ethically challenged CEO, and Microsoft had one that was not connected tightly to the business, the outcomes were problematic.
AMD has strong, experienced leadership that has an impressive focus on customer satisfaction and ethics. Facebook does not. AMD’s performance showcases strong leadership, while Facebook’s showcases the lack of it. Zuckerberg showcases how an inexperienced leader with excessive power can ruin a company. At the same time, AMD showcases the benefits of that experience and ethics.
The difference in performance between the two companies primarily comes down to the experience and ethics of the executive staff. Lisa Su and Mark Papermaster get much of the credit for AMD’s success, while Mark Zuckerberg owns the blame for Facebook’s failure. In short, it takes a unique set of skills to run a large company. AMD has them. Facebook (Meta) does not.
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