Lisa Su, CEO of Advanced Micro Devices (NASDAQ: AMD ) has vehemently denied the rumor that she is leaving the company she’s run since October 2014 to become the chief executive of IBM (NYSE: IBM ). If she did, however, it would be terrible news for owners of AMD stock but great news for IBM shareholders.
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The Rumor’s Genesis
Before I get into the reasons why AMD stock would suffer greatly without Su, let’s consider how and why the rumor got started in the first place.
An article appeared on wccftech August 6 that suggested the CEO was considering leaving Advanced Micro Devices to become IBM CEO Ginni Rometty’s second in command, eventually moving up to the top role.
The author, Usman Pirzada, suggested that recent AMD hire Rick Bergman, the former CEO of Synaptics (NASDAQ: SYNA ), is being groomed for a quick ascension to the top job. Pirzada puts Su’s departure toward the end of 2019, perhaps into 2020, giving Bergman several months to familiarize himself with AMD
Bergman, who’s currently in charge of AMD’s PC and Semi-Custom business, spent several years working at the company before moving to Synaptics in October 2011. As a result, he shouldn’t have any difficulty adapting to the changes Su’s made since taking the helm.
According to Pirzada’s sources, the negotiations for Su to join IBM have been underway for some time.
Su, of course, denies she’s leaving the chipmaker.
The scuttlebutt in the tweets following Su’s denial is that Intel (NASDAQ: INTC ) was somehow responsible for the bad intel (no pun intended). I wouldn’t hazard a guess if that’s remotely true.
Needless to say, the thought of Su taking the reins at IBM should have Big Blue’s shareholders praying the rumor’s not a dud.
I’ve been fairly negative about IBM in recent times so a move to hire someone of Su’s caliber to replace Ginni Rometty as CEO would absolutely be the tonic it needs to reignite its growth on both the top and bottom line.
However, as exciting as the speculation is for IBM shareholders, Business Insider’s assertion that Red Hat CEO Jim Whitehurst is Rometty’s likely successor makes total sense. Whitehurst is only 52 years old, nine years younger than Rometty, and in the prime of his CEO career.
Furthermore, IBM just spent $34 billion to buy Red Hat, easily its most expensive acquisition in the company’s long and storied history. It’s not going to let its future get away from it, no matter how attractive another candidate might be.
The Loss of Su Would Be Extreme
Seeking Alpha contributor Kwan-Chen Ma recently estimated that Lisa Su’s value to AMD stock is worth at least 20%-30% of its market cap. Today, as I write this, the AMD stock price is $31.25, up 66% year to date through August 20, and 48% on an annualized basis over the past five years, approximately the same duration as Su’s leadership.
So, if Ma’s estimate is remotely close to accurate, we’re talking about Su’s value to the company being in the neighborhood of $7-10 billion.
To lose her to IBM of all companies would put a massive dent in the Advanced Micro Devices stock price. I could see a $6 single-day-loss on the news.
Of course, Su’s denial must be taken at face value. She’s always been open with the investment and tech media since taking the top job. And news of a $25 million long-term retention bonus definitely tips the scales in AMD’s favor. It also lends credence to the rumor, as it was filed with the SEC on August 5 — the day before the original story and Su’s tweet.
But if she did leave, AMD’s loss would definitely be IBM’s gain.
AMD Stock Moving Forward
InvestorPlace’s Josh Enomoto discussed the rumor soon after it hit the internet. He believes Su would be crazy to not make the jump to IBM.
“If she [Su] continues to stay on board, she likely has minimal upside potential and serious downside risks. Since we’re heading toward a U.S.-China abyss, I’d say the upside is almost nonexistent,” Josh wrote August 8.
“But with IBM, it’s all upside for Su. ‘Big Blue’ is on the outside looking in. They know they’re in for an uphill climb and are willing to put maximum effort to accomplish their goals. Even Su’s mere presence would be a lift for IBM.”
I couldn’t agree more. AMD stock has made gargantuan gains in 2019. The odds of doing the same in 2020 are low. If Su leaves, you can expect a major correction until Bergman can right the ship.
Su’s left a nice legacy for AMD. Moving on after five years is the smart thing to do.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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