AMD: Is it getting off the carpet after Intel knockdown?

AMD: Is it getting off the carpet after Intel knockdown?
Posted by Larry Dignan @ 5:43 am Categories:General,Hardware Infrastructure,AMD,Intel Tags:Advanced Micro Devices Inc.,Intel Corp.,Larry Dignan +21
25 votes Worthwhile?
Advanced Micro Devices may have just weathered Intel’s best shot. The big question is what happens next.
AfterIntel’s second quarter results, which were solid but revealed some wounds from lower chip prices, it was clear thatAMD’s financials would bea train wreck. And they were. AMD lost $600 million, or $1.09 a share, in the second quarter.
AMD reported second quarter revenue of $1.37 billion, up 13 percent from $1.21 billion in the same period a year ago. Revenue was up 12 percent from the first quarter. And if you back out various charges–ATI acquisition, severance, stock compensation and debt expenses (in other words the kitchen sink)–AMD’s results were in line with Wall Street expectations calling for a loss of 85 cents a share.
So what’s the bright side?
Gross margins improved to 33 percent in the second quarter from 28 percent in first quarter. Gross margins are still well below the 57 percent mark in the second quarter a year ago.
But AMD executives argued that the company had won back market share gains from Intel. AMD also benefited from sales to Toshiba, which is a big player in laptops. AMD’s strategy has been largely hold its ground until its Barcelona chip arrives. And although AMD has lost gobs of money it has held its ground.
On a conference call with analysts, AMD execs were relatively upbeat and outlined some positive developments. AMD is like a boxer that has just been knocked down and struggling to get up. AMD appears upright, but is still wobbly and could easily fall flat. Here’s what AMD chief operating officer Dirk Meyer had to say:
In a seasonally down second quarter, we grew our revenues and regained CPU market share and, while pleased with our progress on the top line, our bottom line results are obviously unacceptable. We will improve these results going forward. We did make significant progress on the game plan that we outlined last quarter. We grew the top line by winning new customers, like Toshiba who selected AMD-based platforms for an exciting new line of satellite notebook PCs. And now, for the first time ever, each of the world’s five largest PC OEMs offer AMD-based platforms. We also expanded our business with existing customers, like Dell who expanded their AMD-based commercial offering with the addition of 10 new PowerEdge servers as well as two new Dell Inspiron desktop systems. Sun introduced its new Blade 6000 server built on AMD Opteron processors and HP launched two new AMD Athlon-based Blade PCs in the quarter. In addition, LG Electronics selected our AMD Imageon 2282 media processor to drive their stunning new designer phone — proof of our ability to empower meaningful differentiation in our customers’ offerings. We made good progress in the channel. We restored our value proposition, established positive sales momentum, and managed our overall channel inventory to appropriate levels. We continue to execute on our platform, product and technology roadmaps.
That’s a mouthful, but Meyer did outline all the key points. In addition, Barcelona product introductions are supposed to start this quarter. AMD said the second half looks “pretty strong.”
In other words, many of the building blocks are in place for AMD’s rebound–if you can get over the massive losses and projections that the chip maker will merely break even in the fourth quarter. And as AMD CEO Hector Ruiz noted customers want AMD to do well. After all, two leading chip makers keeps prices low.
Do you buy AMD’s comeback?
Answering that question depends on a few variables. Here’s a look at the key parts of the equation for AMD.
Is AMD on the comeback trail?
Yes, the pieces are in place.
No, Intel will make AMD roadkill.
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Barcelona: AMD has clearly bet the ranch on Barcelona. AMD’s chief sales and marketing officer Henri Richard said Barcelona demand seems to be strong and “customers can’t wait to ship it.” When asked about Barcelona’s power, Richard noted that the customers are more interested in power per watt:
“You will see that the performance of Barcelona in its 68-watt version is extremely satisfactory. We’ll continue to scale up the performance in the various thermal envelopes that this product will be available through the end of the year, so right now we’re qualifying the product, customers are working hard at getting their systems to the market in the third quarter and we are very confident about the future of this product line.”
AMD’s ability to cut costs: Now customers don’t care if AMD ever makes money, but it’s clear the chip maker has to turn a profit sometime to survive. Those profits largely depend on AMD’s ability to cut capital expenses. The jury is still out on this one since the integration of ATI has been costly. Ruiz mentioned an “asset light strategy,” but wouldn’t provide details.
Unit growth: Given AMD’s big goal is to keep or gain market share the company has to increase volume significantly to turn a profit.
Thus far, those aforementioned variables haven’t come together to benefit AMD.
Meanwhile analysts are mixed on AMD’s quarter and any signs of life.
J.P. Morgan analyst Christopher Danely notes that AMD’s market share gains are “empty calories” given that it is still losing gobs of money. “We do not believe AMD will be profitable through 2008 due to Intel’s superior products and AMD’s focus on market share over profitability,” said Danely in a research note.
UBS analyst John Lau echoed those comments and noted that AMD’s future is difficult. He noted that AMD’s second quarter unit shipments were up 38 percent from the first quarter. But revenue grew at a 20 percent clip. Translation: AMD is practically giving chips away.
In the near future AMD really needs to outline its strategic overhaul. Throwaway comments about an asset light strategy aren’t going to cut it much longer.
More details on AMD’s plans for the future are expected July 26 when it holds its analyst day. Until those details emerge it’s unclear if AMD is really getting off the carpet. AMD is almost upright, but can it stay there?