Intel & AMD Q4 - the first in a series of bodyblows for AMD

Intel's Q4 was had a few bright spots and a few dark ones as well.

1. On the good side - revenue exceeded forecasts by 300 million. ASPs were slightly up on the microprocessor business. Growth in servers and probably regained share in this segment. They are slightly ahead of their headcount reduction targets and their cost savings for 2007 continue to track to 2 billion $. They also reduced Work in Process by about 10% and increased cash by 1.7 billion.

2. On the dark side - margins did not see a significant improvement and continue to be only slightly up as forecast for 2007. Flash business continues to be a drag on profitability to the tune of 186 million in spit of higher revenues QoQ. Margins were also hit due to under-loading charges on their 90nm capacity.


After several quarters of a good run, AMD had a bad quarter:

1. On the good side - they grew units significantly by 19%. Mobile is up with flat ASPs. Desktop also up but w/ much lower ASPs.

2. On the dark side - revenue for the MPU business was up only 3% in spite of record units. They lost server share and server ASPs declined significantly. Gross margins tanked to 40%. The inventory situation is not looking good. Overall inventory is much higher due to ATI. But more importantly deferred income on shipment to the channel jumped by 50% to 170 million indicating inventory is building up in the channel. The other disturbing issue is AMD is now sitting with almost 16.5k heads as compared to 9.8k a year ago on a slightly lower revenue base. This does include ATI but now they have a loss making unit that's added 5k heads into their P&L.


So here are what I believe are the next moves:

Intel - continue to be agressive on pricing overall using their 65nm lead. Get more agressive on mobile pricing perhaps around the Santa Rosa launch in Q2...if not earlier. Will fight tooth and nail to regain unit share. As undoubtedly they have regained significant revenue share QoQ. Focus on saving the 2 billion $s. I also think Intel will divest the Flash business in the next 2 quarters as I've said before.

AMD - will be forced to now take some hard decisions on whether to continue to face declining ASPs in order to keep the factories full. I suspect they will at this point they will cede units if they have to in order to increase ASPs and hopefully margins. However, they do have a problem as their channel is probably sitting on inventory. The other problem they have is managing their cash & debt as I have been saying all along. The pain they are feeling on servers will continue to impact profit...hence cash...and hence their ability to invest in all the projects they need to. In fact, I would not be surprised if there is a round of lay-offs in the next 6 months. Their hope is to pull in Barcelona to stem the revenue losses as quickly as they can.

I thought I'd also provide this link to a Sep article where I called Q3/Q4. It came out pretty close.

http://sharikou180.blogspot.com/2006/09/deja-vu-2002-all-over-again.html