Monday, March 26, 2007

AMD to miss Q1 targets by 30%

According to the Inquirer who aren't necessarily the gold standard in journalism, rumour is AMD will miss the quarter by 300-400 million $s:

While they are right that Intel is re-gaining sever share, they are fantasizing how miraculously Barcelona combined with AMD's new graphics/chipsets are going to magically recover their Q3/Q4. I would not be surprised if this is yet again fuzz being thrown around by AMD to continue to make Wall St and investors believe they have things under control. Probably in a moment of laxity having slipped out from under the watchful eyes of his PR and investor relations folks, Hector himself admitted Barcelona would not impact their financials in 2007. But apparently the Inquirer knows more and AMD has magic bullets which will allow them to deliver large volumes of Barcelona.

Here's my take. Yes...AMD is working frantically on getting Barcelona right and delivering as much volume as they can in 2007. Yes...Barcelona will give AMD a (slight) performance edge over Intel - but probably not as big as they are walking around claiming. The net result is AMD may recover some server share if they can get any reasonable volume out. But once Penryn comes in, it's going to be a level playing field and Intel will use pricing and capacity to negate AMD's performance advantage until they can launch Nehalem.

To re-cap - AMD will become a sub 10$ stock very shortly after the earnings announcement. Intel will regain market share in Q1 while bringing in the quarter either in line or above their forecast.

Thursday, March 22, 2007

Dell's new strategy - old wine in an old bottle?

Michael Dell is in China today. And announced his brave new initiative. A low cost PC for the China market (what a unique idea!):

The reason I'm underwhelmed is Dell's revenue slide began early last year when they over-emphasized low end systems which crashed their margins. So...while chasing the China market is ok, it needs to be only a small part of Michael Dell's strategy to re-vitalize the company and win market/revenue share back from HP.

What is surprising is they've chosen to go with Intel Celeron CPUs and not AMD. Yowsa...they must be getting a fantastic deal from Intel on this. Which may be part of the price Intel is paying to get back other SKUs from Dell. Alternatively, Michael Dell has returned and brought with him the tenets on which he built his multi-billion $ business. One of which was a blind partnership with Intel.

I'm not saying this is good...or bad for either Intel or AMD. But I am surprised that while AMD is suffering inventory problems because their OEM customers cancelled late at the end of Q4, yet their biggest/newest customer chose to go Intel on a low cost system. Something ain't right here folks...

Sunday, March 11, 2007

AMD cutting back...and how Q1 will turn out for them

Couple of interesting reports:

First...AMD delays moving into their new facility to defer costs to 2007...and they state not to disrupt the Barcelona launch.

Second...AMD is reviewing their plans to build the NY fab:

I'm pretty sure the report will come back in 12 weeks a little less upbeat than AMD has sounded in the past on building this fab but will defer any decision till late this year or next. Their game plan here is to give themselves a face saving exit strategy from this investment as they continue to lose money and will undoubtedly have to go back to the capital markets.

As I have been saying...and saying. AMD will have a tough time managing cash and debt as they invest in ATI and start losing money again. Defering non-essential expenses is the right thing to do. However, as they lose money, they will be forced to resort to lay offs. It is not feasible for a company of 10K people making money to become a company of 16K people losing money and sustain their work-force.

Q1 will see them hit hard as they lose server market share which reduces their ASPs, their margins and hence their ability to sell client CPUs at low prices. They will gain unit share in mobile but unfortunately not a proportionate amount of revenue share due to deep discounting. Specially to Dell. They will lose desktop market share primarily in the channel but the overall ASPs in this segment are declining rapidly so this might be a good thing. The one reason it may not be good is if they are not using up all their mfg capacity. The other thing that will drag them down is they now need to combine the lower margins in the graphics business. Though I'm pretty sure Bob Rivet will continue to show the CPU and graphics businesses together and seperately in an effort to show that their CPU business remains robust.

AMD started this as a street-fight and they were winning through a series of sharp paralyzing jabs that were weakening Intel. However, Intel has now turned this into a full scale battle. Unfortunately for AMD, they have not upgraded from the knife they had in the street-fight (read - the ATI acquisition should have been done earlier) and Intel has brought out the entire arsenal. Had they acquired ATI 12 months earlier, they would be in a position to buffer their losses in the CPU only biz right now with a platform approach. Alas...hindisght is 20/20, even for me.

You can read the frustration of AMD management who have made significant (and commendable) progress through they way they continue to spin Barcelona without a real demo, complain about Intel's benchmarking when their own dubious practises have allowed Intel to use their outdated benchmarks against them and the whining tone of voice over the lost Intel records. All these signals indicate they don't really know what to do next and should Barcelona not be the all out winnner they predict it is, they will be a 10$ stock for a long...long time.

Tuesday, March 06, 2007

Two strikes for AMD

A few posts ago I had commented that AMD would have to get used to being a sub 20$ stock again. At which point I was corrected by S that the real number would be $10. I must now bow to S's presience.

Two things happened this weekend to drive this:

1. AMD again pre-announced that it would miss it's Q1 numbers:

2. AMD has filed a motion to increase the outstanding common stock from 750 million to 1.5 billion shares. While the Inquirer reported this first, I've also provided the link to the filing:

The phrasing of the filing interestingly says it is not intended to discourage potential buyers of AMD...and existing shareholders must vote against in order to stop the motion from passing...abstaining will mean support for the motion.

Basically, the rumours of AMD being acquired by a private equity firm coupled with their need to secure more cash as they start to lose money has sucked the wind out of Hector and team.

Either the AMD management is displaying serial incompetence or they are consistently not revealing all the facts. Starting with sticking behind their Q4 numbers on Dec 14th...even as they were hitting the banks up for cash, to mis-calling their Q1, to Hector's interview with CRN below where some of the things he said were just unbelievable. All that's left I can think of is for Barcelona to slip or not be as good as AMD has been saying it is. I suspect when Q1 is reported, AMD's margins will not recover as Bob Rivet had predicted and any credibility this management team has will be hosed.

I repeat my predictions of layoffs at AMD within the next 6 months and the New York fab commission decision pushed to 2008. Further, AMD will be forced to raise capital again and should they continue to mis-call or mis-represent the true state of affairs, like ATI they will be facing a class action suit from disgruntled stock-holders. I also expect any institutional investors with a large AMD position to try and stop AMD from pushing the additional 750 million share proposal from going to vote.

Once again, AMD has not only had the GAAP loss I predicted, it is heading to an operational loss within the next 6 months. AMD's stock price is now trading below it's 52 week low.