Sunday, April 29, 2007

AMD takes on more debt to sink company

AMD closed their 2.2 billion $ 6% loan:


Which basically means another 120 million $ of interest payments they need to make every year not counting principal. In addition, their is stock dilution potential. Essentially putting an even greater burden on their ability to turn quarterly profits any time soon.

What should they have done...

They should have taken a smaller loan to help them tide over any immediate operating expenses while trimming back the company to focus on their core CPU biz. They should have tried to now consolidate their market share gains over the lat two years and at least try to stem the huge share losses and stabilize at a little over 15% until they've had time to bring out Barcelona. Instead, Hector is still playing for 30% market share and is going to give the company away to the banks.

Thursday, April 26, 2007

Apple has a big quarter

Apple blew away the quarter with an EPS of 87 cents. They shipped over 10 million iPods (when is this thing going to slow down????) and...they shipped 1.5 million Macs. Representing 36% YoY growth. Gross margins were up 6.5% to about 35%. This is not because of the iPods but it's all those high priced notebooks they are selling.


They grew their notebook shipments and revenue by about 80% YoY. Their notebook ASP is a little over 1500 USD. Considering the phenomenal pricing they must be getting from Intel and their other vendors, these guys are creaming the PC market. They are growing volumes and even ASPs on notebooks are up about 15% YoY.

Now do you see a reason for Apple to switch from Intel right now? While that doesn't mean Intel should become complacent, Apple is rapidly becoming a sizable and high value customer for them probably helping them maintain ASPs quite a bit. On the flip side, Dell and others are dragging AMD's ASPs down. I said before, Dell is sucking AMD dry by blocking their capacity and taking parts at throw away prices. AMD under-valued their technology to secure Dell and this was a mistake.

Wednesday, April 25, 2007

Testing Google Ad Sense

Folks - I am testing Google Ad Sense to see how it works. I've placed a couple of non product specific small banners unobtrusively in the left nav. Not asking anyone to click. What I'm trying to do here is figure out how the system works, what Google's revenue sharing is like, how smart is the system is placing ads that are relevant to the content of the blog, etc.

This is just a heads up. I will not be posting any comments that try to flame me on my experiment here. If you have an issue, write to me at:

Intel retakes market and revenue share

First - let me (with great humility) gloat a little on yet again being right that Intel would begin to retake share by Q107. I just had no idea how right I was going to be:

With iSuppli claiming 4.5% and Mercury saying 6%...these are very big gains - far more than Intel could have expected to win back. So in spite of ASPs holding and big share gain they couldn't beat their topline number. That's concerning and could indicate a slight slow down in the PC market. If that's the case, with so much built out capacity, winning share is going to be a huge focus for Intel & AMD. Expect AMD to drop prices further and perhaps start bundling their new ATI products with old AMD CPUs to help things along. However, AMD can't go much further down on pricing without probably starting to giving parts away at a loss. As mentioned below, they will possibly retake some share in the channel but at the cost of ASPs.

What may negate this is the rather substantial price drop Intel just effected:
Intel Price List

It appears this will be an interesting quarter. Intel has strategically dropped prices in certain desktop and server parts while maintaining mobile prices. It's obvious in desktop they are using this opportunity to gain as much market share with Conroe before Barcelona appears in any substantial volume. They will be hoping the window between Barcelona availability in any reasonable volume and the launch of Penryn in reasonable volume is very small. If this happens and the performance gap is not too high, they will be in a phenomenal position to defend AMD attempts to retake share with Barcelona. If Barcelona performs much better than Penryn, Intel will drop prices so that the price/performance equation is in their favour and will hasten their own quad core ramp (already visible in the new price drop). Keep in mind that their process lead coupled with the advantage of an approach of sticking two dual cores together which means not having to throw a part away if one die is defective gives them substantial cost advantage.

Tuesday, April 24, 2007

AMD heads back to the capital markets

AMD is going to borrow another $1.8 - 2.2 billion. Of which half will probably go to Morgan Stanley to pay off the earlier loan:

Bottomline - AMD's debt rating is going to be almost junk status after this. For all intents and purposes they're borrowing about 1 billion $s probably at a higher rate of interest simpply to part pay a loan they took barely 4 months ago. I thought re-financing works the other way around.

I wouldn't be surprised if the devious b@$#@%&$ at Morgan Stanley buy these notes too and in exchange for a lower interest rate than the market cuts a sweet deal where they end up with a huge stock conversion should AMD slip again. Thereby gaining a significant chunk without having to buy out the existing shareholders.

Sunday, April 22, 2007

AMD - cash and debt management

There's an interesting story here on the restrictions AMD has from any further funding they may raise in the market:

AMD fund raising restricted

After their abysmal quarter, AMD's stock price shot up on the speculation of a private equity buy out rumor that's been floating around. However, a cursory look at their Q107 consolidated balance sheet shows that at current stock prices AMD is not really worth buying if the intent is to re-sell the assets unless someone thinks they can sell the IP inside the company. The other reason a private equity firm may be interested is if they think they can turn the business around. However, for a company that's already lost $1.11 in the first quarter and nowhere near any kind of profit, again this requires a huge leap of faith. Now these kind of long shots are ok when the deal is a few hundred million. But we're talking something that could end up being a close to 10 billion $ deal. Even though the guys with the money live on planet "unreal", I think there are limits to their insanity. Also, shareholders will be pissed that they are having to sell when the stock is $14...when barely a year ago it was $40.

But the real issue here is if there's no private equity deal, then AMD has to raise 2X the amount of money they actually need. And this time round the money will not be as cheap as it was when they were making profit and the stock was seeing the good times.

I have been saying since the announcement of the ATI deal that AMD would have a difficult time managing cash and debt. It feels to me that AMD management was pretty confident they would continue to make money and not have to raise further debt when they closed the deal with Morgan Stanley. The same sense of infallibility seems to be pervading how they have been guiding the market on quarterly results since the December analysts call. And it seems like they have not learnt their lesson and continue to guide flat to up for Q2. It appears they have painted themselves into a corner and if they do dilute shareholder equity through a share offering, I can see some ticked off institutional investors demanding that heads roll.

Saturday, April 21, 2007


Before you read this, please have a look at the earnings and read the webcast transcript:

1. CPU biz revenue is down 31% YoY and 38% QoQ. Not only has there been ASP decline but significant share loss. iSuppli indicates a massive 4.5% share gain for Intel though I'm sceptical it's such a large swing in 1 quarter. Intel would not have bet on such a large gain and considering ASPs are stable they would have come in above their guidance if this had happened:
(Thanks Ho Ho for the link)

2. Inventories are up 15% from 814 mln to 937 mln. The explanation is this is desired build up in the channel to ensure stable supply and that these are products the market still wants. There are a couple of gaps in this theory. First - if the market wanted these products they would not have lost share and missed their unit targets by such a large margin. Second, 40% of this build up is 65nm parts. This doesn't make sense. The first thing you'd want to sell off are lower cost 65nm parts which means takers for the parts are hard to find. Essentially if you add 30% gross margin back to the inventory number AMD already has all the parts they need to fill their Q2 demand. Last year when they were making money inventory was running at around 30% of revenue. Now it's running at 76%.

AMD has two choices here - drop prices further to clear inventory. In fact, they might start giving away some parts at cost simply to re-gain market share which prevents Intel from making a corresponding sale. Alternatively, they will have to take a big write down in the next couple of quarters.

3. Accounts receivable are down QoQ from 1.14 bln to 667 mln which is more in line with what the number was through most of last year. Which means even units in the channel have been worked through and yet inventory is building = lowering demand for parts.

I am extremely sceptical at AMD's confidence on the quarter being flat to up. They are displaying their naivete or mis-leading the market yet again because in a seasonally down quarter what this means is they will have to re-take significant share. However, Intel will not be standing still and the impending Core 2 price cuts along with the Conroe single cores being introduced as Pentium and Celeron parts will squeeze AMD. Specially since the die size on that single core part is going to be super small making it super easy for Intel to price AMD at the lower ends if necessary.

Overall, Q2 will continue to be tough for AMD. There is no reason for them to re-gain share unless they start giving the product away at cost. They may see some desktop share recovery in the channel but the revenue upside could be offset by having to lower prices even further as Intel cuts prices on their Conroe parts for the first time. They will feel either share or revenue pressure on mobile with Intel's new Santa Rosa launch coming up as the OEMs replace older SKUs which means with nothing new from AMD, some of their Turion based SKUs may get bumped off. Server is also all pricing for them now...if they can go low enough then they might get some share back there. But Intel will not give in so easily and what I would be expecting AMD to do is try and stall the market to wait for Barcelona. Unfortunately, the absence of a public demo till date makes their claimed performance numbers unverifiable.

I think AMD will have to make a choice on whether they try and re-gain share or hold ASPs and hopefully revenues. Either way, up is unlikely. Flat is possible if they get relief from the new ATI products. While it was unsaid in the Intel call, I can bet you Intel has tasted blood and will continue to try and re-gain market share using their upcoming price drop.

At the end of the day, Intel's real advantage is not just they have a kick-ass new product, it is they have a product that is significantly cheaper (smaller die size, more flexibility due to common uarch, etc) to manufacture running on a process that is close to a year ahead of their competitor. This gives them tremendous room to navigate on pricing/performance/watt and that's what the market has become about.

Thursday, April 19, 2007

Intel Q1

I'm not going to repeat the numbers here so please read the earnings release (PDF) and listen to the webcast before jumping in:

Intel came in more or less on forecast though revenue was a bit below mid-point which is concerning. If AMD is going to miss their revenue forecast by a mile and Intel is gaining share and holding ASPs and still can't hit it's mid-point then I'm wondering if we're seeing a bit of a slow down in the PC market. Anyways - not a topic for this post.

Margins were slightly up on reduced costs of manufacturing and they made good progress to their reduced headcount numbers getting there 1 qtr earlier. Inventory seems to be ok overall - in the details WIP is actually down and raw materials are up which may be a good thing. Server ASPs were down explained by Otellini as an increasing mix of DP compared to MP in the Conroe liine up. Hmmm...not sure I buy that completely. I'm sure the price war is hurting them to some extend. Desktop and notebook ASPs held which is interesting.

We'll really need to see what happened to AMD on most of these to understand what's really going on. Bottomline - Intel making progress. Q208 BK still not in sight. Their increased focus on cost and managing the business effectively is putting pressure on AMD. It does appear they re-gained market share but didn't confirm. We'll know soon enough but if they did, I won't be eating crow and yet another of my predictions will have come through.

For some insight into what I think AMD will present, have a look at the comment here:

As I've said before, AMD has already suffered a GAAP loss and will probably suffer an operating loss within 6 months. It appears that will happen this quarter. They are going to start wiping out cash in the bank pretty quickly and will be forced yet again to raise money in the market. See the comments in the link above for my stock price prediction. AMD is now in a death spiral of not having the cash to fund their medium-long term strategies as they entered a price war they just could not afford. With no real impact of Barcelona this year, they are going to suffer record losses this year. Nett result - some pretty ticked off shareholders!

Tuesday, April 17, 2007

AMD Q1 Pre-announcement

I've been busy and only had time to get back to the blog today. It's a nice segue to my last post however. AMD pre-announced a big revenue miss in Q1 = revenue coming in at 1.23 billion on a projection of 1.6-1.7 billion:

They also announced a re-structuring with more details to come shortly. In simple English - cost cutting. As I said earlier, AMD cannot go from being a company of 10k people to 16.5k people with lower revenues and no profits. The pre-announcement says a head count freeze is going to happen. My prediction as below continues to be lay-offs are coming:

I'm always sorry to see hard working employees who have to pay the price for poor management decisions with their jobs. Just as Intel's management should have seen heads roll last year during their re-structuring, I think so should AMD's. It's sad to see that they have gone from being on a 40$ high a year or so ago to this position so rapidly.

Anyways, in the next days we shall see how Intel and then AMD's quarters turn out and how much of my predictions in my earlier posts were true or not. I still have this quarter to see Intel begin to re-take market share from AMD.