AMD closed their 2.2 billion $ 6% loan:
Link
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.
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Actually, part of the 2.2Bil is required to be set aside to enable share buybacks if the convertible notes are converted to stock.
This means there won't be any dilution as AMD will be required to buyback shares equal to the amount that may be converted. This however means that AMD doesn't actually see 2.2Bil in cash as $500M goes to MS, and then there is this set aside (not sure how much this amounts to).
They couldn't afford to take out a smaller loan as they will only really be infusing 1-1.5Bil out of this 2.2Billoan, which could be as little as 2 quarters at their current cash burn rate. If they went smaller they still would have had to contribute some to paying down the original ATI acquisition debt and if they had to go back to the market for another loan in the future the interest rate would be that much worse (as their Bond rating has fallen).
Given the relatively dire financial circumstances - this is about the best AMD could have done from a financing perspective (short of issuing stock and totally screwing over the current stockholders).
I think you are completely dead on about Ruiz though - he got hung up on this break the monopoly, 30% or bust philosophy as opposed to maintaining share or slowly acquiring share to maintain profitability and fund expansion. The Dell account was a tactical blunder as he must have had to give Dell a ridiculous sweetheart of a deal at a time where Dell's share is declining. He easily could have maintained 20-25% share iwth just the channel and other OEM's, had much better pricing which would have allowed AMD to fund the additional capacity which in turn would allow them to move to Dell in a much more healthy manner (say when Barcelona launches) - they were a year to early on Dell.
Ruiz buried his head in the sand and assumed Intel would do nothing when AMD won some Dell business or lacked the foresight to predict the response. Intel quickly moved into the vacuum that AMD left in the channel (which allows for better margin than Dell), slashed prices to further limit AMD's revenue and stepped up the development cycle on both the process technology and product side.
Now even if Ruiz gets back to the ~25% market share #, AMD will be in much worse condition as they have all of the debt payments. So in trying to get to 30% share, Ruiz has actually lost share and if he gets back to where AMD was BEFORE Dell, AMD will be worse off financially due to the significant debt. I wonder what the hell the CFO, COO and board are doing when these decisions are getting made...
I think they were all high on the market share gains and finally turning a profit that they thought the party would go on forever. It's unblievable to go from several quarters of profits to loss and give up almost 5 points of market share in 1 quarter. The first head that needs to role is Henri Richard who runs their sales.
It's funny - I remember reading an article couple of years ago that starts by describing how Henri (or was it Dirk) got a big kick out of parking his extremely expensive Ferrari next to Sean Maloney's (Intel head of sales) Toyota Prius. That led into how AMD was beating Intel hands down. Wonder how that car is driving now that things have reversed... -:)
AMD gets $1.5B which should be good for 3 more quarters at $.5B loses per quarter. Add in AMD's $1B cash on hand, that's 5 quarters.
If you count the quarters including this quarter, the time AMD runs out of money and go BK is amazingly Q2'08.
Sharikou is almost a genius!
Since AMD started off as memory manufactures perhaps getting ATI was a really good idea on their part, they've got experience of memory and processors which is kinda perfect for graphics cards, and the are going to need it, since intel is going to barge them out of the CPU market, theres going to be a lot of bk filings....
AMD will recover. It may take a good while to be profitable again because of interest burden, but I think they will be able to stop cash bleeding by Q3-Q4.
As Intel has shown, it is easy to take back market share with good products.
Keep in mind that Intel's manufacturing and hence cost advantages allow it to compete more agressively on price. So it's not just about having the best product - it's about having the best price for performance too...apart from many other things.
In this specific case, AMD lost big market share because they didn't manage the business properly. Giving too many parts to OEMs who cancelled at the last minute and starving the channel. It will take them at least a couple of quarters to win back trust from the channel on supply issues.
I believe AMDs problems were compounded because of their bad marketing decisions. What they gained over past 2-3 years has been wiped out in 2 quarters.
Intel, with most of its manufactiring base in US, is not very cost efficient either. What's keeping them ahead in cost is their process advantage. Historically AMD's die sizes hv been smaller for same process technology - giving them a product advantage.
So once AMD catches up on process, cost advantage may be back with AMD.
Of course a lot depends on how each of these companies are managed along the way. History has shown Intel is well off there.
"Intel, with most of its manufactiring base in US, is not very cost efficient either. What's keeping them ahead in cost is their process advantage. Historically AMD's die sizes hv been smaller for same process technology - giving them a product advantage."
Actually the comments on cost efficiency is not true for a variety of reasons. At a given technology node Intel's cost of production is cheaper EVEN with US manufacturing, because:
1) For a given node AMD uses an extra metal layer (possibly two in the case of 65nm K10)
2) AMD uses SOI which adds ~10-15% to cost of producing a wafer due to the additional substrate cost of an SOI wafer.
3) AMD now uses a variety of strain techniques on 65nm (I think 4 total?). Intel uses 2.
4) Though I have no data I can share, Intel's yields are better than AMD.
5) Given the amount of capex spending has, Intel typically gets better capital pricing on equipment tooling due to volume purchases. Also being first to market also often entails co-developing leading edge equipment with the equip supplier which sometimes leads to better volume pricing.
AMD does have better wafer velocity (or WIP turns to some) - meaning they typically move a wafer from start to finish through the fab at a faster rate than Intel. It is difficult to quantify the cost benefit of this though (there are also often tradeoffs with WIPturns and yield).
Labor is a very small % of total wafer production costs thus US labor vs German labor is minimal. Labor cost are more significant in assembly and test operations which is why you see the majority of this work done in Asia...
So to conclude "What's keeping them ahead in cost is their process advantage." is not true - this helps keep them ahead but they're manufacturing is also cheaper on a per wafer basis.
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