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.
Results
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.
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Apple has some very attractive hardware. Their only fault is their reliance on the inferior Intel processors. If their Mac Mini used an AMD processor, I would buy one right now.
On the flip side, Dell and others are dragging AMD's ASPs down.
Dell is also responsible for AMD's gigantic inventory. It would be hilarious if AMD went bankrupt on day and it was all because of Dell.
Wow, Apple is sitting on $12.6 billion in cash? Shouldn't some of that dough be put to work? Maybe the should by SGI. Better yet, Sony (a stretch of course).
IMHO Intel conspired with Dell to kill AMD.
It was a win-win situation for both Intel and Dell: Dell got dirt-chip CPUs and Intel got its vengeance. I am convinced it was a planned act by the two. And AMD was stupid enough to fall into the trap.
When AMD was operating at 100% capacity they decided to sell chips at a discount (!) to Dell in hopes of increased volume in the long run. On one hand this is a reasonable strategy, but devil is in the details. AMD has gone Dell when the company could not produce enough chips to satisfy the market demand (Q3/06). By choosing to sell chips at steep discount AMD deprived itself from much needed cash (as you sure know AMD has a long history of financial troubles, especially now).
In accord with the deal with AMD Dell has sucked in many chips but then (presumably in conspiring with Intel) did not use them all; perhaps it never planned to. The end result was that Dell absorbed AMD’s chips when they were in highest demand; in return AMD got small revenue due to deep discount of the sale. Thus AMD shipped hot chips, but got little money.
Months later Dell back-paddled on the order and returned the massive inventory of chips to AMD. WTF? Was Hector desperate enough to get Dell’s business to sign a non-binding agreement? The end result was that AMD got many of its chips back, when Intel was already in the lead with the new Core 2 processors. AMD not only had to pay back a substantial portion of whatever little money Dell paid for the chips, but also ended up stuck with sizeable inventory of chips that now were obsolete (few months is a lot of time in the chips market), the market price of the chips was a lot less than in Q3/06, and market opinion stared to sway back towards Intel. There was not possibly a worse moment for AMD to refund the sale and accept a load of old chips in its inventory, which instantly ballooned. Essentially a sizable chunk of AMD’s Q3/06 production went completely to waste.
This sounds too damn precise of a strike against AMD to be a mere coincidence. I think Intel and Dell cleverly exploited Hector’s delusions of grandeur. I am sure it was a planned strike on behalf of Intel and Dell, although this probably cannot be proven. Indeed, can one come up with a more clever way to sink a company?
Dr. Fomitchev - welcome to the discussion.
While I agree with most of your commentary, couple of places where I think it might have been a little different:
1. AMD would definitely have some kind of binding agreement with Dell...just as Intel probably does. However, the order is probably not tied to a quarter but spread over a period of time. The risk for AMD is while they get a minimum volume guarantee from Dell, they have to commit to Dell to have excess parts available should Dell need them. Also, OEMs like Dell have the option to cancel anything they may have reserved right up to the last few days of the quarter which makes it tough to move a cancellation to another OEM or channel so quickly.
2. Remember - Dell is also losing market share in what is possibly a softening PC market. So their volumes are shrinking...specially on desktop where the AMD deal would have started.
3. It would be illegal for Intel and Dell to conspire. Where Hector was delusioned was not in his need to win Dell...but more on his ability to manage the business. What Intel does know after years is how to manage capacity and inventory with large customers like Dell. AMD would have assumed they can take a customer orientation that worked well in the channel and use that with customers like Dell. However, the scale of a change at Dell vs some glitch at a distributor are two different things. You can continue to see AMD management's naivete on how they continue to provide positive guidance in spite of having to recant thrice in the last few months.
It's not that simple. Market momentum is critical - if you lose it, it's really hard to get it back.
"Months later Dell back-paddled on the order and returned the massive inventory of chips to AMD."
"AMD not only had to pay back a substantial portion of whatever little money Dell paid for the chips, but also ended up stuck with sizeable inventory of chips that now were obsolete"
Is there a link to support this? I can see Dell not buying any more chips if they have excess inventory, but I can't see them being able to RETURN them. It's possible that Dell requested a large capacity AVAILABLE to them and then chose not to purchase them, but I find it unlikely that they bought them, AMD booked revenue and then returned them to AMD? (Reading Scientia's response - I think he is dead on with how the Dell business works)
If AMD was dumb enough not to have cancellation terms, or some other kind of agreement then they got what they deserved and hopefully will learn from playing with the big boys....
At the time they CHOSE to go to Dell, they were selling every thing they were making and had no capacity for more chips, thus by signing with Dell all they did was shift their capacity from channel to Dell (perhaps a good strategic move, but a TERRIBLE tactical move).
You are also forgetting how severe AMD has cut prices over the last 3-6months to move inventory - is this a Dell only issue? If it were the public would NEVER see these prices and it would simply be a behind the scenes volume deal with Dell. The fact that these were across the board to the channel is a pretty strong indication the inventory issue was not simply a Dell issue.
Additionally (IMHO) there is a lot of blame to be put on AMD's sales and marketing for vastly mispredicting product mix and demand - Ruiz has now commented that this was an issue the last 2 reports and I believe each time has said this has been addressed,:). While AMD is a good engineering company they have a LOT to learn about sales and marketing (and seem to underestimate the importance of this)
Finally, the other part of AMD's Q1 results was the dumping they did in Q4 to bring up the market share stats. (while not the most reliable of sources, I think the Inq had an article on this a while back). I suspect AMD did this to get as favorable terms as they could get on their financing in late Q4...this was also the same time period where they had an analyst meeting toward the end of the quarter (Dec 14) saying everything's on track only to drop earnings bomb a few weeks later.
So while Dell may seem like a convenient excuse (and conspiracy theorists may like to concoct theories on people aligning against AMD) - AMD has executed poorly and misread the market for the last 2 quarters. Dell has only hastened the decline.
Should Ruiz swallow his pride, stop slashing prices at all cost to get 30% market share, AMD may be able to return to profitability, start paying down the debt, expand capacity (F30 conversion, 45nm ramp) and then maybe then will actually be able to get (and sustain) that 30% MS. Unfortunately, AMD seems to have pissed off Intel enough where they look like Intel's going to slash server pricing in Q3 and may prevent AMD from selling K10 at a significant premium. Given that this product will also be in relatively low volumes in Q3/Q4, AMD better hope the entire x86 market grows in H2'07 or they spend the whole year in the red.
IMHO, AMD's other potential path is to settle the lawsuit (Intel may be willing to do this simply to make it go away) and use the settlement money to pay down some debt and fund development/cap ex. They should easily get at least $500Mil today, compare that to the NPV of whatever settlement they MIGHT get in 2010 or later (after trial and all appeals are exhausted) and they are likely better off settling. I think they've got as much PR out of this as they're gonna get and it seems like they are more hoping to find a smoking gun as opposed to having found it already. The burden of proof is on AMD not Intel (or I guess since this is a civil trial they need to demonstrate a preponderance of the evidence).
I agree. It is not just a conspiracy, although it could have been. AMD truly made sagnificant mistakes: the biggest one is playing it safe rather than taking a risk and expanding. Ruiz did get compacent assuming that market would want their chips indefinitely. I no longer own AMD cpus for that matter.
I am afraid that Intel would keep its prices competitive as competition is the nature of the chip business now. The difference is intel can afford to have 500 mil less revenue, but AMD can't :( So the green team need to come up with something that would complete on merit rather than cost!
The conspiracy theories about Dell and Intel are laughable. Yes, I noticed the use of the word discount three times in reference to AMD but no mention of Intel's overstock and discount of P4 chips. There was no conspiracy. AMD simply got stuck between higher performing C2D's at the top and bargain priced P4's at the bottom. AMD's complete lack of a quad core to compete with Kentsfield/Clovertown didn't help either.
Anyway, Apple's successful quarter is fine but unless Apple does something soon they won't be selling desktop units in 2 years. And, I don't think they will be able to maintain their notebook ASP over the same period. Unless Apple gets serious about being competitive they will out of the computer business by 2010 and become totally a consumer electronics company.
I don't think AMD will still be having problems in Q3 regardless of Intel's pricing intentions.
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