AMD heads back to the capital markets to borrow 1.5 billion through the issuance of convertible notes at 5.75%.
They intend to re-pay the the Morgan Stanley loan as per the conditions of that loan with this money and use the balance for working capital.
This adds more pressure to AMD's financials and their stock price.
Hector and team will have to cut back costs at this rate. I said earlier, they need to scale back to about 15 thousand people. Doing a wimpy lay off of 400-500 people is not enough. As much as I hate the fact that innocent employees will lose their jobs because management wasn't competent enough at their's. I felt the same way when Intel was laying off people.
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http://www.marketwatch.com/news/story/amd-taps-debt-market-again/story.aspx?guid=%7B0EE99395%2D7D4F%2D452C%2DA5A5%2DCDA9ED74689D%7D&siteid=yhoof
I'm not sure if some of the analysis in here is in the other articles - but I thought this one had some insight...
The one major benefit of paying down the MS loan, is now AMD has no restrictions on a company firesale (MS loan had ties that required most proceeds to go to paying down the loan). Now AMD is free to sell off land, business units, sell more stock and dilute it even more, etc.. to raise cash to keep the company afloat - EXPECT THIS TO HAPPEN in some form by end of Q4'07.
'John Dryden, analyst at Charter Equity Research, said that AMD should have enough cash to get through the remainder of the year. But he said that the chipmaker likely will have to tap the credit markets again by the spring of 2008 to shore up its balance sheet, due to its high cash-burn rate.'
Just how many times are the credit markets going to pony up cash before they say the bank is closed? We'll know AMD is going back to the markets when there is another analyst day or monopoly profit report released :)
'To conserve cash, AMD has cut its original 2007 spending budget by $700 million this year. The budget now stands at $1.8 billion.'
Of course if you read Scientia's blogs the production plans have not changed and they've only cut because YIELDS ARE SO GREAT!
'Through the six months ended June 30, AMD has lost $1.2 billion on revenue of $2.6 billion.'
Yeah we all know the #'s but if you stop for a second this is staggering... for every ~$2 they've taken in they've lost a $1... this means they're 'off' by 33%...Are they really going to be able to cut costs by 33% and/or increase ASP's that much? Keep in mind that would BE JUST TO BREAK EVEN!
Unless their yields are horrendous or their factories are hugely inefficient, outsourcing will only make things worse as there is the additional cost that has to be paid to the foundry (to cover the foundry profit to be made on producing the parts). Outsourcing will only help with capital spending/cash flow, I don't see it significantly impacting profitability (unless AMD factories are far worse efficiency-wise than foundries which I don't think is the case)
Somehow I thought AMD was only at 15k people. Are you sure they have more than that?
No way! Sharikou said Intel was going bankrupt in 2008... so if AMD can just hang on until then it'll be smooth sailing. Yep.
Maybe you've never worked for an engineering firm before, but you really can't just lay off 15,000 people when you're a small firm and still function healthily.
Not only are you getting rid of years of experience, but you're also restructuring who works where and destroying the efficiency of your R&D spending and pushing back time tables.
Plus, 400-500 people at 50,000 a year is 20 million to 25 million dollars per year and that's assuming all you're laying off is EIs (not very likely). Yes, there's severance, but you're not going to want to solve all of your fiscal issues just with the amount of money you've saved by laying people off. You need to address every aspect of your businesses issues and take a little bit off of expenses everywhere while adding a little bit to income everywhere.
They've obviously started the first part, the second part just needs to happen soon so they can make a stable and safe (though slower) come back.
Greg - I said AMD needs to scale back TO 15,000 people. Which is about another 1000. Not lay off 15,000. You can't run a company like AMD with a thousand people.
1000 people? Any logic or benchmark to this #?
When Intel "laid off" 10000 people (I put it in quotes because only ~1/3 - 1/2 of that was actual layoffs; the rest was attrition and sale of business units); they based that on benchmarking of the IC (and other) industries.
1000 people, when you are losing 600Mil is not going to do a damn thing. In the short term it will actual do more harm then good as there would be a one-time charge for severance/restructuring.
AMD needs to focus on raising ASP, not lowering cost. They need to be mindful of costs but when your average ASP across ALL segments combined is now $66 which represents a 50% drop in less than 6 quarters, you cannot cut your way out of that hole (unless AMD thinks they can cut costs by 50%?).
So how do they raise ASP's?
- Focus back on channel and away from OEM's like Dell. This requires improved marketing analysis which can predict and react to market changes better than AMD has shown recently though.
- Stop promoting things synonimous (sp?) with "cheap" in all of your quotes and press releases. "Energy efiicient" doesn't scream our products are worthy of paying more for. Price per performance to many means performance isn't there so we will be cheaper than our competitor
- Don't release a new product family which you have been hyping for over 6 months with only the bottom bin parts, ESPECIALLY of your claim that higher speed bins are a mere 1 quarter away (better off just delaying the launch and waiting for higher bins). By the time the higher speed bins come out they will already have devalued the K10 brand and have to overcome the perception that came with the performance of the 1.9GHz parts.
- Make a decision on asset light. Either go fabless or commit to having fabs. If you are going to have fabs there is no sense outsourcing a significant percentage of your production. (If it is cheaper to outsource than you should not be manufacturing parts in the first place)
- Fire Ruiz. The guy has run AMD into the ground with this market share at all cost strategy. He has also misled investors who are the true owners of the company - the board needs to do its job and ask:
1) Is AMD really better off with Ruiz running the show?
2) Is he (personallY) responsible for AMD's gains in 2005/2006 - or was he simply the man in charge when it happened?
3) Is he responsible for AMD's sudden swing downward?
4) Is the goal of the company to make money or get more market share? (If both can't be done, which is more important?)
I said they needed to trim about 1500 people from their 16500 just after the ATI acquisition.
Now business should pick up in 2H due to the natural market uptick. So losses will go down. Add to that some other wimpy cost cutting and we should have losses in the 200-300 million range as opposed to 600 million.
But the headcount story is more a medium to long term issue. You can't have sharply declining revenues in your graphics business and sustain the same number of people. AMD had around 11000 people pre acquisiton. To add another 5000 from ATI who are sucking them into a money pit is unsustainable.
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