Monday, October 22, 2007

AMD Q3 07 and some related thoughts on Intel

AMD had an improved quarter too:
Press release
Results

Let's look at the same numbers as the Intel report below to see whether there are some market trends emerging.

- Revenues of 1.632 billion up from 1.378 billion in Q2.
- EPS loss of 71 cents which beat the street forecast.In dollars this was 396 million.
- Gross margin 41% up 8% from 33% in Q2. However, 2 points of the improvement came from an inventory write off in Q2 so the real gain is 6%.
- Inventories down 53 millon.
- Headcount down 221 to 16,498.

And some other interesting facts and figures...

- Graphics revenue up 57 million and the losses of 50 million in Q2 are now down to just 3 million.
- ASPs up in desktop and mobile but down in server.
- AMD sees no evidence of over booking too and Rivet too was concerned that inventories were lower than he'd like.

I had said earlier, AMD will lose around 300 million and they did not disappoint. It will be very difficult for them to go into the black in Q4. Rivet says he needs around 2 billion of revenue at 40% + gross margin. However, that will be extremely difficult as it means every incremental $ of revenue needs to drop straight into the bottom-line in Q4.

What seems to be happening is both Intel and AMD have been surprised by some spectacular demand and both of them are tight on capacity. Hence, with almost full factories, their gross margins are naturally shooting up. In addition, at times like this they can afford to ignore lower end less profitable business when supply is constrained. The key in Q4 will be managing their product builds. If they call the right product mix their customers want and have it built, they will be laughing to the bank. However, any screw up on forecasting and it will mean leaving revenue on the table that could have been had.

The couple of other things I wanted to comment on:

1. Intel's static ASP vs AMD's improvement. Intel did say desktop ASPs improved while AMD said desktop/mobile improved but server was down. Here's what I think is going on. AMD is slugging it out with a lot of discounting in the server space as they are disadvantaged against Intel's newer products. Hence, they are pulling server pricing down. In mobile, even though AMD is using price to gain entry/share, they are still seeing an uplift as a mobile CPU improves their ASP compared to a desktop part. And some of their new customers like Toshiba tend to sell higher end SKUs. However, Intel is being forced to lower their pricing on mobile as AMD becomes more competitive. However, as Santa Rosa ramps and Penryn comes through, they may be able to create some uplift in mobile ASPs too.

2. It's now obvious that over booking is not a concern and end user demand is robust. Which is a good sign for not only AMD/Intel but also the global economy. Usually tech products and PCs are the first to see demand drop during a recession. It will be interesting to see Apple/Microsoft/Motorola's results this week too.

3. Expect both AMD and Intel to have blow out quarters. Specially Intel. While they are forecasting a mid-point of 10.8 billion for Q4, I think they can hit 11 billion. And get their Q4 profits very close to 2.5 billion which should drive their EPS close to 40 cents. I also think Intel will be aggressive with their share buy back as this is a golden opportunity to have a blow out quarter and drive their EPS and hence share price up.

This is going to be a good quarter for both the players. The guys who should be worried are the OEMs and specially channel as they fight to get supply. HP and Dell have a natural advantage due to their scale. But in the notebook business folks like Acer are becoming big players rapidly so it's going to be interesting. Expect the entire PC industry to have a great Christmas if demand remains strong.




1 comment:

Anonymous said...

i see a lemon