The first head to roll

Henri Richard - chief sales and marketing honcho at AMD quit today.

Link 1
Link 2

Sales and marketing will now directly report into Hector. Heads have started to roll at the Jolly Green Giant. When you miss your revenue target quarter on quarter, the first person to blame is your sales guy. Of course, can you blame him if you are obsessed with winning market share even though your current product line up is not competitive enough? A message must be sent - and it starts with Henri.

But what's pretty darn foolish is that Hector is now going to run sales and marketing. Intel must be laughing with glee. Hector now has to do two jobs which means it's highly likely neither will get done well. Or perhaps they're sad because the mistakes Hector has been making over the last few quarters as CEO are worth more to them.

Either ways, this is a signal. AMD needs to scale back their headcount. Another bad quarter or two and either Bob Rivet or Phil Hestor are probably going down. Bob - for constantly mis-leading Wall Street and not managing AMD's cost structure effectively. Phil - for not developing a product roadmap that was competitive enough or perhaps for building an architecture that was too difficult for AMD to manufacture.

I predicted an AMD stock price of 11.50 - 13.00. We're there now people. This is going further south. Over the next 6 months this is going below 11.

AMD selling assets...

...in this case a big field behind their HQ in Sunnyvale apparently.

I guess that should reduce their Q3 losses by a few million.

Desperate times at AMD. I repeat, they need to cut heads and costs. The way to cut costs is by Hector focussing on key projects and not trying to do everything. Some time ago I had predicted the PIC would die. It actually did - and then foolishly was revived. Hector needs to stop chasing the market share dream as well as the dream of AMD becoming some kind of mammoth platform company in 2008. You're in a hole - don't dig yourself a new one Mr Ruiz. Focus on digging yourself out of this one before you drive AMD into the ground and a lot more innocent employees have to pay the price.

Barcelona continues to have problems

AMD continues to have problems with Barcelona.

What can I say. With a launch that wasn't soon enough and production problems, all they need now is for the performance to be disappointing and they will be toast.

Penryn launch date set

Penryn is on track for November 11.

AMD will not have enough lead time in the market with Barcelona to establish a lead. Since the only proof we have of Barcelona's superiority to Penryn is that AMD tells us they're better than the current generation Clovertown, it's unlikely they will have much performance advantage. And possibly be at a disadvantage. As a result, they will not be able to enjoy rich margins on Barcelona as one would expect with a new technology introduction should Intel price Penryn competitively. Which I'm sure they will do because they still want to recover market share.

AMD's Barcelona investments are looking like they will not pay off on the top line as much as they would have liked. Losses will continue for AMD and unless they cut back costs now, I think will continue to be in the range of 200-300 million in Q3.

AMD continues to borrow

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.

AMD stock heading South

I ranted and raved about how the analysts are pumping up AMD's share price even as it loses money. I had called a trading range of 11.50 - 13.00 in the commentary of one of my posts (can't be bothered to look for it now).

AMD is now trading around $ 12.50. I expect this to go still further South close to 12. Will it drop to 10...it should. But at that point it probably starts looking attractive to the private equity guys and there are probably enough interested parties that want to keep AMD afloat so my expectation is it will stay above 11.

It appears Penryn is more than a die shrink.

AMD is in deep trouble as Barcelona still seems to be in some trouble being manufactured and they have not yet allowed the tech sites to publish any independant benchmarks.

However, Intel is also not out of the woods. To accelerate their stock price, they need to grow revenues faster than the market. And their best bets to do this are Silverthorne and monetizing Wimax at the service level and not just the hardware level.

AMD Q2 - what the...

Ok - I did not see it coming the way it did finally. I did mention earlier that AMD might start giving stuff away at close to cost to fill their factories and win share - every unit they sell is a unit Intel doesn't sell. However, this is the weirdest result I've every seen.

Significant revenue and gross margin growth in spite of which losses that were similar to Q1. Get the details here:

Q2 Results
Q2 Earnings Call Transcript

So here's what I think really happened.

1. AMD sold as much as they could at the low end to maximize their factory utilization to improve GM's.
2. Their transition to 65 nm coupled with the fact that they are not incurring 45nm start up costs improved margins.
3. I had mentioned mobile earlier - this did help somewhat. More importantly, they were able to ride the overall growth in mobile through Toshiba.
4. They also seem to have made some recovery in servers.

So what went wrong - how did they lose almost the same amount of money as Q1:

1. The ATI acquisition. Graphics revenues down YoY. Losses continue. And...the acquisition costs hit their profits.
2. They are selling at the low end. So even though they seem to have improved margins QoQ, the reality is those are not due to improving ASPs but more a function of higher units to fill the factories and some mobile/server uplift.
3. The had 30 million additional MGA expenses. Now how much of that do you think are sales/marketing kickbacks to some of their customers to off load the additional volume.

This was a weird quarter for AMD. If they have stuffed inventory into their customers again, then Q3 might be a tough quarter for them again.

Intel Q207 actuals - and impact to AMD

I haven't had much time to listen to the Intel announcement. However, the gross margin was disappointing and as I said below, if Intel misses then the stock is heading down about 5 points which it did after hours. However, I think this will stabilize and possibly go back up 1-2 points as folks look at the results with a cooler head. What was really disappointing was Intel's Q3 revenue forecast and even though they did pop the margin number back up, what it says to me is they are unable to capitalize on the technology lead they have and proportionately converting it into revenue. Unless AMD is doing what I said they might earlier and almost give away their low end at cost. In which case Intel would have had to decide to stem the bleeding at some point and not fight AMD all the way down to the mud.

The impact to AMD is that their GM's are going to be awful. Further down from the 29% they had in Q1. It feels like Intel took more share in server and desktop and potentially lost some more in mobile. The impact of a further hit on servers along with unit pressure on desktop is not going to be completely offset by mobile upside considering the small base of mobile AMD is coming off. Otellini did say they felt pricing pressure on the low end of desktop and mobile. Which was AMD trying to salvage unit share and hence hit their revenue number. So expect the revenue to be at risk. More importantly, with the margin hit their EPS numbers will be worse than forecast so I think they will lose more money than the 85 cents per share Wall Street is predicting. My earlier call was around half of their Q1 loss and I think that's now back in play. Expect somewhere in the region of a 200-250 million $ loss. The other thing to consider is the start up costs of Barcelona. If the product is pushed to Q4 effectively then some of those ramp costs will hit them in Q3 thereby suppressing margins further.

Right now - I have nothing positive to say about AMD. But Intel's execution while good, is not as good as it could have been. I think they have made the critical mistake of allowing AMD to get established - both with the OEM customer base and to some extent their brand. Which is allowing the OEMs to move their parts even if they're inferior which allows the OEMs in turn to take a tougher stance at the negotiating table with Intel.

On the market share, we won't see the results this week but I think we're on track to see some minor upside for Intel. I'm still comfortable with a point as I called it below.

Q2 - for Intel and AMD

In a short while Intel will announce their Q2...followed by AMD a couple of days later. I've been busy to really do any analysis but I'm going to put some thoughts down anyways with an eye on what would happen to the stock.

Intel

I see two possible scenarios for Intel.

1. They hit the numbers (revenue/gross margin) they gave Wall Street at the end of Q1. In addition, EPS comes in as forecasted by the Street. This is a no win situation for them. The stock has grown significantly in the last few months. They will not be rewarded for this and expect a close to 5% drop almost instantly. If AMD pulls off a relatively "not so bad" quarter, then the Intel stock will get hammered.

2. They exceed their revenue numbers. They also beat Street forecast on EPS. If they can blow this away, they're heading north to the tune of 2-3% and the stock may even flirt with 27$. I think this is a high possibility because I think they were ultra conservative with their numbers. Since Intel always reports before AMD, they had no way of knowing how much AMD was bleeding in Q1. As a result of which I think they were conservative.

AMD

I think AMD has an easier quarter. After the abysmal Q1, there's no way but up. The question is how much up?

What AMD needs to do is meet or beat Q1 revenue Considering they had stuffed the channel in Q4 and the inventory should have worked itself out in Q1, they can expect some upside. However, balance this with seasonality where Q2 is usually the lowest quarter and this might balance things out. The key things to watch for are how Intel calls their server and desktop shares. If they call a big increase in servers, then AMD's revenue share is at risk. If they call a big desktop share increase then AMD's unit share is at risk. If both then AMD's entire quarter is at risk.

Either ways, I think AMD's price has not dropped sufficiently since the Q1 debacle with an uptick in the last couple of days. I think the stock will be static unless they really surprise pleasantly...which I think is unlikely.

One last thing, I'm also expecting Intel to win back another point or so of market share over the 5 points they won in Q1. Reason - it takes time to win back the channel so that market share momentum should carry them at least this quarter.

We'll see shortly.

AMD cuts prices again

AMD cuts prices again at the same time trimming their product line of single core at the bottom.

This is pre-empting Intel's July 22 price cut. It will reduce their Q3 margins so they will need to re-gain share to balance this out. However, the key issue here is once again they are shafting their channel by dropping prices at short notice. All the guys who bought inventory in the last couple of weeks are going to be ticked off that they are going to be stuck with parts that are about 15-20% more expensive and thus hard to move.

AMD is making it harder for themselves to re-take the DIY channel. I'm also surprised that they are dropping prices across the desktop stack when Intel's cut is only on Quad Core. The only thing I would think they'd have to be worried about is the Q6600 at $266 which was a little too close to their 6000+ part originally at $229. Which leads me to believe AMD has not been as successful as they would like in re-taking share in the channel in Q2 and they're using this opportunity to try and do so.

More losses for AMD is all I can say...!

Why AMD invested in Transmeta

Good article at the Motley Fool.

Barcelona and AMD continue to get slammed

George Ou from ZDNet posted a scathing review of not just the Barcelona benchmarks but also AMD's ethics.

He outright calls them dishonest. I've been saying for some time now that AMD is spending too much time trying to PRtheir way out of the mess they're in instead of focusing on execution.

Once again Hector and his boys - stop focusing on bringing Intel down. Focus on building and bringing to market innovative and reliable technology. Forget the 30% market share. Focus on doing the right thing for your shareholders.

With the sad results emerging for Barcelona until AMD can scale the MHz, it looks like this year is going to be a total wash out for them. And if Penryn can ensure Intel maintains the performance lead then I don't see any hope for AMD even in 2008 unless they can bring Fusion to market successfully. It's time for them to get back their focus - kill the peripheral projects and have laser focus on their bread and butter.

UPDATE

AMD has removed the benchmarks and replaced it with some marketing pooh pah.

Hat's off to George - and to the power the Internet gives individuals.

Barcelona is a dud...?

It's up to you whether you want to believe the Inquirer. But Charlie the AMD loving penman himself is dissing Barcelona and is writing off AMD being able to compete with it against Penryn.

When I wrote this post, I was bored. But the reality is if Barcelona cannot give Penryn a run for it's money, AMD is in a lot...I mean a lot of trouble. With Nehalem coming next year, they needed to use Barcelona to win back some share or at least stem the share loss. I said it a few weeks ago - AMD's best medium term bet now is Fusion which will allow them to hyper-segment the market. Hector needs to stop playing offense going for 30% market share. He needs to play defense, consolidate his position and return to fight another day.

With Barcelona coming in below expectations. Intel will ease up the price attack in the second half of the year and focus on milking the margins on their superior product line up. If they gain any further share this quarter...which I think they will gain a little, they can afford to focus on improving the bottomline to help drive the stock price up.

Barcelona - at last...?

The Inquirer says Barcelona will grace us on September 10th.

I don't understand a couple of things (he says whimsically):

1. Why are they making such a big deal of pushing server product into the channel. I understand small business probably buys here but surely first thing you want to do is get this into the hands of the OEMs and begin to win back at the large Fortune 500's.

2. What's with the thermals - everything is 95W or 120W.

Finally - I'm glad to see AMD doesn't seem to be giving away the chips at launch. But all this depends on how they perform so bring on the benchmarks dude!

iPhone pricing - and my thoughts

iPhone pricing is out.

This is one expensive mother. 4GB phone = 499$. 599$ for the 8GB model. A 36$ activation fee. Service plans start at 60 bucks and go to 80 and then 100 bucks a month.

This is a pretty expensive phone and the service plans sound like a rip off. But the 36$ activation fee really ticks me off personally. That's like a slap in the face. Basically saying to customers - you're desperate and we know it.

My prediction...this phone will have a great launch for the first few months. After which sales will fizzle out until the product is launched outside the US and is sold in regular retail not tied to a service plan.

Rob Enderle has a good article on the iPhone here.