Proving that Intel and AMD are locking horns in an absolute bloodbath right now (especially on the client side), AMD fell $80 million shy of Wall Street's expectations when it announced its second quarter results yesterday. According to News.com's Tom Krazit:
Analysts polled by Thomson First Call had originally been expecting $1.3 billion in revenue, but revenue from desktop processors was lower than expected owing to deep price cuts on Intel's part in the desktop processor market, AMD executives said on a conference call.
Between yesterday's after-hours trading and selling after this morning's bell, investors have punished AMD's stock which, at the time this post was authored, had dropped nearly 15 percent since yesterday's close. The battering is proof that even when AMD has what would otherwise be considered a banner year so far including a whopping 53 percent growth in revenues over the same period last year and huge design wins with forever-AMD hold-out Dell and IBM, that arch-rival Intel's arsenal of lethal countermeasures remains potent despite the devastation that company has endured over the last two quarters (including a 57 percent drop in net income and the layoff of 1,000 managers). AMD is also involved in several antitrust actions against Intel. Wrote News.com's Stephen Shankland of AMD's latest win with IBM:
Opteron's successes haven't gone unnoticed at Big Blue. Bill Zeitler, head of IBM's server group, said in April that HP and Sun gained at IBM's expense because of their Opteron products. AMD-based products, including IBM's own blades, generate more revenue because their higher performance means customers buy them with more memory and other add-ons, Zeitler said....
...Intel has suffered market share losses to AMD because of Opteron (though its more-powerful Xeon 5100 "Woodcrest" chips are now coming to market). And it has suffered financially: Its Digital Enterprise Group, which sells server chips, saw its revenue decline 23 percent from $6 billion in the second quarter of 2005 to $4.6 billion in the second quarter of 2006.
Fire sales of its processor inventories are not the only anti-AMD tools that Intel has at its disposal. Intel has used other financial muscles to undercut AMD. Over the years, Intel's cut-rate pricing on flash memory undermined the profitability of AMD's flash memory business which in turn affected AMD's re-investments in its processor technologies. Eventually, AMD spun out its Spansion memory business (a joint venture with Fujitsu) with a separate IPO whose reception on Wall Street was lukewarm at best.
That said, inventory sell-offs can sometimes dig deeper into a company's reserves than it would prefer, causing no shortage of speculation on behalf of industry watchers. Wrote ZDNet reader sharikou in response to the post of my interview of AMD's queen of all things commercial Margaret Lewis earlier this week:
Looking at the balance sheet, Intel is fragged for good. Inventory is now at $4.332 billion at cost, increasing 21.4% from 1Q06. With a margin of 49%, that's $8.66 billion of chips. I laughed out loud when Andy Bryant said that was only a whole quarter of sales. Only $0.2 billion inventory is Conroe. Its designers are working in bomb shelters. 3Q06 inventory level will go up further. 4Q06 gross margin may be even lower. Those Pentium D chips are piling up, folks. Cash is reduced by $1.2 billion, long term investment reduced by $0.4 billion.....Excluding inventory, current assets minus current liability is $4b. Total long term liability $2.8b, long term investment $3.5b. One step closer to cash burn out. Keep in mind that Uncle Sam says Intel owes $2b taxes.
In that interview, Lewis was very clear that despite the way Intel's forthcoming round of dual core technology (due July 27th) appears to be beating AMD from a performance perspective, that the company has solid road map that will easily vindicate AMD of any technological laggardness.
That said, there's no doubt in my mind that some of the market's response to AMD's news may have been exacerbated by its anticipation of the new dual core chips that are said to beat AMD's offerings hands down as well the disappointing news from its newest partner, Dell (announced today). In fact, if Dell is having difficulty, then that can't be good for any system component manufacturer.