AMD: Is the glass half full--or empty?

AMD: Is the glass half full--or empty?

Summary: AMD CFO Bob Rivet said Thursday that the chipmaker will cut capital expenditures, hold the line on R&D costs and turn a profit in 2008. It was a part of an overall AMD theme today.

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TOPICS: Hardware, Processors
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AMD CFO Bob Rivet said Thursday that the chipmaker will cut capital expenditures, hold the line on R&D costs and turn a profit in 2008. It was a part of an overall AMD theme today. The message: Focus on the future, not the quad-core missteps of 2007.

"We will be profitable 2008, but clearly we're not done," said Rivet. "We think our execution issues are largely behind us."

Rivet acknowledged that the last four quarters for AMD have been a train wreck, but he urged investors to see the glass as half full. "I feel like you're in that glass half empty mode," said Rivet. "And my challenge is to get you to think about the glass being half full."

The big question is whether Rivet's outlook is good enough to spur a little optimism. I doubt it based on the reasons I outline below.

But first here's AMD's outlook for the industry:

amd21.png

Here are AMD's target:

amd22.png

And the capital expense outlook:

amd23.png

Is that enough? The general theme of the AMD analyst meeting was this: Things are going well BUT. And the "but" is the quad-core issue, which torpedoed AMD's year. Rivet, however, did say that AMD's fourth quarter results will "be seasonally strong" despite the Barcelona issues.

AMD CEO Hector Ruiz picked up on the glass half full vs. empty theme. AMD had channel issues and has fixed the problem. AMD has an asset light strategy--that relies on foundries such as TSMC and Chartered and outsourced manufacturing--but didn't provide many details. And AMD is targeting new markets such as HDTV and mobile handsets.

[poll id=82]

Ruiz noted that AMD has gained from its adversity and repeated another mantra of the day: AMD's quad-core problems were design oriented not manufacturing oriented. I'm not sure why that's comforting, but executives harped on it a lot.

Rivet acknowledged that AMD's market share has gone from 26 percent to 13 percent, but the ramp is about to begin again although it sounds like real Barcelona volume will come in the back half of the first quarter. He added that AMD's "unacceptable cash flow" will improve.

Ruiz asked investors how investors could refrain being optimistic about AMD given the executive presentations they have heard. "How in the hell can anyone conclude that AMD is worth 40 percent less than it was four weeks ago?" asked Ruiz.

Perhaps, AMD shareholders have been spoiled a bit. Ruiz noted that the last four years before 2007 were marked by perfect execution. The message: One quad-core misstep shouldn't color the company's image. "At the end of the day we're dealing in a technology industry with a combination of rocket science and a little magic," said Ruiz.

So did AMD's glass-half full approach impact anyone's thinking? The Wall Street analyst questions were a bit hostile. And AMD's pitch didn't affect me at all. Here are the factors that keep me on the same largely neutral footing I had yesterday. Yes, AMD has an interesting product lineup ahead. Yes, AMD can control expenses. But I was looking for more detail on AMD's asset light strategy--there were a few items--but it was far from specific.

Meanwhile, I credit AMD management for taking on the Barcelona issue up front. However, you can't put a botched Barcelona launch in the "but" category when it was AMD's most important product in years.

Ruiz may be shocked by AMD's valuation, but I'm not. AMD is in the penalty box and until it delivers quad-core chips in volume, stabilizes its average selling prices and generates cash flow the company remains in the "show me, don't tell me" camp. Bottom line: AMD has to execute on all of its potential. And until it does the jury remains out.

More takes on AMD's spiel:  ArsTechnica and News.com.

Topics: Hardware, Processors

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  • Half? Not even...

    And it is not all about the quad core. Intel's duo chips have stomped AMD too. When we look at the video (ATI) side they have dropped the ball there too. (No new products since the buy out and the competition is coming at them full bore.)

    It also concerns me when they say they are going to cut back on R&D because in the chip making business, R&D is everything. In fact, one could safely assume that with a little more R&D their quad core would not be suffering as it is now...

    Valuation is a tricky thing. Can a company lose that much value in a couple months time? The answer is of course it can, when its lost its ablilty to execute people lose faith quickly and lets face it, execution in the last year has been a dismal failure.
    No_Ax_to_Grind
    • did you read the article? they're not cutting back R&D!

      they said they're going to keep it the same.

      same $$ value, not the same % value.

      little "gotcha" of financial statements. the % is that line as $$$ divided by the top line (revenue). if revenue goes up? the % will drop, if $$$ is the same. Be careful not to get trapped by stuff like that.


      Personally, I think the valuation was a bit overly done, and thus the drop is in part it coming down from over-valued...

      all that said, I still agree that they dropped the ball. They fumbled, and now they've got to recover. A positive attitude is needed to succeed when doing a recovery, as well.
      shryko
      • Good point

        [i]Personally, I think the valuation was a bit overly done, and thus the drop is in part it coming down from over-valued[/i]

        I when they out-sold Intel for the first time in a particular demographic, the stock shot up as speculators saw something which was not there: continuous sucsesses. Unlike many stocks that rise as a company proves it is on the right track with a string of sucsesses, the tech industry appears somewaht different in that aspect.
        GuidingLight
      • I've read this and other articles

        and indeed they plan on cutting back on R&D. In addition they want to farm out as much R&D as they can.

        I do agree with you that they need a positive outlook but to be honest I don't know that its enough to make investors (Wall Street) happy. Its all well and good to hear about future plans but, that isn't "showing" us anything. In fact if you look at AMDs press releases over the past year they all say the same thing, next quarter will be better because, blah, blah, blah... You can only tell a story for so long before people start saying, "prove it".
        No_Ax_to_Grind
    • ATI does have new offerings.

      From workstation to gaming. http://www.theinquirer.net/gb/inquirer/news/2007/11/17/amd-showcases-radeon-hd-3870-x2

      But they did drop the ball in the processor arena and they probably need more R & D.

      Blowing it with the Barcelona and Phenom is what hurt them most of all. I can't believe they would introduce any chip that wouldn't trump Intel. They wasted their time doing anything less.
      bjbrock
      • There just in it bad

        Amd's problem isn't that they can't trump intel. Historically they've always been in the value market. The problem is there value chips started trumping Intel and Intel got mad. So Intel took an old Pentium M design, did something other than stuffing more transistor into it and called it a core duo.

        The bad news is Intel is doing this cheaply. Since when does Intel introduce cheap mainstream chips. If memory serves me they've always introduced something new and faster, and just lowered there older chip prices. And if they felt liked it, put some hardware limits on something they already had and called it a celeron Now they introduce an entire line at once complete with low medium and high prices. hmmmmmmmmmmmm.

        Resource and infrastructure wise this truly is a David vs Goliath. Amd doesn't need to trump Intel in the $1000+ market. It be NICE. But they don't HAVE to. They ABSOLUTELY NEED to trump Intel in the $150-$300 Price market.
        usmcdvldg@...
        • And the wierd thing is

          The GPU market ain't the CPU market. While midrange products drive the CPU market high range produces drive the GPU market. ATI's highest end could barely compete with and 8800 gts 612. Which is a Huge problem, because there releases are staggered al'a-intel-pentium style. Market share goes quick, consumers pick sides, games get engineered with specific hardware in mind ect. And with the revamped 8800 gts 512, ATI is all but screwed. Buying ATI was stupid. I would probably still be running and AMD proc right now if AMD had realized one thing. There not a big fish, just a small one that went unnoticed for a ridiculously long time.
          usmcdvldg@...
    • Actually in front of Intel

      If I am not mistaken,
      AMD has a true 4 core cpu. Intel only has 2x2. Yet.
      AMD has new chipsets that supports true 4 core CPU's. Intel has not.
      AMD soon has a combined CPU/GPU. Dont know what Intel has there.
      AMD leads the race on low power usage on desktop CPU's.

      True enough AMD lags behind Intel on 2 and 4 core speeds right now, but AMD 4 core may be better for servers. AMD 3 core may be way cheaper than Intel 4 core early next year.

      From my point of view AMD has a good position to grow without spending too much on RD for the next 2-3 years, but Intel must do a lot of R/D to cach up.

      Provided AMD can fix their 4 core and get them up to speed that is.
      Thore
      • ok but

        "AMD has a true 4 core cpu. Intel only has 2x2. Yet."
        - No one cares how the thiong is put together, Just that it preforms horribly

        "AMD has new chipsets that supports true 4 core CPU's. Intel has not."
        - Same as above
        "AMD soon has a combined CPU/GPU. Dont know what Intel has there."
        - Don't hold your breath
        "AMD leads the race on low power usage on desktop CPU's."
        - No one cares about a couple of watts when compared to secs in benchmarks


        Yes AMD is leading in areas no one cares about. There behind in price vs performance which is all that really counts cpu wise and notice I didn't say price ve clock speed. I hope you know the diffrence.
        usmcdvldg@...
  • Half full

    Okay, they had a bad year. Doesn't mean they can't make a comeback. I'd say half full, despite "No_Axe"'s axe grinding.
    CobraA1
    • Dude, you give me far to much credit...

      Beleive it or not, I have nothing to do with AMD falling apart.
      No_Ax_to_Grind
      • nah

        I think his comment was in reference to your vulture like attitude toward AMD.
        Badgered
      • hmmmmmmmm

        Well cobra, I see your point. But look at this
        I HATE MICROSOFT, the most un nible un-inovative company ever to grace the earth and yet

        Being first ant important. Just aslong as you show up soon after and can do it cheaper than the original.

        AMD would have to be pretty well lubed up to out wiggle Intel, especially judge from the speed at which the said "hey amd, you have market share, where'd that old design go"

        And the thing is im rooting for amd, I just don't see it happening.
        usmcdvldg@...
    • intel ain't sleeping anymor, and Nvida is on a role

      Hey, I was an AMD fan boy. I loved my K6, I loved it way past its lifespan because even then, I could by one for 30 dollars OC the hell out of it, Throw it away 3 months later, and buy another one. I loved outpreforming P2's> I loved my athlon, my X2 and my FX. AND know I love my 6700......

      But the fact remains, Intel has been a sleeping giant. At first they didn't care cus no one took AMD seriously. But when the giant kicked in gear and we had a 15th round title fight on are hands, Amd decided to open another front Hitler style(aka Nvida), and wish and dream itself to death. And the $2,000,000,000 loan it took out in an attempt to maintain market share with inferior products was just stupid.
      usmcdvldg@...
      • re: intel ain't sleeping anymor, and Nvida is on a role

        "Amd decided to open another front Hitler style(aka Nvida), and wish and dream itself to death."

        You're gonna have to explain this sentence to me . . .
        CobraA1
        • WW2 guy

          Hitlers generals wanted to focus on england. Having no clear route to invade, they were being stalled due to geography. Furthermore, England provided America a spring board in which to attack along along an undefendable front the Atlantic ocean. But Hitler wanted to invade Russia, bealiveing them weak from Asia, he believed a surprise assault would allow him to push to Moscow quickly. He almost made it, but winter hit leaving him with twice the fronts and half the resources.

          Instead of focusing on Intel AMD wanted to purchase ATI. Believing that the extra resources would help them with there manufacturing and R&D woes. If the second biggest PC component market could be tied with the first, this would give them an extra advantage. ATI would give them a spring board from which to challenge Intel with integrated chipsets and streamlined products. But Ati failed to adequately compete with Nvida, and AMDs own processors were woefully outclassed, leaving them no options with which to strike back at Intel. And although The slight income from ATI might help "fix the books" in the future, It will be years to come before ati pays for itself. Leaveing AMD even further in the hole. With to fronts to fight.

          If you can't notice any similarities then I can't help you.
          usmcdvldg@...
          • re: WW2 guy

            "WW2 guy"

            FYI, I was born 45 years after WWII ended, and I did much better in my math classes than my history classes.

            But I get the point. AMD dreamed much bigger than were able to accomplish.

            "Instead of focusing on Intel AMD wanted to purchase ATI."

            Yeah, that was the weirdest merger ever. Usually AMD was associated with nVidia, but they bought ATI.

            "ATI would give them a spring board from which to challenge Intel with integrated chipsets and streamlined products"

            Yeah, well Intel already has integrated chipsets - horrible ones, but they have them nonetheless, and the experience of having done them for years. All AMD really accomplished by merging with ATI was to renew interest in an area that Intel was slouching in (but still already had).

            "But Ati failed to adequately compete with Nvida"

            Agreed. nVidia's 8800s really left ATI eating their dust. I'm amazed how many times ZDNet used ATI's DirectX 9 cards to "benchmark" DirectX 10 games.

            However, even though ATI was a bit late, they still eventually came out with their DirectX 10 cards, and the competition is still very strong in the graphics card market.

            Now, you make a good point about dreaming bigger than reality - but we've got to be careful here. After all, we owe much of our technology to dreamers.

            The point shouldn't be that AMD shouldn't dream - the point should be that after the dreams are made, a reality and feasibility check should've been done to see what is possible, what isn't, and to better work out the implementation details before the project is pursued.

            It also didn't help that Intel grabbed AMD's own engineering techniques and applied them to the Core 2. For the longest time, there's been a big battle over two ways of engineering chips:

            -AMD focused a lot on getting more done in a single clock cycle, allowing the performance to be better than Intel at the same GHz.

            -Intels' architecture has been all about that GHz number, even if it wasn't a true reflection of performance.

            The real explanation is pretty complex - it has to deal with pipelines and keeping them filled and other stuff. Ars Technica has a section about CPUs that has good explanations.

            http://arstechnica.com/articles/paedia/cpu.ars

            With their fastest Pentiums, Intel started hitting thermal limits and had to face the music: They couldn't keep the GHz ball going any longer. They had to do something else.

            They then decided that the way to go was in some weird measurement of "performance per watt", so what they're now doing is what AMD was doing all along: Getting the most computation done in a single clock cycle. The new Core 2 architecture does that.

            Essentially, Intel has embraced what made AMD unique. I think AMD saw it coming, and tried (and is still trying) to find a new way to make themselves unique. They know that they're smaller, and if they want to compete they have to be unique. They have to have a selling point over Intel.

            Which may still come - I don't think they're going to give up without a fight.
            CobraA1
          • Exacly...... to a point

            Essentially, Intel has embraced what made AMD unique. I think AMD saw it coming, and tried (and is still trying) to find a new way to make themselves unique. They know that they're smaller, and if they want to compete they have to be unique. They have to have a selling point over Intel.

            Yes, I am very happy AMD forced Intel to make better chips. And you are right except, Amd didn't compete by being unique. Amd competed by Design, where Intel lead by structural engineering. Now that Intel has switched focus Amd was left with a choice. Gracefully step down, lose market share and there virgining house hold name to come back strong at a later date, Or try to fight the beast at his own game. Intel can do it faster and cheaper. Thats all there is to it.
            usmcdvldg@...
          • hummmm.....

            "Intel can do it faster and cheaper. Thats all there is to it."

            The problem with the words "Thats all there is to it" is that they're rarely, if ever, true. I wish things were that simple, but in my experience they rarely are.

            AMD is gambling that they can be more nimble than Intel since they are a smaller company, so they're pushing to change their direction more quickly to future technologies (their "dreams").

            Intel may be a giant, but the problem with giants is that they tend to be slow when it comes to change. If AMD can be nimble and latch on to future technologies faster than Intel, they may regain an edge.

            Problem is, they're having some troubles latching onto those dreams. But it's not like Intel is latching onto those dreams (yet).
            CobraA1
          • And im sure they'll fight

            But every war needs a budget,

            AMD Hasn't earned a penny in four quarters
            There reidculase loan is almost halve spent
            There stack as fell from $36 a share down to around $9
            And they have no hopes of making money in the real future.
            F the top end, Like I said in my other post The money in the cpu market is the midrange and I really wish amd had said screw there Market share and just went away for awhile cus there gonna lose it anyway.

            I have a prediction, Theres no more cyrix, no more ibm making desktop/laptop chips. By 2009 Intel is going to ease up on its pricing just to keep amd from slipping below the 3-5% market share and thus making them a monopoly.They will give AMD the extreme low end border line worthless market, but never again will they be caught with there pants down.
            usmcdvldg@...