In advance of Core Duo launch, Intel's firesales zap AMD on Wall St.

In advance of Core Duo launch, Intel's firesales zap AMD on Wall St.

Summary: 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.

SHARE:
TOPICS: Processors
17

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.

Topic: Processors

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

17 comments
Log in or register to join the discussion
  • Hooray for competition

    I, of course, will continue to purchase AMD machines as my charitable donation toward perpetuating the lowest prices possible.

    Hell, I used to by Cyrix...
    Omch'Ar
    • That should be "...buy Cyrix..." [nt]

      .
      Omch'Ar
      • And the 'cool' thing about those Cyrix chips

        .. was the fact that you could use them as branding irons they got so stinking hot. They were the hottest chips since the Pentium 60. Never heard of the pentium 60? It was actually made at a larger Fab size then 486's were, so that baby was a power using branding iron of a chip. And, a number of the 486's, not too suprisingly, outperformed it. How it ever came to market is the most surprising thing. It just goes to show you, Intel makes mistakes, and if there wasn't competition, they'd never be quick about fixing them. Ooops. Wait, they never are quick about fixing them. AMD has only been kicking them around for 2 years plus now.
        Bill F.
  • What is this s**t?...

    [i]forthcoming round of dual core technology (due July 27th) appears to be beating AMD from a performance perspective[/i]

    How about a link to some numbers/test results. ZDnet is no better than all the other AMD haters, puplishing speculation with nothing to back it up with. Gotta love this cpu 'race', gunna make my AMD purchase cheaper, sweet!
    Linux_Fanboy
    • Dude, the tests have been ran, AMD LOST.

      Deal with it. But hey, I hear Linux works ok on under powered machines.
      No_Ax_to_Grind
      • Yes dude, I read the results and now...

        I am building a Core 2 Duo E6700. At this point, I don't give a f**k who makes my CPU, as long as it is fast (and stable) for my buck. Oh and another reason I am going Intel is because this new CPU line uses far less power than the newest from AMD. My electricity bill is high enough, thank you very much. >:-l Now stop following me around before I get a restraining order you stalker, heh. >:-P
        Linux_Fanboy
        • You're gonna build it with what?

          From what I read the chips are not available to people on the street yet, but you can walk into any store and take advantage of the bargains in the AVAILABLE and still technically superior to Pentium XXX chips by buying a nice dual core AMD in their new AM2 pin design. Brand new MB chipsets, ability to use DDR2 and at a nice price. Did I mention they are already at the stores? Did I mention they are better then anything currently available? Did I mention that regular people can't get these new chips?

          I don't have to re-iterate what the story said about the fact that Intel is loaded with the crappy Pentium chips, in fact, is still making them.

          You got to love people with a great capacity for self deception.
          Bill F.
          • True, true true and it all dosnt matter a pinch of

            Personally, I really like the AMD CPU?s and there is no question they routinely embarrass the current line of available Intel CPU?s. They cost more, but most tests will show if you can afford the higher price of an AMD you are still usually getting more bang even for the bigger buck; the AMD?s are hard to complain about. Hence all the points you make are correct, except for what appears to be an implication that there is still a good reason to purchase one.

            I routinely advise people on what they should look for in a personal computer, considering their needs, wants and budget. And the problem appears to have become this; if they want to go cheap they always decide on the current Intel line of duel core CPU?s which are dropping to record low prices as we speak, way way below the AMD?s, and if they can afford to get into a hot CPU, they are willing to wait for the new Core Duo 2 to get released, particularly as AMD refuses to say if they will drop prices on the soon to become ?second rate? AMD processors below Core Duo prices.

            This is the hard and bitter pill I cannot seem to get anyone to swallow. If they can go $500 on a CPU, then they see the mid range to higher end Core Duo?s as worth waiting for, unless of course AMD is about to drop the price of an Athlon 64 FX-62 Socket AM2 down to well under $500, and nobody seems to be able to answer such a question. In fact the answer seems likely to be no they will not, just out of the fact of the amount of dollars that the AMD still has to shed to get down there.

            And there seems to be some question as to why Intel is still pumping out the current processors? It?s my understanding that they are still making them in order to accomplish exactly what seems to be happening, they are attempting to box in AMD, price wise into a very narrow niche.
            Cayble
  • Intel heading to BK

    AMD will kill off Intel in a price war. For AMD to maintain cashflow positive, it needs only $0.8 billion revenue. For Intel, it needs at least $6.5 billion revenue. In an all out price war, Intel will post massive losses and BK in just 5 quarters. You have to remember Intel has 100,000 workers and AMD has only 10% of that. Moreover, Intel has run out of cash -- if you know how to read a balancesheet.
    sharikou
    • Out of cash? Not even close.

      YOU need to learn how to read a balance sheet.
      No_Ax_to_Grind
    • So nothing happened to you after all!

      I was a little worried after your conspicuous absence on the articles about how Intel's new Core 2 Duo's spanked the dual core Athalons in independent benchmarks. Just as you were wrong about AMD's technical dominance you are also wrong about which company can afford the price wars more. Intel has the far deeper pockets and will wreak havoc on AMD in a price war.
      ShadeTree
      • He was dead wrong and comes from a new direction now..

        And just as wrong as ever. Why do people get so wrapped up in a brand that they are willing to rely on crap, and then add more crap to the crap they are relying on, and then serve up this putrid information sandwich and actually expect people to just say ?yes, Intel screwed up in actually being better then AMD, only AMD can exist?.

        He really has to get a life. Its like he has forgotten all about the fact that Apple recently signed up with Intel, and incase anyone else hasn?t figured it out besides sharikou; Apple went Intel because Intel told them about the Core Duo, and how they were going to regain performance market dominance.

        If sharikou actually did understand economics the way he claims he does, he would be an economic genius and be the richest man in the world and have no time for posting on Zdnet. I know that?s true because after reading the nonsense of his predictions, I actually investigated and it turns out not only is he full of crap, no other economist is predicting the destruction of Intel due to a price war, and in fact about 4 or 5 reports that are readily available already talk of the difficulties caused to AMD through the reduced pricing and CPU sales, now they lay out big bucks for ATI. Good for them. One way or the other, we are going to see how it all turns out, and sharikou?s wild predictions aside, reality will prevail.
        Cayble
  • AMD's price war strategy is perfect

    Look at the situation

    1) 99% of Intel's inventory ($8.66 billion) and over 75% of its current production are legacy stuff: P4, PD, Core32. Conroe will only reach 25% of volume in 4Q06.

    2) AMD is set to price X2 3800+ at $149. This chip outperforms Intekl's best Netburst chip, the Pentium XE 965.

    3) This means 90% of Intel's sales are made far below $149, probably averaging around $90.

    4) Intel's ASP was $150

    5) This leads to about 40% revenue fall for Intel, or $1.2 billion loss per quarter.

    6) Intel only has enough cash to burn for 5 quarters.
    sharikou
    • I hope AMD believes you. Easier to run them

      out of business if they do. ;-)
      No_Ax_to_Grind
  • Intel Firesales

    Yesterday I helped my daughter set up a new Gateway Computer. It has a AMD Duo 2.8GH. I have a P4 3.08 in this computer. It is way faster than the Gateway. I have 1gig of memory and so does she. I just can't see the advantage so many claim Amd has. Like MS don't count on Intel going down. So many on here think MS is on their last legs. When Slick Willie was trying to bring down MS his DOJ computers were using MS Windows. He spent more money trying to bring MS down than he spent on fighting terrorists.
    Bobby Joe Reed
  • Arrogance

    Please, can?t you stop to use ?nice? words such as f..k or piece of s..t or even c..p in yout posts?

    Is that so difficult to write ?I don?t give a damn? Vs. I don?t give a f..k??

    The general arrogance of a bunch of the ZDNet fans deserves both their subject and purpose.

    This being said, with regard to the AMD Vs. Intel battle, most of the previous posts are talking about new chips not available yet.

    Let?s see when they?ll hit the market, with compliant motherboards.

    For now, it?s only expectations from ?dependant? labs!

    On my side, I have been dealing with Intel CPUs for over 20 years, and I did not switch to AMD with their first or even second generation of chips.

    However, I must admit that for my bucks (let?s say $1.000), I have never ever been able to build a better box with an Intel CPU than what I did with an AMD for these last 4 years.

    Building a box for your needs includes not only the CPU but the main board, the memory, the video adapter, the hard drive, the floppy drive and the power supply unit.

    This include also a silent and efficient cooling system (if you?re using your box at night in a small office).

    Since for the same price, I always got better performer components when choosing the AMD platform, I stayed with this manufacturer.

    That does not mean that Intel could not out perform AMD, but not for the same price and I do not expect to move back to Intel until they change their price policy.

    This does not mean that Intel produces wrong products (c..p), but only on my view point too expensive solutions.

    My last pretty nice multi media box is once again an AMD platform built for less than $1.000

    Case: Tremaltake Bach Media Lab (with remote control unit)
    MB: Asus M2V
    CPU: AMD 64 Dual Core 4800 M2
    RAM: 4 x 512 Mb. DDR2 800
    HD system: Maxtor 120 Gb. SATA2 (with XP Media Center SP2 and Vista RC2)
    HD data: Maxtor 300 Gb. SATA2
    DVD recorder: 2 x Asus DRW-1608P3S
    VGA: Nvidia GeForce 7600 GT 256 Mb dual DVI
    PSU: Advance 480 watts
    KB&M: Spyker

    I could not have the same performance with an Intel based MB and CPU but by spending $250 more!

    Let me just guess that when Intel will effectively release its new CPUs and when you?ll be able to buy compliant MB, not only AMD will once again drop its prices down but will also release higher speed CPUs which one more time will out perform Intel for the same price.

    Just my two cents.
    Furball-Tipster
    • Furball-Tipster

      For that poster's comments, I would only give
      MINUS 25 cents. I did not appreciate the language
      alluded to.
      mystic_rose2004