Has AMD busted itself trying to beat Intel?

Has AMD busted itself trying to beat Intel?

Summary: Bad news from AMD yesterday - the company posted a staggering quarterly loss. Has AMD busted itself by trying to beat Intel rather than concentrating on developing new exciting products?

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TOPICS: Processors
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Bad news from AMD yesterday - the company posted a staggering quarterly loss.  Has AMD busted itself by trying to beat Intel rather than concentrating on developing new exciting products?

AMD's price war with Intel has taken a toll on the company.  Margins are down dramatically, falling to 31 percent from 40 percent in the previous Hector Ruiz, AMD's Chief Executive, isn't happy and told analysts that "We're not happy with having to miss the damn numbers." quarter and nose-diving from 59 percent a year ago.  Despite being the #2 player in the processor industry, AMD has seen a quarterly profit it made a year ago of $184.5 million eroded down to a loss of $611 million (in share terms this works out at a loss of $1.11 per share this quarter against a profit of 38 cents a year ago). 

AMD's failure is down to one thing and one thing alone.  It made enthusiastic and very generous price cuts on products that couldn't hold their own against newer, faster and more efficient CPUs by Intel.  To be honest, even with the price cuts, I've still considered AMD's products to be overpriced.  And instead of investing R&D in better desktop processors, AMD made bad choices and instead tried to appeal to high end enthusiast markets with the Quad FX, which would never amount to anything more than low volume sales. 

Hector Ruiz, AMD's Chief Executive, isn't happy and told analysts that "We're not happy with having to miss the damn numbers."  Other executives used words and phrases such as "unacceptable," "a perfect storm," "a terrible start" and "a major setback."

One the plus side, the company does have a cash reserve of $1.2 billion and talk of financing did boost share prices despite the bad news.  Chief Financial Officer Robert Rivet said that he was comfortable with the company's cash reserve and wouldn't be concerned until this was down to about $600 million.  At the rate AMD are currently losing money, that might not be too long.

The company's Athlon 64 X2 dual-core range is just over the hill, it's a little dot on the horizon, and the lackluster 6000+ does nothing but underline thatTo turn the company around AMD needs to go back to basics and start making waves again in the processor market.  The company's Athlon 64 X2 dual-core range is just over the hill, it's a little dot on the horizon, and the lackluster 6000+ does nothing but underline that.  This chip is a 3GHz, 90nm, 125 watt dinosaur compared to the Core 2 Duo processors.  I used to be a huge AMD supporter, having bought more AMD-based systems than Intel-based ones over the years, but the only reason I can see people buying these latest AMD CPUs is if they like the packaging.  I want AMD to give me something exciting, but all they do as of late is disappoint.  Now I guess that AMD executives have joined the crowd of people let down by AMD, maybe things will change.

Where it matters - price, performance and power consumption - Intel hammers AMD into the ground.  That's why AMD has, in the space of 12 months, turned from making a tidy profit into making an eye-watering loss, and unless the company starts listening to what customers want rather than telling them what they need, AMD's going to continue down the plughole.

Topic: Processors

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  • Thanks to AMD

    I hope AMD makes it again. If they do not customers are actually the losers and back to Intel monopoly, high prices and back to Intel processor technology strangulation. Intel advancement in processor technology has been mainly due to AMD technology innovation and competition.
    hass1
  • Probably closer to the "perfect storm" scenario

    The "perfect storm" scenario is the most likely one. AMD spent too much time in self-congratulation mode while Intel seethed and worked hard to overcome the technology gap. At the same time, Intel decided to cut prices to the bone (their own margins are lower than they have been historically) to get back market share. But AMD survived that okay for a while, but the post-holiday slowdown just whacked them upside the head.

    I don't think AMD busted itself, however. They dropped from $1.5 billion to $1.2 billion in cash during a year when they purchased ATI for $5.5 billion, so I don't see the $300 million drop as much of a concern. The ATI acquisition itself will likely distract them from their core mission, so it was a mistake (IMO). But it won't doom them.

    If they can regain their footing technologically, they will be in good shape. More big players are used to working with them on servers and high-end workstations than ever before. So if they can simply equal Intel, they can get back some of those sales with companies trying to cut better deals with Intel.

    They took a step back this quarter, and will likely have a few more bruises before it's over. But in the long run, the technology will tell the tale. If they can equal Intel in price and speed, they will be fine. If they can surpass them again (as was the case for about two years), they will finally reach their 35% market share goal.
    bidemytime
  • AMD is doing what it can in the short term

    Things like the QuadFX and the 6000+ are stop-gap measures, but they're the right thing for AMD to do in the short term. Neither involved a large investment in R&D; QuadFX is really just a desktop repackaging of the Opteron CPUs for dual-socket systems, and the 6000+ comes from work on process speed improvements that was going to happen anyway.

    When the Athlon 64 architecture was introduced, it leapfrogged the then-current Pentium 4. Core 2 has since jumped over Athlon 64. AMD needs to work on a better architecture, and I'm certain that they ARE working on one. But developing a completely new processor design takes time, and AMD is not going to announce a completely new architecture until it's nearly ready for sale.

    AMD will also be working on using increasing transistor counts for increased integration (Fusion) rather than more cores. The challenge is that Fusion is likely to lead to lower-performance systems, and getting acceptable margins may be difficult. But if the world moves toward small-profile solutions and power efficiency rather than raw computing power, Fusion could be a big winner for AMD.
    mark@...
  • Given the reports that R&D are being outsourced...

    I don't see AMD coming back from this. And just so people understand, manufacturing a CPU AFTER it is designed takes a massive amount of R&D on the manufacturing side and why Fabs are so expensive. (That is why AMD can't get to 65nm while Intel is moving to 45nm.)

    Personally, I see the decision to outsource manufacturing R&D as a MAJOR mistake on AMDs part.
    No_Ax_to_Grind
  • Problem is that it takes 5 years for a new chip design

    Problem is that it takes a minimum of 5 years for a new chip to go from inception to the store shelves. AMD can't just hammer out a new product even though they knew all the warning signs more than a year ago with the dawn of the Core 2 era. AMD had to be aware of Intel?s Core 2 nearly three years ago and even then it was too late to do something to head off the situation we have today.

    With the latest severe price cuts, AMD actually has a better product at a lower price than Intel if you don?t intend to Over Clock. You can buy an AMD X2 5600+ 2.8 at the price as an Intel E6300 1.83. Even though the X2 uses a lot more power in peak, it only uses 10 more watts in idle compared to the Intel Core2.
    georgeou
    • So AMD has no new products in the pipeline?!?!

      If that's true, then it's only a matter of time -- but of course, it isn't true. Both AMD and Intel have at least their next *two* sets of products in the pipeline. They have to do that all the time, otherwise they are doomed.

      And since about 99.9% of computer buyers don't overclock, it sounds like AMD is already back to an even playing field with Intel. That didn't take long :)
      bidemytime
      • Correct, they have none.

        They have no new products in the pipe, what they do have is a design that they have not been able to turn into a real product and now are short of the funding needed to do the R&D and construct a Fab to make them. That is why they are looking for a savior to do the manufacturing for them.

        A manufacture that makes nothing is not a manaufacture, the are soon to be a foot note in history...
        No_Ax_to_Grind
        • Some facts for you

          1. George Ou wrote that AMD *already* offers a better price-to-performance than Intel. And I'd consider him a pro-Intel guy, generally.

          2. Price war + historically weak quarter = very bad financial results. But demand will increase for the remainder of this year, and both AMD and Intel will benefit from stronger sales (and likely higher margins).

          3. The move to 65-nanometer will help AMD's margins, and they're on schedule to move to 45-nanometer faster than usual. I know, I know -- Intel's already at 65-nanometer. But that makes on difference to this discussion -- AMD's bottom line will benefit from more 65-nanometer, regardless of what Intel does.

          4. The guy who just claimed that AMD has no products in the pipeline had five grammatical errors in his last "sentence." I'd take whatever he's selling with a grain of salt.
          bidemytime
          • I'm a pro-wallet guy

            "1. George Ou wrote that AMD *already* offers a better price-to-performance than Intel. And I'd consider him a pro-Intel guy, generally."

            No, I'm a pro-wallet guy. At this point if I wasn't going to overclock, I actually RECOMMEND the AMD X2 processors because of their extremely aggressive pricing with the recent extreme drops in price. AMD is intentionally doing this so that they don't lose too much market share. AMD has already had their market share gains knocked down to 2005 levels and Intel took back a lot of market share while making 1.6 billion dollars. As AMD was losing 30% of its market to Intel, it bled $600 million dollars.

            The fact that AMD is willing to sell low-yield 90nm X2 parts at such a low price is NOT good news for AMD?s financials and they can?t keep that up for long. Getting all their products to 65nm by Q3 of this year should help them bleed less, but Intel?s hitting 45nm by the end of this year and the manufacturing advantage goes to Intel again. That means Intel gets to tighten the noose around AMD?s neck again with price drops on their higher-yield 45nm wafers while AMD gets forced to match prices on their lower-yield 65nm parts. The way things look I fear for AMD.
            georgeou
      • They can't keep that up though

        "And since about 99.9% of computer buyers don't overclock, it sounds like AMD is already back to an even playing field with Intel. That didn't take long "

        AMD can't keep selling 90nm 2.8 GHz low-yield parts at the same price of Intel's 65nm 1.83 GHz high-yield parts. That's a formula for disaster and that's why AMD is hemorrhaging in Q1 and I don't see anything different for Q2.

        AMD has new products in the pipeline coming but the stuff Intel has coming up in the next 6 quarters is much scarier.
        georgeou
        • Q2 will be bad, but...

          Your wrote: "AMD can't keep selling 90nm 2.8 GHz low-yield parts at the same price of Intel's 65nm 1.83 GHz high-yield parts. That's a formula for disaster and that's why AMD is hemorrhaging in Q1 and I don't see anything different for Q2."

          I agree that AMD will continue to look "red" through Q2. But both AMD and Intel will look a lot better when demand ramps up for back-to-school and the holidays. Both companies will likely sell just about everything they can make during Q3 and Q4, and that means better margins and profits. Happens every year.

          You wrote: "AMD has new products in the pipeline coming but the stuff Intel has coming up in the next 6 quarters is much scarier."

          If you are correct about the up-coming products, then AMD will not look good for the next 18 months. But remember: Intel shareholders are putting a lot of pressure on the company to return to the glory days of 65% margins. Once Intel is comfortable with their technology lead, they are sure to raise prices, which will allow AMD to raise their prices to survive or siphon off market share at the low end to grow.

          Either way, AMD is not going away (which is what this article seemed to imply). This fight is far from over. After all, Intel needs to keep AMD around to keep the feds from slapping them with monopoly charges :)

          PS. I hope No_Ax_to_Grind read your post; it's proof that his "AMD has nothing in the pipe" statement is flat out wrong.
          bidemytime
          • It's a good bet that AMD's pipeline is weaker than Intel

            It's a good bet that AMD's pipeline is weaker than Intel's pipeline for the next 18 months. AMD will continue to make good performance gains while Intel will make some massive jumps. First you have the Penryn which re-opens the gap that Barcelona closes which means a very short honeymoon for AMD. Then you have the monster called Nehalem which addresses Intel's FSB bottleneck which unleashes a brutally fast core. Intel can maintain a performance lead inspite of a massive FSB bottleneck. With FSB gone, Intel is poised to make a monster jump in performance in the multicore arena.
            georgeou
  • AMD needs to raise prices

    Sell based on sentimentality, cause they sure can't compete on performance. Translation - 45nm chips just got a whole lot further in the future.
    3dguru