AMD seeks profitability, says Barcelona botch won’t be repeated

By Suzanne Deffree, Managing Editor, News -- Electronic News, 12/13/2007

NEW YORK -- Plans for profitability were overshadowed at Advanced Micro Devices Inc.’s analyst event held at the New York Stock Exchange this morning, where the company’s top brass spent much of their presentation time admitting to the mistakes made with AMD’s quad-core Opteron server chip launch and beseeching the financial community to look past its errors to the more positive moves it made during 2007. 

Relying heavily on a “the glass is half full” approach, chairman and CEO Hector Ruiz; president and COO Dirk Meyer; executive VP, computing products group, Mario Rivas; senior VP, manufacturing and supply chain management, Doug Grose; and CFO Bob Rivet each noted their disapproval of the company’s quad-core server processor introduction, code-named Barcelona, which launched in September after delays and design “glitches” that have pushed the widespread launch back to Q1 2008.

“There are times in your life where you feel that the perspective of those around you is quite different than the perspective that you have yourself. You sit back and you think about it and you observe that maybe some of the folks around you aren't taking the time to see everything you see or maybe aren't motivated to see everything you see,” Meyer said opening the event.

"Now is one of those times. We've done a lot of things very well at AMD since Q1 and we've done one thing very poorly. Namely, we haven't delivered our quad-core products according to our plan. Are we disappointed? You bet. Are we determined to do better? Absolutely. But I tell you, we feel like the quad-core issues really overshadowed some of the positive achievements that we as a company have made since Q1."

Despite requests from analysts, AMD today did not provide additional detail as to what went wrong with the quad cores to move back volume shipments, only saying that the ramp delay was due to a design issue, not a manufacturing issue.

On the bright side …

AMD, instead, trying to spin the event toward its more positive achievements so far in 2007, focused on its plans for ATI, the graphics processing units (GPU) maker it acquired for $5.4 billion in October 2006 and merged into its business over the last year. The company, which lost notebook GPU market share this year to competitor Nvidia Corp., said it plans to retake that share and challenge Nvidia in the mid-range and high-performance desktop segments with GPUs based on the ATI RV620 and ATI RV635 coming in Q1. Unfortunately, the news was not all good when it came to ATI this week. AMD on Wednesday announced a materials charge related to its over-evaluation of the "goodwill" or intangible value added by its ATI acquisition, suggesting that the MPU maker overpaid for the company.

AMD also shinned light on its work with top foundry TSMC, an ATI partner for more than 10 years. AMD’s PC gaming Spider platform includes the ATI Radeon HD 3800 series of GPUs, which were the first GPUs manufactured on TSMC’s 55 nm process technology.

Analysts have speculated that AMD may be getting closer to TSMC and could soon announce a change to its “asset light” manufacturing strategy that would see more of its capacity come from fabs outside AMD’s Germany and planned New York facilities. AMD’s Grose would not firmly comment on future work with outside foundries at today’s event.

Back to black

Meanwhile, CFO Rivet promised that AMD will return to profitability in Q3 2008 and said that, based on research from organizations such as World Semiconductor Trade Statistics, AMD expects MPU unit demand growth above 15 percent in 2008, which he expects the company will outdo. Rivet further said he expects the price war between AMD and its “competition,” Intel Corp., to remain hot, despite recent research from iSuppli Corp. that reports the price war is beginning to cool and that such a cooling would be beneficial to both AMD and Intel.

"The competition's tough. We expect it will still be a fairly aggressive price environment – they are not going to back off and we're not going to back off on winning the appropriate business at the right price,” he said. “It won't be much different this year versus next year in price competition from that perspective.”

Rivet also said AMD will lower its 2008 capex to $1.1 billion, down from 2007’s $1.7 billion and 2006’s nearly $1.86 billion, while taking other moves to reduce costs.

Regardless of the CFO’s remarks, Wall Street closed AMD’s stock down 13 cents at $8.84 this afternoon, after it traded as low as $8.42, the stock’s 52-week low, during the day. AMD's stock has been below the $10 mark since the end of November, and has been in near steady decline since January after it hit a 52-week high of $23. The company has a current market value of less than $5 billion.

On the defensive and unashamedly frustrated, Ruiz asked the financial crowd: “How the hell can anyone conclude that AMD is worth 40 percent less than it was four weeks ago? … At the end of the day we’re dealing in a technology industry with a combination of rocket science and a little magic.”

Turning his attention back to Barcelona, Ruiz said, "We're humbled by it. We learned from it. And we're not going to do it again."

For commentary on this news, see "AMD: Let’s start with what’s in the glass …"