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AMD CEO Hector Ruiz
AMD will not meet it previous revenue guidance of $1.6 to $1.7 billion USD

AMD's shares were down today on news that it would miss its previous revenue guidance of $1.6 to $1.7 billion USD for Q1 2007. Despite admitting the shortfall, AMD did not disclose exactly how much it expects to come up short for the quarter.

“If things are not going as planned, companies are obligated to adjust their guidance as they see fit. This way, investors are not blindsided after the fact,” said Nicholas Aberle, Senior Vice President of Equity Research, Caris Company.

AMD CEO Hector Ruiz tried explaining today at the Morgan Stanley Technology Conference why things went sour for AMD in Q1.  "In a very short period of time, we went from being four years ago a significant player whose vast majority of products went to the channel distribution and not the OEM channel. In a very short period of time that has flipped to the point now where a vast majority of our products go to OEMs and less to distribution," said Ruiz. "That sort of transition frankly occurred in our view probably faster than we had planned."

Ruiz went on to explain that AMD expected for manufacturers to use a larger share of processors than the channel towards the end of 2006/beginning of 2007 and was prepared to serve them. In reality, that didn't happen and OEM were sitting on unused processors while the channel was asking for more.

"We made a strategic risk on how we shifted our capacity to serve our customers and unfortunately some of our customers were not able to meet those very aggressive growth areas that they had so when we shifted that, we were not able to recover as fast this quarter as we would have liked," Ruiz continued. “That issue should be quite alleviated this year because we have a lot more capability this year delivering products and should be able to serve both the fast-growing OEM portion of our business and also continue to serve the channel as we always have before.”

AMD has seen an increase in processor marketshare over the past few years at the expense of "significant lower" average selling prices (ASPs) – especially in Q4 2006. “ASP erosion is very intense right now, and number two, AMD is losing share.  Add that up and you have a pretty bleak market outlook,” said Aberle. The company did, however, see its marketshare rise from roughly 15% in 2004 to 25% by the end of 2006.

Despite the road bump that that the company has experienced in Q1, AMD is confident that the rest of the year will go more smoothly. The company just recently released its 690G and 690V integrated motherboard chipset and is set to launch its native quad-core Barcelona processors in the second half of this year.

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One big mistake.....
By kilkennycat on 3/5/2007 9:50:07 PM , Rating: 1
...the marriage made in hell... the ATi "merge".

Hector should have concentrated on his CPU knitting. Any such acquisition adventures should have been postponed until AMD had a complete refresh of their CPU design-base, with the production technology and the capacity to give Intel Core2 family (and the upcoming Penryn) serious competition. Borrowing an extra $2billion to pay an inflated price ($20 per share, as opposed to the $16 market value) for a company that already had chronic product-execution problems was not a wise move. The complete R600-family of graphics cards will now be at least 4 months late (from the projections before AMD acquired ATi). And the new ATi motherboard chipset is limping into production. These delays and the extra development expenditures in fixing whatever problems are causing the delays must certainly be putting a significant dent in the joint bottom-line.

The fallout from the ATi acquisition is continuing, with the AMD stock-price continuing to tumble at a rate faster than the current market-slide. I would not be the slighest bit surprised if a take-over bid is made for AMD and the "ATi-division" is put up for sale by the new owners...




RE: One big mistake.....
By Viditor on 3/5/2007 10:04:47 PM , Rating: 2
quote:
Any such acquisition adventures should have been postponed until AMD had a complete refresh of their CPU design-base, with the production technology and the capacity to give Intel Core2 family (and the upcoming Penryn) serious competition


Sigh...I can see that you just don't get the industry here.
Think of ATI as AMD's largest R&D expenditure and that might help.
It takes ~5 years to bring a CPU to market, and ATI is a core element of AMD's next CPU architecture change (Fusion).

Nor is ATI the problem with AMD at the moment either...the price war is the problem. AMD is issuing a bond to raise a Billion or so soon, so the cash shouldn't be any problem.


RE: One big mistake.....
By kilkennycat on 3/6/2007 1:05:19 AM , Rating: 1
... and you are electing to be one of the bond-holders ?

I think that I understand both the industry and finance very well indeed. It was very obvious that the AMD bid for ATi was a huge strategic mistake.. especially with regard to its timing. BTW, I made a large chunk of loose change on the overbid by AMD for ATi and made another chunk of loose change on selling AMD stock short after the merge ... :-)


RE: One big mistake.....
By Viditor on 3/6/2007 2:25:12 AM , Rating: 3
quote:
BTW, I made a large chunk of loose change on the overbid by AMD for ATi and made another chunk of loose change on selling AMD stock short after the merge


Congratulations...and I have made a solid 7 figures on knowing when to buy and sell AMD and Intel. BTW, this will probably be the best year ever to buy AMD...but I'd wait for another few months (just prior to Barcelona's reviews) if you want rock-bottom...

quote:
It was very obvious that the AMD bid for ATi was a huge strategic mistake.. especially with regard to its timing

Sorry, but I know of noone in investing or in the semiconductor industry who would agree with you there.


RE: One big mistake.....
By Lakku on 3/6/2007 3:54:25 AM , Rating: 2
We don't know if it's a huge mistake or not, and if noone, and I mean noone, is agreeing with that, then perhaps that explains the recent slide in the overall stock market. You may be a good investor, and it would seem so by what you say.

However, I think you can see the dilemna here. AMD paid a sizable chunk for ATi, most of the funds borrowed. They have a HUGE disadvantage when it comes to manufacturing, both in die process and in total output capacity. Intel is building four to five fabs that I know of. If not building, then upgrading them to smaller die processes and 300mm wafers. Intel is set to increase output by a sizable chunk soon. AMD is not building as many fabs and they don't have as good of fabs (in terms of output capability) to begin with. This means they will lose ground to Intel in output capacity, not gain. This is important because AMD may not be able to meet demand even if it arises.

With that said, AMD has been put to a neutral position by some invesors instead of a buy, so I would think SOME people disagree with you. AMD seems to need cash flow, something that a 1 billion plus buyout does not bring to you. Therefore, I believe AMD made a mistake in buying ATi right now, unless of course they planned on being in a position to be bought out and wanted to be more attractive to perspective investor firms for such a buyout. AMD stock is low and a hostile takeover is more then possible, making them a risky prospect at best and at worst, thus a neutral position on it. Don't sell, don't buy.


RE: One big mistake.....
By Viditor on 3/6/2007 8:42:52 AM , Rating: 2
quote:
AMD paid a sizable chunk for ATi, most of the funds borrowed.

True, but you will have to trust me when I say that this really doesn't weaken their position. If you look at the history of all the companies where this has happened, you will see that more often than not it actually strengthens the purchasing company (though in the short term there is ALWAYS a cash squeeze).
quote:
They have a HUGE disadvantage when it comes to manufacturing, both in die process and in total output capacity

Not as much as you think...
1. AMD's 45nm process is 6 months behind Intel's.
2. AMD has 3 Fabs now (36, 30 which is becoming 38, and Chartered), with another (New York) on the way.
3. Intel will be starting with 2 Fabs on 45nm and 2 more coming on-line soon after. But the majority of Intel's Fabs are not capable of manufacturing CPUs at all...

quote:
AMD is not building as many fabs and they don't have as good of fabs (in terms of output capability) to begin with

Only one of Intel's 45nm Fabs has equal output capacity to AMD's Fabs (D1D)...AMD's Fabs are second to none (though Intel does have more of them).
quote:
AMD seems to need cash flow, something that a 1 billion plus buyout does not bring to you

I think you misunderstood...it's not a buyout at all, it's a second float of some of their shares.


RE: One big mistake.....
By vignyan on 3/6/07, Rating: -1
RE: One big mistake.....
By Viditor on 3/6/2007 8:36:36 PM , Rating: 2
quote:
Well dude.. you seem to be an AMD fanboy

Disclosure: I own shares in both Intel and AMD, but I have significantly more shares in AMD. That said, I wouldn't own the shares if I didn't believe in the company...

quote:
Intel is by far almost 15x greater production capacity than AMD

Please list for me the Fabs that Intel have that you think are capable of even 3x greater production in CPUs than AMD (let alone 15x).

quote:
And AMD is not just 6 months behind intel in 45nm... Intel has demoed a working next gen processor with over 4 operating systems working perfectly fine... and AMD released a SRAM test vehicle that too in words

1. Intel 45nm is scheduled for Dec/Jan, and AMD is scheduled for June/July...though it's quite possible for changes to occur, that is true for both companies.
2. Intel's 45nm SRAM test vehicle was shown in Jan 06, and AMD's SRAM test vehicle was shown in April 06.

quote:
If i remember correctly... the Barcelona core was due release in 2006

Nope...Barcelona was never scheduled for 2006, it has been scheduled for mid 07 since it's inception. I think you are thinking of the HKEPC rumours that Brisbane was to be a K10 processer (which it never was).
quote:
and Fusion due in 2007

Again, no. That was also a misreporting and rumour mistake.


RE: One big mistake.....
By Calin on 3/7/2007 2:28:11 AM , Rating: 2
Intel having 15x production capabilities (even putting into account chipset production at 1:1 rate with processors) mean AMD having an eigth of the market - which is false. I am sure Intel and AMD are selling all the processors they can make, so the production rate would be 4:1 to 5:1 in Intel's favor.


RE: One big mistake.....
By defter on 3/6/2007 5:44:32 AM , Rating: 2
quote:
Sorry, but I know of noone in investing or in the semiconductor industry who would agree with you there.


You don't seem to know many investors then...

They are several very clear reasons why AMD ATI deal was a big, big mistake. For example:

- ATI had trouble competing with NVidia in the GPU market. ATI lost a lot of discrete notebook market share in Q3 and Q4 (notebook market was their stronghold in the past). Numerous R600 delays have also shown that ATI is also slipping in the high end desktop market.

- Just 1.5 months after AMD and ATI announced the deal (and AMD promised to pay >$20/share), ATI posted a HUGE revenue warning: http://ir.ati.com/phoenix.zhtml?c=105421&p=irol-ne... , they were expecting $520M of revenues for fiscal Q4 instead of $620-$660M promised before. All this means that ATI stock was hugely overvalued at the time of deal, and had AMD waited a few months, they would have gotten ATI at $10/share.

- AMD will be in very difficult situation in the next few years, because of very competitive Intel's roadmap. Thus, AMD really needs all extra money they can get for building new FABs and investing in the process equipment. Spending $5B for ATI was a HUGE expense for AMD.


RE: One big mistake.....
By Viditor on 3/6/2007 9:01:35 AM , Rating: 3
quote:
You don't seem to know many investors then...

LOL...
quote:
ATI had trouble competing with NVidia in the GPU market. ATI lost a lot of discrete notebook market share in Q3 and Q4 (notebook market was their stronghold in the past). Numerous R600 delays have also shown that ATI is also slipping in the high end desktop market


And this makes absolutely no difference to AMD's acquisition. If they were just investing in the company, I would agree...but that's not why they bought them.

quote:
AMD will be in very difficult situation in the next few years, because of very competitive Intel's roadmap. Thus, AMD really needs all extra money they can get for building new FABs and investing in the process equipment. Spending $5B for ATI was a HUGE expense for AMD


They bought ATI because it ALLOWS them to compete, not because they suddenly wanted to start selling video cards.
1. Fusion (Intel has nothing like it)
2. Chipsets (Intel had them, now AMD has their own division)
3. Co-processers (Torrenza)...something else Intel doesn't have. AMD's new bare metal GPUs are expected to tie directly into the cHT links and will allow them to cheaply and easily take computing up several orders of magnitude in a single leap.

For the long run, $5 Billion was a dirt cheap bargain!


RE: One big mistake.....
By Calin on 3/7/2007 2:36:29 AM , Rating: 2
AMD built chipsets at the launch of the Athlon family - and the AMD750 (Irongate) and AMD760 (and biprocessor 760MPX) were working chipsets, even if lacking in high-end selling points.
The reason AMD left other companies develop the chipsets for AMD processors was to save its production capacity for microprocessors, and slash the R&D costs. Barring that, AMD would have been able to keep up with developing working chipsets, but that would have eat from its microprocessor development funds and from microprocessor production capacity (both being in short supply at AMD)


RE: One big mistake.....
By Viditor on 3/7/2007 2:55:17 AM , Rating: 2
quote:
The reason AMD left other companies develop the chipsets for AMD processors was to save its production capacity for microprocessors, and slash the R&D costs

More of the later than the former...
You might try to find the interview on the net, but J Sanders has said on a few occasions that development of the Irongate chipset cost AMD more than the development of the CPU itself.
This was because they had nobody in-house to do the development...


RE: One big mistake.....
By crystal clear on 3/6/2007 1:25:38 AM , Rating: 1
"so the cash shouldn't be any problem"

NO-Its not so simple as you make it appear-

Read my comment-"MAY 3rd 2007"

"AMD asks to double common stock to 1.5 billion shares "

DONT PLAY AROUND WITH SHAREHOLDERS-HEADS WILL ROLL


RE: One big mistake.....
By Viditor on 3/6/2007 2:35:47 AM , Rating: 2
quote:
"AMD asks to double common stock to 1.5 billion shares "

Yup...I read it when it was filed on 3/2/07.
For those who haven't seen the 14a document,
http://www.hoovers.com/free/co/secdoc.xhtml?ID=100...
that's it...

Of course doubling the common stock doesn't mean it all gets diluted...usually most of the stock gets passed back to shareholders (as it does in a stock split), while a small portion is sold to raise extra cash.
In the CC, Hector stated that their goal is to get the cash up to ~$1 Billion. As of Dec 31 06, they were at $1.38 Billion, so I imagine that this will be to oversee any future debt payments.


RE: One big mistake.....
By crystal clear on 3/6/2007 7:01:16 AM , Rating: 1
"Of course doubling the common stock doesn't mean it all gets diluted...usually most of the stock gets passed back to shareholders (as it does in a stock split), while a small portion is sold to raise extra cash."

Sorry I refuse to TRUST this-

It will result in "decrease shareholders' percentage equity and dilute voting rights, earnings, and book value."

Dont be too sure - I would prepare myself for a dirty surprise.


RE: One big mistake.....
By Viditor on 3/6/2007 8:50:43 AM , Rating: 4
quote:
Sorry I refuse to TRUST this

Suit yourself...
But remember that well over half of the shares are owned by institutions who are represented on the Board, and they unanamously approved the motion.
Do you really believe they would cut their own throats?