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AMD struggles in a number of markets

In the graphics world, Advanced Micro Devices (AMD) has managed a surprising turnaround with the release of its 4000 series of graphics cards, which dollar-for-dollar outperform NVIDIA's offerings. If early reviews are to be believed, AMD will soon negate the last victory that NVIDIA could claim -- highest performance, regardless of price -- with the release of the 4870 X2, which trounced NVIDIA's high-end 280 cards in early testing.

Despite this success and boosted sales, AMD is still struggling heavily financially. The acquisition of ATI, while finally becoming a success, was a costly one. This is reflected in its predictions for its second quarter financial results, which will be announced July 17. AMD is expected to take over $900M USD in charges to cover its deep debt.

The discovery came from an AMD filing with the U.S. Securities and Exchange Commission (SEC). Leading a variety of charges will be the big one -- an $880M USD related to the Consumer Electronics division of ATI. AMD complains that the division's handheld and TV units are performing very poorly.

It appears that ATI may be planning to spin off or sell its struggling Consumer Electronics division in response. The consumer electronics division makes the graphics chips for the Wii and formerly made chips for Microsoft's defunct HD DVD expansion.

Another $32M USD writedown will be taken based on the layoffs announced earlier in the year, to cover various severance packages and other expenses. AMD had announced plans to cut 10 percent of its workforce earlier this year, or about 1,650 employees. The cuts will target underperforming divisions to try to return them to profitability.

Finally, AMD is taking an additional $36M USD writedown based on various other investments, including its investment in Spansion, a flash memory company which AMD jointly co-owns with Fujitsu and private investors.

AMD hopes to control some of the costs by selling off some 200-millimeter wafer equipment from its fabs. The equipment is expected to total $190M USD. It is unclear, however, exactly what AMD plans to do with the fabs in question. It may elect to close them or try to develop more partnerships under its "asset smart" strategy.

Ross Seymore, an analyst with Deutsche Bank, said the numbers were noteworthy of some broader issues with AMD, but not game-changing by themselves. He stated, "AMD is taking several one-time charges, but we believe they do little to change the fundamentals of the company. AMD will take an additional $880 million impairment charge related to the ATI acquisition. This brings the total impairment charges related to ATI to approximately $2.2 billion or more than 40 percent of the original $5.4 billion acquisition price."

AMD is hard at work secretively designing a dual CPU/GPU, which it currently dubs "Accelerated Computing", its eventual goal in acquiring ATI. However the cost of developing this future-looking offering has been large, as the acquisition cost $5.4B USD at a time when AMD was already struggling financially.

It is the hope of AMD that its upcoming 45-nm processor, Shanghai, and its newly released Puma mobile platform for laptops will help return it to profitability. Meanwhile it will try to make its operations leaner by cutting jobs, taking writedowns, and possibly ditching its struggling consumer electronics division.

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How long can it last?
By porkpie on 7/14/2008 10:28:31 AM , Rating: 2
AMD has been losing money as long as I can remember. I love to root for an underdog, but I really don't see how long this can last.

RE: How long can it last?
By jamesbond007 on 7/14/2008 10:54:11 AM , Rating: 3
I also love rooting for the underdog. In fact, this news almost makes me feel bad about buying a Core 2 Quad instead of an AMD Phenom. However, I can't forget that I'm a consumer and my instincts tell me to buy the product where I get the most for the least amount of money.

I hope that AMD + ATi stays intact for the sole reason of competition and pushing each other (AMD + Intel and ATi + nVIDIA) so that we always have a plethora of choices available. I don't think that the success of the new ATi chips could have come at a better (or more needed) time for AMD and ATi conglomerate. Hopefully the success of this series will bring the much-needed revenue for the underdog to keep them going.

RE: How long can it last?
By Mitch101 on 7/14/2008 11:39:27 AM , Rating: 2
Same here I went with an E8400 for my last rig after about 3 Athlons and Athlon X2's. But Luckily for AMD they bought ATI to which are my last 2 graphics cards.

Boy talk about being so close AMD's Mobo's are top notch, their GPU's are top notch but their CPU's while priced very competitive don't overclock like Intel's.

I think AMD needs to go all out like NVIDIA is with CUDA to gain some lost ground. Leverage some apps using the GPU making the 780g and its soon to launch replacement making the AMD combo's look a little better.

If AMD cant compete in the CPU area for a while then leverage the GPU in more applications so they can compete to a degree. One could still use an ATI graphics card with and Intel CPU but it would make AMD motherboards with onboard graphics leveraging the GPU in application take back some ground. I am certainly looking at the 780g or its replacement for a HTPC. Would be good to see them leverage the GPU a little more.

RE: How long can it last?
By Some1ne on 7/14/2008 3:47:49 PM , Rating: 2
I also love rooting for the underdog.

I agree, that's why I purchased a Radeon 4850 the week they came out. I'll happily support AMD, so long as they're able to offer products that are at least reasonably competitive.

However, I wouldn't get a Phenom over a Core 2 Quad either. AMD still has a lot of work they need to do in order to get the CPU business to be viable again.

RE: How long can it last?
By Viditor on 7/15/2008 10:19:30 AM , Rating: 2
This is where everyone gets the muddled thinking...

Jason, when you post things like "AMD is expected to take over $900M USD in charges to cover its deep debt", it is very misleading!

AMD is writing down the value they initially put on ATI.
In other words, when they bought ATI the valued it at $x.xx Billion dollars, and now they are saying that that estimate was too high by $880 Million.

They haven't lost any money on it, but they did revalue the company lower.

RE: How long can it last?
By Ringold on 7/15/2008 2:56:22 PM , Rating: 2
AMD is bleeding cash out of every orifice it seems, which Jason pointed out, and he only said it was a write down.

It's a lot better than his neosocialist anti-corporate oil rant. :P

RE: How long can it last?
By jlanders646 on 7/14/2008 11:03:54 AM , Rating: 3
I love people that say "as long as I can remember they've been losing money". Yes AMD has lost money since the ATI deal, before that they where profitable. I'm neither an ATI or Nvidia fan, I buy whats hot at the time. I think I'll be buying a 4870x2 when it comes out. AMD will be profitable again, I think another year or so.

RE: How long can it last?
By masher2 on 7/14/2008 11:32:00 AM , Rating: 2
> "I love people that say "as long as I can remember they've been losing money". Yes AMD has lost money since the ATI deal, before that they where profitable"

AMD lost money in 1999, 2000, 2001, 2002, 2003, 2006, and 2007. They showed a small profit in 2004 and 2005.

RE: How long can it last?
By omnicronx on 7/14/2008 11:39:44 AM , Rating: 2
AMD loses from pre 2006 are no where near the levels of today.

RE: How long can it last?
By masher2 on 7/14/2008 11:50:02 AM , Rating: 3
In 2002, AMD lost $1.3B on sales of only $2.7B. In 2Q 02, their expenses were nearly *double* revenues.

They've been in this boat before. I expect they'll paddle their way out just as they've always done.

RE: How long can it last?
By Tsuwamono on 7/14/2008 1:57:50 PM , Rating: 1
those losses are because they write off a ton of stuff that doesnt actually cost them money like equipment devaluing. The reason they do this is for better tax brackets. They do make money, they just dont post as a profit because the lower the "profit" the lower their taxes.

RE: How long can it last?
By masher2 on 7/14/2008 5:36:59 PM , Rating: 2
Eh? It doesn't work this way at all. If you buy a $10M piece of equipment with an (anticipated) lifetime of 20 years, you don't get to claim that entire $10M as a cost at once, even though you most assuredly spent it. You amortize it out over time.

At some future point, you might realize that equipment might be depreciating faster than anticipated, so you accelerate and write off part or all of the remaining value. But every single penny you write off is money you originally spent. You might not have done so in that particular fiscal year...but you still spent it.

RE: How long can it last?
By AlexWade on 7/14/2008 11:17:36 AM , Rating: 1
I think AMD will become relevant again the CPU world. Remember, they were an afterthought until the Opteron and then suddenly Intel had to rely on heavyhanded tactics and not performance to stay on top.

Many people knew the AMD/ATI merger would hurt a lot short term. But buying ATI was a long term move. Already we see AMD's engineers helping ATI. I think the ATI engineers will eventually bring something to the CPU that Intel is not able to yet. If AMD can combine a GPU and a CPU, this will be a huge boon to the coveted mainstream market. We all know that GPU are good at math. AMD may be able to make a CPU as good at math as a GPU, which will be great for science applications. There are many possibilities. The point being the move to buy ATI was a long term investment.

RE: How long can it last?
By omnicronx on 7/14/2008 11:37:17 AM , Rating: 2
Most of what AMD was losing was in regards to the ATI takeover. In fact leading up to 2006 in which they bought ATI, theyre lowest quarterly net income was 11 million dollars (I.e not losing money). In other words, things are far from over with AMD, which is why they want to get rid of division that is losing the most money to become pretty much even again, as long as they can continue to compete with Nvidia, and Intel for that matter.

RE: How long can it last?
By kamel5547 on 7/14/2008 11:40:55 AM , Rating: 2
Actually they were somewhat to fairly profitable (in the recent past) until Intel released the Core 2 series of processors. The Athlon (and Opteron) was a major push toward profitability, and worked out fairly well.

AMD has had bigger problems with their non-CPU businesses dragging down overall operations. Their flash memory operation was a huge drag at times (now know as Spansion) and continues to be an issue due to the large retained ownership stake. ATI looks to have had the same effect by distracting resources and attention from the core business. I suspect these new 4000 series cards should help balance things out though.

RE: How long can it last?
By SiN on 7/14/08, Rating: -1
With the Wii chip
By FITCamaro on 7/14/2008 10:40:07 AM , Rating: 2
I would think they'd want to keep that business, especially with how well the Wii is selling. Its a steady stream of revenue and its still some profit.

RE: With the Wii chip
By mmntech on 7/14/2008 10:47:05 AM , Rating: 1
AMD also makes the graphics chip for the 360 so they've got a cushy business in that arena. The problem is that AMD is still mainly a CPU company, and that's where they're loosing business right now. The Core 2 is hammering them right now since it offers the best performance per dollar. The market needs a strong AMD since the competition forces innovation from the other manufacturers. Without the Athlon64, it's unlikely Intel would have progressed to the Core 2 so quickly, if at all. It benefits us as consumers.

RE: With the Wii chip
By maverick85wd on 7/14/2008 11:14:37 AM , Rating: 3
The Core 2 is hammering them right now since it offers the best performance per dollar

Early reviews for Nehalem make the picture even grimmer for AMD if they can't get Shanghai out soon. Obviously the market is better off with two fierce competitors battling it out on the price AND performance fronts (as evident in the NVIDIA/ATI GPU battle) I just hope AMD gets their act together and successfully shrinks to 45nm before it's too late.

RE: With the Wii chip
By NullSubroutine on 7/14/2008 11:38:30 PM , Rating: 2
Nehalem is only going to be an extreme enthusiast or high end server chip for a good 6 months after release. You won't see 250-500 Nehalem based chips until 2H 2009, late 2Q at the earliest.

RE: With the Wii chip
By Phynaz on 7/14/2008 11:58:55 AM , Rating: 2
The 360 gpu was designed by ATI but is not supplied bt ATI. AMD gets no revenue from 360 sales.

RE: With the Wii chip
By HrilL on 7/14/2008 12:20:35 PM , Rating: 2
I'm sure they do. It is called royalties. They probably get something for every chip made.

RE: With the Wii chip
By StevoLincolnite on 7/14/2008 1:27:27 PM , Rating: 2
Actually I don't think they do get royalties, I'm pretty sure Microsoft Paid them a large sum of money for the design, and then got it manufactured else where, I think Microsoft didn't want what happened with the Original Xbox to happen with the Xbox 360, which ended up in a bunch of law-suits, and then nVidia to stop producing the GPU which lead to the quick release of the Xbox 360.

RE: With the Wii chip
By mvpx02 on 7/14/2008 3:02:55 PM , Rating: 2
Right, it all depends on the agreement between Microsoft and ATI. I'd bet Microsoft simply contracted ATI to do the design, so unless ATI utilized some pre-existing patents it owned (that Microsoft agreed to allow ahead of time), at the end of the project, everything included in ATI's design would have been the property of Microsoft.

RE: With the Wii chip
By Master Kenobi on 7/14/2008 5:45:44 PM , Rating: 2
After the fiasco with the oringial Xbox you can bet Microsoft owns as much of the X360 design and IP as possible. Who can blame them either?

RE: With the Wii chip
By ImSpartacus on 7/14/2008 12:26:53 PM , Rating: 2
I agree. There is no way in hell that the Wii graphics business isn't bringing them a profit. Why would you spin something like that off? Makes zero sense.

By TETRONG on 7/14/2008 8:05:07 PM , Rating: 2
Anybody planning to purchase stock?

Fusion will demo soon.

Think it was down to $4.70 today.

RE: Buy?
By Hippiekiller on 7/14/2008 9:48:53 PM , Rating: 2
I am strongly considering it. I am young, only 23 yrs old, and could invest a few grand in it. Seems to me over the next ten years this will definitely be worth more than 4.70ish, hopefully with a few splits thrown in ;)

RE: Buy?
By drxploder on 7/15/2008 1:07:49 AM , Rating: 2
I bought at $5ish, planning on a 4+ year hold.

confusing title
By mikefarinha on 7/14/2008 11:47:33 AM , Rating: 3
When I first read the title of this article I thought AMD was finally taking the lead. I read it as
"AMD to Take $900M Lead, Announces Shakeups"

But, alas, my hopes were dashed.

The title should have read:
"AMD to Take $900M Debt, Announces Shakeups"

RE: confusing title
By bigboxes on 7/14/2008 12:48:56 PM , Rating: 2
I understood it. Charge = debt.

By crystal clear on 7/15/2008 4:39:27 AM , Rating: 2
This article is incomplete without the following-

1) Shares of AMD were trading as low as $4.60 Friday morning, down 7% from the previous close and setting a new 52-week low for a stock that has shed more than two-thirds of its value over the past 12 months & the first time it has been below the $5 level - adjusted for splits - since February 2003.

2) AMD is expected to hold a conference call regarding their results on Thursday, July 17th.

Its important to note this-

May 22, 2008 (IDG News Service) Advanced Micro Devices Inc. needs to more than double its share of the microprocessor market to survive, according to a brief filed by the company's lawyers in its antitrust lawsuit against Intel Corp.

At the end of 2007, AMD had 13% of the processor market, "less than half of what it requires to operate long-term as a sustainable business," the brief said.

In its Q1-08 earnings April 17, 2008.

AMD CEO Hector Ruiz said he expects the company to return to an operating profit in the third quarter of this year, after finishing the second quarter at a near break even.

Can you believe what

By crystal clear on 7/15/2008 4:43:49 AM , Rating: 2
The last sentence should read-

Can you TRUST them or believe what they say ?

By silversound on 7/14/2008 12:38:22 PM , Rating: 1
Go AMD, we dont want monopoly in CPU and VGA section!
Like the nvidia's GTX series, price cut more than 150 after the release of ATi HD4XXX series, evil business...

By rollakid on 7/14/2008 7:59:05 PM , Rating: 2
AMD's product is starting to get interesting too, with the HD4800 series graphic and the leaked Super Pi result and overclocking result from the next 45nm Deneb core engineering sample over at Itocp :D

Does seems like it will let AMD keep up and stay one generation behind at most (after nehalem goes mainstream). If they are 2-3 generations behind they would be in trouble.

AMD/Intel dea
By rcc on 7/14/2008 11:06:04 AM , Rating: 2
Perhaps they should just make a deal with Intel. For $1 billion a year out of Intel's marketing budget, they provide competition and keep Intel from getting in too much trouble as a monopoly.

That will cover their yearly losses, with enough left over for better executive bonuses.

Ars got it better
By smitty3268 on 7/14/2008 11:14:02 PM , Rating: 2

Clearly, this isn't good news for AMD, but it isn't quite as bad as you might think at first either. The $880 million isn't money they actually "lost", but a re-evaluation of how much their company is worth. Basically, they are saying they paid $880 million too much when they bought ATI, but they aren't actually having to pay anyone - they've already done that.

Additionally, the equipment they are selling isn't being used in any of their current fabs, it is from Fab 30 which is currently being refitted with new parts. So selling the old ones are pretty much a no-brainer.

By nofumble62 on 7/15/2008 1:26:51 AM , Rating: 2
no big deal.

They will continue to load their truck with AMD stocks.

How long can it last?
By Lucfx on 7/15/2008 6:22:52 AM , Rating: 2
AMD lost money because of you and Intel (contracts to OEMs). For 5 years you bought Pentium 4 and not Athlon, Athlon64 ... but AMD was far superior.
Even now you buy Core 2 or Quad and play games in lower resolutions, where almost every processor would perform equal with the same video card.
I'm not an AMD fan, but I always find something competitive in their line-up.
And you should start praying for VIA and for you if AMD disappears. Intel will not do it!

AMD will be fine (I Hope)
By rhog on 7/15/2008 10:37:02 AM , Rating: 2
Dailytech has always been a Intel/Nvidia Fan site so I expected the "sky is falling" comments. I don't think AMD intends to compete with Intel in the High end as they have stated this many times in the past year. The interesting thing is, in my opinion, Intel/Nvidia cannot compete where AMD is going. Look at what AMD is doing with their chipsets and low power processors. The 780G is far better than anything Nvidia and Intel have in this target market. Rigs sporting a 780G and an X24850e (or a new low power 9150e/8350e) seem to be the way to go in this Greener economy. I also find it interesting that comparisons on power are done on the CPUs alone when the AMD has the Memory Controller built in and Intel does not. I believe it would be a better comparison of the power usage to take the processors AND the Chipsets combined as I believe this would show AMD in a better light(the 9850 and 9950 processors not withstanding). Also the Opteron processors are holding their own in the server market as they are competative in that arena. AMD is not gunning for the high end but is amining for the middle where most hardware is purchased. Hopefully it will just take a bit more time to get the Spider Platform in place and they will return to profitability. Give AMD time I think you will see good things in the future, just not in the very high end.

"So, I think the same thing of the music industry. They can't say that they're losing money, you know what I'm saying. They just probably don't have the same surplus that they had." -- Wu-Tang Clan founder RZA

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