Print 46 comment(s) - last by spluurfg.. on Apr 22 at 6:52 PM

AMD announces plans to toss out its dead weight.

The news coming out of AMD hasn't been on the most positive note in the past few weeks. The company announced in early April that it will cut 1,600 jobs by the end of 2008 representing 10% of its workforce. The reason for the cuts came as a result of steep declines in every business arena that AMD competes.

Four days later, the company's Chief Technology Officer, Phil Hester, stepped down from the company with no replacement in sight.

Today, AMD released even more unsettling news in the form of its Q1 2008 earnings report. As previously forecasted by AMD, revenue fell 15% from the previous quarter to $1.505B and the company experienced a net loss of $358M. Operating losses totaled $264M and the company faced a charge of $50M due to its 2006 acquisition of ATI.

"A seasonally weak first quarter was amplified by a challenging economic environment for consumers and lower than expected revenues of previous generation products, resulting in lower than expected revenues in all business segments," said AMD CFO Robert J. Rivet. "However, we are encouraged by the market acceptance of our Quad-Core AMD Opteron server processors as well as our new chipset and graphics offerings."

After experiencing an entire year of losses, AMD is now looking to restructure its business. The company will now put all of its divisions under the microscope and make the decision to sell off some of its underperforming units in order to become profitable in the second half of 2008.

"It is clear that our business environment has changed from just the second half of last year when we saw some of our non-core businesses on a path to growth and profitability. That is now questionable," said AMD CEO Hector Ruiz.

"As a result, we are embarking on a significant restructuring of our company to address the following: We need to intensely scrutinize all of our businesses in order to ensure that our core x86 and graphics products are on a healthy path to leadership and profitability," Ruiz continued. "We also need to scrutinize our non-core business and see how they fit into our plans toward growth and profitability."

AMD's consumer electronics division could be a prime target for cuts according to Technology Business Research analyst John Spooner. "It makes sense because it's not a core part of their business, and they can’t really afford to focus on consumer electronics at this point," said Spooner. They need to focus on processors for PCs and servers as well as graphics."

AMD is indeed ramping up to unleash a new wave of processors and graphics cards for consumers. As reported yesterday DailyTech, AMD is working on its quad-core 45nm Shanghai processor architecture along with its 6-core and 12-core variants.

On the graphics front, AMD is preparing for the launch of its successor to the Radeon 3850/3870 graphics processors. Radeon graphics processors based on the new RV770 core are expected to debut under the $300 price point.

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RE: yeah, sure...
By spluurfg on 4/22/2008 6:52:37 PM , Rating: 2
I believe the print version of that economist article had some footnotes -- I will try to dig it up to check. However, I just wanted to point out that when considering the simple definition of a recession in terms of growth per head, we have been in a recession for the last two quarters, if their calculations are correct.

So, it seems banks are doing just fine. Banks as a whole in the US. There are a few that aren't, but CPU makers as a whole are doing just fine in the US, it's only AMD that's struggling. One example does not make a market in either direction. At least if I'm interpreting the data right.

But while the financial institutions themselves might pull through fine, the financial services sector itself has slowed meaningfully, which has a negative impact on commercial activity. With regard to the availability of debt, while the size of their books may have increased overall, syndicated loans have fallen significantly over 2007.

While this is not an absolute measure of loan activity, it does give an indication of the availability of debt for US corporations, and to some degree, of the availability of debt to wider commercial entities in general, which is an important factor in economic growth.

Further, earnings of large US corporates has fallen significantly from 1H07 to 2H07.

(TTM EPS on S&P 500 )

While banks' balance sheets are looking healthier, this may be partly due to uncertainty on their part -- again, using the example of Bear Stearns, a liquidity event is an all too real possibility. Consider the additions of billions of capital by Citi, UBS, and now RBS to shore up their capital ratios. This is prudent in such uncertain times, but again reduces the amount of financing available to commercial enterprises, entrepreneurs, etc. Debt has also gotten much more expensive, with sub-investment grade senior loans pricing at CP+500 instead of CP+300 a year ago. The debt from the big LBO-megadeals like Harrahs Entertainment is still on the banks' books, which will make them reluctant to syndicate more debt if they can't sell it.

Normal 30 year mortgages aren't having this trouble, and people who live in their houses instead of using real estate to get rich aren't the ones hurt too much by lowered housing values. It's kinda like the stock market, it'll go down for a quarter or two, but over a period of several years, it's always going up.

I'm not sure if I'm willing to write off the at-risk borrowers in the real estate loan market as consisting largely of speculators. One fifth of the US mortgage market ($1.3tn) was composed of sub-prime borrowers. It was simply a systemic problem of brokers giving mortgages to people who simply couldn't afford it, then selling complicated securities derived from those mortgages to those who were not fully capable of assessing the risk.

This seems to be the root of the "economic problem" coupled with soaring fuel prices. Since the dollar isn't weakening that much (and it isn't something that's suddenly happened), and inflation isn't any higher than previous years (yet, and I hope it stays that way), it all points to the economy just going through its normal fluxes with only two real negative events occurring.

The dollar has weakened significantly against the Canadian Dollar, the Euro, and the Yaun, which significantly increases the cost of imports from some of America's largest
trading partners, which is a strong inflationary pressure. Additionally, increased fuel and food prices have a particularly strong economic impact.

Again, I agree that it's not all doom and gloom like the media makes it out to be. The US will not sink into the ocean and you don't need to start storing bottled water in your basement, but the issues in the economy and particularly the financial services sector are real, and probably will not go away in a matter of a quarter or two.

At any rate, I really appreciate being able to have such an intelligent discussion here. It's very true that the leading economic indicators and bank balance sheets paint a fairly solid foundation.

"There is a single light of science, and to brighten it anywhere is to brighten it everywhere." -- Isaac Asimov

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