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Print 40 comment(s) - last by Ringold.. on Jul 15 at 2:56 PM

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
quote:
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 (blog) 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 (blog) 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 (blog) 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
“Then they pop up and say ‘Hello, surprise! Give us your money or we will shut you down!' Screw them. Seriously, screw them. You can quote me on that.” -- Newegg Chief Legal Officer Lee Cheng referencing patent trolls














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