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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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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.

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