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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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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.


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