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Q1 2007 performance is "disappointing and unacceptable" says AMD's chief financial officer

Ten days ago, AMD announced that it was planning to restructure its business due to a significant drop in quarterly revenue. At the time, the company was projecting its Q1 revenue to come in at $1.225 billion USD.

The official numbers are in and AMD has reported Q1 revenue of $1.233 billion USD and an net loss of $611 million USD. The numbers include a charge of $113 million USD due to the acquisition of ATI and $28 million USD for employee stock-based compensation expenses. AMD had revenue of $1.773 billion USD in Q4 2006.

The ongoing price war between AMD and Intel is partially to blame for the reduced earnings. Intel has been aggressively cutting prices on its current processors and AMD has been quick to respond. AMD as a result has witnessed lower average selling prices (ASPs) in addition to lower unit sales.

"After more than three years of successfully executing our customer expansion strategy and significantly growing our unit and revenue base, our first quarter performance is disappointing and unacceptable," said AMD CFO Robert J. Rivet. "We are aggressively addressing the issues that led to our significant revenue decline. We are aligning our business model, capital expenditures and cost structure with the goal of accelerating our return to profitability. Lastly, our customer relationships remain solid, reflecting their confidence in our strategic direction, current and new products, and technology roadmaps."

On a positive note, AMD reported $197 million USD in revenue from its graphics division in Q1 2007. This represented a 19 percent gain from Q4 2006. AMD's next generation DirectX 10-based R600 graphics processor is expected to launch within the next few weeks. The top of the line AMD ATI Radeon HD 2900 XT will feature 320 stream processors, 512-bit memory interface with eight channels, native CrossFire support, 128-bit HDR rendering, 24x anti-aliasing and HDMI output with 5.1 surround sound.

Looking to the near future, AMD plans to get its 65nm native quad-core Barcelona processors out the door during Q3. AMD has high hopes for the processors which will incorporate 2MB of L3 cache and AMD Virtualization (AMD-V) technology. "We expect across a wide variety of workloads for Barcelona to outperform Clovertown by 40 percent," said AMD's corporate vice president for server and workstation products, Randy Allen in January.

The company will not, however, begin production of 45nm processors until the first half of 2008. 45nm processors won’t actually ship until the second half of 2008.

Intel is well aware of AMD's plans and many have suggested that the company released early performance numbers for its quad-core Penryn processors to divert attention away from AMD's upcoming Barcelona. Intel's 45nm Penryn taped-out in January and will begin shipping in the latter half of 2007 -- roughly a year ahead of AMD's first 45nm processor.

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Horrible Timing
By Parkerl75 on 4/20/2007 1:21:33 PM , Rating: 2
With the vast resources (cash and otherwise) Intel has, it was inevitable after all those years of being mismanaged without a clear strategic direction that Intel struck back. And the timing could not have been worse for AMD. AMD is selling all their product based on value now and no one will dispute that Intel wears the performance crown for now. The performance leader crown has gone back and forth between AMD and Intel for some time now but the timing of this blow could not have been worse for AMD.

Not only does AMD NOT have a competing product at this time, their next redesign is not due until next year. Compounding the problem is their recent acquisition of ATI. Product launches have been delayed by the transition chaos that resulted from the acquisition. Unfortunately, unlike Intel, AMD cannot afford to hemorrage cash as it has last quarter. Given the limited resources that AMD has, when AMD commits to any project, it is a "make or break" deal and in the midst of all this chaos in the processor market, AMD is trying to put in place a new strategy for a brand new CPU and GPU architecture? Timing could not have been worse.

AMD sat on its laurels too long and expected to stay there longer and eek out as much profit as possible from its position but Intel got its act together and ditched their other "distractions" and focused on their core business and got themselves back in the game.

I really hope K10 delivers on its promise but it is highly doubtful that Intel will be sitting still either. Peryn is looking like a great product and it's closer to being launched than K10.

K10 has to be able to deliver the type of performance that the original Athlon was able to do with its initial launch or AMD will not survive much longer. AMD and ATI merger was not a completely bad idea and the new architecture AMD proposes looks very promising but to take this "leap" of faith to a new architecture with so much on the line is risky at best.

It's win or go home situation for AMD and the future looks grim for AMD.

"Google fired a shot heard 'round the world, and now a second American company has answered the call to defend the rights of the Chinese people." -- Rep. Christopher H. Smith (R-N.J.)
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