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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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RE: Very nervous & concerned investors
By ybee on 4/22/2007 7:05:32 AM , Rating: 2
But it still ends on an optimistic note
Still, the rock-bottom interest rates available in today's debt market could still make that a good option for AMD

All this just means that AMD will most likely have to refinance the existing debt and the new debt will be more expensive. But given the current situation, paying an extra 1% or so extra interest p.a. on the prinicpal of $2.5B will not make much difference to AMD's survival chances.

RE: Very nervous & concerned investors
By crystal clear on 4/23/2007 3:04:08 AM , Rating: 2
Yes indeed this options is there,but simple logic says that you dont take on additional debt to finance the previous one.

Once you get stuck in that deadly spiral of debts means the begining of the end.

AMD shareholders will not sit back and watch AMD sink further into debts.

Only a massive cash infusion can save AMD.

RE: Very nervous & concerned investors
By ybee on 4/23/2007 3:45:17 AM , Rating: 2
No it is actually OK, it is called refinancing. The point of all those restrictions in the lending agreement is to make sure that if the credit risk increases, the lenders are protected. AMD may borrow again from the same banks, but at higher rate of interest. It can borrow for example $3.5B to reinance the existing debt and cover its future cash needs.

In fact other finacing options are worse, because issuing new shares will dilute the existing shareholders and anyway half of the proceeds will be used to repay the existing debt.

RE: Very nervous & concerned investors
By crystal clear on 4/23/2007 9:13:43 AM , Rating: 2
OK then lets wait & see -then we can continue from this point where you responded.Not for very long - AMD has scheduled a shareholders meeeting very soon.
Very interesting to discuss the subject with you.

RE: Very nervous & concerned investors
By ybee on 4/23/2007 11:01:50 AM , Rating: 2
OK. In the meanwhile, another possible option reported by the inquirer.

Seems like shareholders may have a lot of options to choose from.

RE: Very nervous & concerned investors
By crystal clear on 4/24/2007 6:37:18 AM , Rating: 2
UPDATE 1-AMD offers up to $2.2 billion in notes

AMD would offer an initial amount of $1.8 billion in notes, with the interest rate, conversion price and other terms to be determined in negotiations. Initial purchasers will also have the option of buying an additional $400 million of notes.

AMD said it would enter into capped call transactions in connection with the offering, a move intended to reduce the potential dilution to common stockholders if the notes are converted into shares

Earlier on Monday, credit ratings agency Standard & Poor's downgraded AMD to "B", it's fifth-highest "junk" grade, citing "subpar" execution of its business and a tougher business environment.

RE: Very nervous & concerned investors
By ybee on 4/24/2007 6:58:23 AM , Rating: 2
Wonderful, so it is convertible debt. They apparently found a way to avoid full refinancing of the debt.

Without knowing details, it is hard to tell whether these notes are more like debt or equity, especially considering the fact that AMD also enters into an additional hedging deal.

Maybe from now on AMD will specialize in financial engineering, rather than electrical engineering.

By crystal clear on 4/25/2007 12:48:11 AM , Rating: 2
Maybe from now on AMD will specialize in financial engineering, rather than electrical engineering.

Thats a brilliant comment from you !

Very original indeed !

I wish to repost your comment in another DT article-

Intel Wipes Out AMD's 2006 Marketshare Gains in One Quarter - April 24, 2007

As for AMDs "financial engineering" benchmarks will keep you updated.

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