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AMD cash strapped, warns analyst

Posted: 24 Apr 2007     Print Version  Bookmark and Share

Keywords:AMD out cash  financial report  market share loss  Intel 

According to an analyst from FBR, "Advanced Micro Devices Inc. (AMD) is within two quarters of running out of cash, due to loss of about Rs.3,885.43 crore ($883 million) in free cash flow in the quarter. This follows a horrible quarter and market share losses".

"While the company's two preannouncements took away any surprise on the revenue line, margins and profitability were still materially worse than expected," said FBR analyst Chris Caso. "In addition, AMD lost approximately $883 million in free cash flow in the quarter, worse than expected, and putting the company within two quarters of running out of cash."

As reported, AMD posted sales of Rs.5,425.52 crore ($1.233 billion) in Q1, slightly above its pre-announced Rs.5,390.32 crore ($1.225 billion) guidance. The company lost Rs.44.44 ($1.01) per share, compared to American Technology Research Inc.'s Rs.36.08 (82 cents) loss estimate.

AMD dropped hints about moving towards an "asset lite" model to cut fab costs, but the analyst was not impressed. "We did not hear anything on the call that provided evidence of a reversal of this trend, particularly in the face of what we believe will be very significant price cuts on server products by Intel in early 3Q," he said "Yet, we think betting on fundamental improvement requires a substantial leap of faith, one which we do not recommend investors make."

How long will it take AMD to catch Intel?
It gets even worse for AMD. After losing significant market share in 2006, Intel Corp. struck back in the first quarter of 2007, gaining 4.5 percentage points in the microprocessor market, according to iSuppli Corp.

Intel controlled 80.2 per cent of global microprocessor revenue during the period, up 4.5 percentage points from 75.7 per cent in the fourth quarter of 2006. AMD lost a corresponding amount of share of share, with its portion of microprocessor revenue falling to 11.1 per cent in the first quarter, down 4.6 percentage points from 15.7 per cent in the fourth quarter, according to iSuppli.

"We knew Intel had gained share compared to AMD in the first quarter, but the sales gap between the companies widened to a much greater degree than we had expected," said Dale Ford, vice president, market intelligence services for iSuppli, in a report.

"An analysis of Intel's results show the company's sales gains came in its strategic line of Core 2 Duo products, its mainstream family of dual-core PC microprocessors," observed Matthew Wilkins, principal analyst, compute platforms for iSuppli. "This represents a major reversal of fortune compared to 2006, when AMD had the advantage with its popular dual-core microprocessors and gained share from Intel."

Can AMD dig itself out of a hole? "AMD will look to lessen the capital needs of its models by outsourcing production and partnering up, though we believe this could take much longer than investors anticipate," said analyst Doug Freedman of American Technology Research.

"It took Intel 4 years to catch AMD, as management noted on the call, but how long will it take AMD to catch Intel? We believe AMD will not have a product that can match Intel's 45nm parts for at least 12 months, and even then we expect it will take AMD considerable time to regain lost market share," he said.

- Mark LaPedus
  EE Times

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