AMD's woes continue with $358 million loss

The company's processor business took in more revenue despite not having its two best products available for much of the first quarter, but at the expense of profits.

Updated 3:35 p.m. PDT with additional details and comments from conference call.

As we already knew, times are still tough for Advanced Micro Devices.

The company reported its first-quarter financial results Thursday after the close of the market, and it continues to lose hundreds of millions of dollars. AMD had already warned investors that revenue would fall short of early expectations, and the official number, at $1.5 billion, was in line with the revised expectations.

For the quarter, which ended March 29, AMD lost $358 million based on generally accepted accounting principles, but that number includes $50 million in charges related to the acquisition of ATI Technologies in 2006. Excluding that one-time charge, the company lost $308 million, or 51 cents a share, also in line with Wall Street expectations.

AMD's processor business had a decent quarter, despite not having its two latest server and desktop processors on hand until late in the period. Revenue in the chip business was up 30 percent compared with last year's first quarter, as unit sales increased. But the business took a step backward in profitability, losing $160 million in the first quarter after eking out a $21 million profit in the fourth quarter.

Despite Intel's upbeat assessment of the economy on Tuesday, AMD saw "a challenging global environment for consumers" during the first quarter, said Bob Rivet, AMD's chief financial officer.

It sounds like AMD is getting ready to do a top-to-bottom look at its operation to find places to cut costs beyond the 10 percent workforce reductions it has already announced. Chairman and CEO Hector Ruiz spoke of "revisiting" noncore businesses, such as AMD's cell phone and consumer electronics businesses, if the company can't find a way to make them profitable.

That sounds very much like additional layoffs beyond the 10 percent cuts and the possible jettisoning of AMD's consumer electronics business, which lost $8 million on a 31 percent decline in revenue. The company needs to get its costs down from around $1.7 billion this quarter to about $1.5 billion a quarter by the end of the year, Rivet said.

The good news is that AMD will have fresh new products in place, at long last, by the time the second quarter ends. Barcelona and Phenom, quad-core chips for servers and desktops, should provide a lift to AMD's performance in those areas, said Dirk Meyer, president and COO. And AMD also expects to launch its first processor designed specifically for notebooks in the second quarter.

However, despite the new products, AMD still expects revenue to decline in line with normal seasonal patterns looking forward into the second quarter. The current quarter is always the slowest period of the year for the PC and server industries, absent any catalysts such as the back-to-school season or the holidays.

And while I had expected to hear about the fabled "asset-light" strategy on the one-year anniversary of Ruiz uttering that phrase, we're still in the dark as to AMD's plans for cutting costs in its manufacturing operation. "I know you would like (more information) and I feel terrible I can't provide you details on that," Ruiz said, sounding almost chagrined.

The first quarter of 2008 marks the fifth straight quarter in which AMD has lost at least $350 million. It's mind-boggling to understand how it's sustained such losses for such a long period of time. In total, that's $3.7 billion in losses racked up between the beginning of 2007 through the end of March 2008.

Ruiz promised to have AMD profitable by the third quarter of the year. It's going to take strong sales in the face of an uncertain economic environment, substantial cost cutting, and a bit of luck to get there.

About the author

    Tom Krazit writes about the ever-expanding world of Google, as the most prominent company on the Internet defends its search juggernaut while expanding into nearly anything it thinks possible. He has previously written about Apple, the traditional PC industry, and chip companies. E-mail Tom.

     

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