AMD's mixed bag of financial results

Bad: AMD lost $600 million in the second quarter. Good: Chip shipments surged.

Tom Krazit Former Staff writer, CNET News
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.
Tom Krazit
3 min read

This quarter was all over the map for Advanced Micro Devices.

It was just too hard to come up with an quick summary of AMD's fortunes. Overall revenue was up, but AMD didn't have a graphics division this time last year. Profits were horrific, but gross margins improved. Chip revenue was down compared to last year, but chip shipments were up 38 percent compared to the first quarter of this year (usually, second-quarter shipments are flat or down compared to the first quarter).

So, rather than glaze over everything in trying to present a comprehensive narrative, here's the good, the bad, and the ugly from AMD's second-quarter earnings release and conference call.

THE GOOD: Chip shipments soared as AMD gained Toshiba as a customer and took a broader role inside customers such as Dell. Shipments of notebook chips--arguably AMD's weakest sector--were up 82 percent compared to last year, and 21 percent compared to the first quarter. The company appears to have stopped the erosion of its market share, and it thinks the PC market is healthy going into the second half of the year. It also stabilized the average-selling prices of both its notebook and server chips, perhaps a sign that the year-long price war between Intel and AMD is easing.

THE BAD: Barcelona and Phenom, two chips that AMD desperately needs to improve its fortunes, won't arrive for quite a while. Barcelona, AMD's long-awaited quad-core server processor, is later than expected because it was "complicated" and "required a bit more design work than we anticipated," said Dirk Meyer, president and chief operating officer at AMD.

Barcelona isn't expected to contribute meaningful revenue until the fourth quarter, and Phenom will launch too late in December to help AMD in the desktop market until 2008. As a result, the company is merely hopeful that it will reach break-even status by the fourth quarter. It will probably need to do $2 billion in revenue and have a gross margin of at least 40 percent to hit that target, said Bob Rivet, AMD's chief financial officer.

THE UGLY: AMD's chip division recorded more revenue in the second quarter of last year than during this year's second quarter--and spent almost twice as much money to even get that much business this time around. That means AMD lost money simply operating its core business, not even taking into account the other expenses required to run a corporation such as marketing, research, and electricity.

The company wrote off $30 million in inventory that it gave up trying to sell. In order to cut short-term expenses, it will have to slow the ramp of Fab 38, its project to convert an existing facility in Germany to a more modern plant so it can reduce manufacturing costs in the long term. And it's holding a chip manufacturing bake sale--of sorts--hoping to raise cash by selling off old tools.

Hector Ruiz, AMD's chairman and CEO, declined to specify any other changes that might be coming, but it sounds like this isn't the end of the cost-cutting. AMD is working on a strategy called "asset-light," which it hasn't exactly spelled out and can't do so yet for "competitive reasons," Ruiz said.

Next week, AMD will hold an analyst day that in the past has provided a pretty detailed look at AMD's future processor road map and strategies. That should also produce many questions about how AMD plans to shore up its profits in the second half of the year without huge contributions from its new products.