AMD: ''No Doubt, We Lost Market Share in Q2''

In a time when its mighty rival Intel appears to be navigating the storms of a macroeconomic financial challenge in Europe and China with solid execution and adjustment of its business, AMD seems to be tripping over its decisions and shooting itself in the foot. Fortunately, it appears that the company got away with only a black eye in Q2.

The company reported revenue of $1.41 billion for the second quarter, down 10 percent year over year, and down 11 percent sequentially. Net profit came in at a razor thin $37 million. The recently appointed CEO Rory Read had to, for the first time as the man in charge, calm analysts and investors about a rather sobering Q2 result that stands in stark contrast to the result announced by Intel earlier this week. Read chose to be straightforward with analysts and mentioned several times how "disappointed" he was with AMD's performance, highlighting that AMD could have done better.

The overall explanation for the reduced revenue were lower CPU shipments and slightly lower average selling prices, caused by a pronounced softness in the desktop consumer market late in Q2, AMD said. AMD was hit with, as Read called it, a "pause" in the adoption of its Bulldozer Opteron processors and the supply of Llano processors into the channel. The bright spots included Brazos 2.0, which is targeting the $500 and below notebook segment, as well as the GPU business, which contributed nearly half of the operating profit in the quarter and was in line with a seasonal decline of the business

Read wasn't exactly clear what happened and danced around the events, but noted that the supply constraints of Llano late last year caused the company to prefer OEM shipments over channel shipments. Once the chip became available, he noted that they had been sitting with OEMs for awhile, impacting uptake. AMD poured Llano processors into the channel, but misaligned the availability of boards with processors, which caused a substantial oversupply. Read described this as a problem of "linearity" and as a "supply mismatch", which is in AMD's control to fix. He said that the company has taken steps to accelerate channel sell-through and hinted that this problem was avoidable.

The executive also referred briefly to a price erosion in the client PC processor market and said that AMD chose "not to chase" lower price points. As a result, he told analysts that he had "no doubt" that AMD has lost market share in Q2.

It was unclear if that has happened in the server segment as well, but the description of "pause" was rather dramatic. While Read said that the adoption of Bulldozer especially in the HPC market was great, the current situation is less encouraging and it appears that Intel's Sandy Bridge Xeons may have hit AMD unexpectedly hard.

Like Intel, AMD also believes that the market will remain soft in Q3. Read said that, for the first time since the dramatic downturn of 2001, the PC industry faced a PC client shipment decline over three consecutive quarters, which could create a problem for AMD if this trend holds up. While AMD has a strong balance sheet today, it will have to cover debt obligations later this year, which CFO Thomas Seifert noted that he feels comfortable to cover from the cash reserves, which currently stand at $1.58 billion, up from $1.54 billion in Q1, but down from $1.77 billion in Q2 2011. Seifert noted that AMD will have to balance debt and investments payments as well as maintain cash reserves in a weakening economy.

So, is the new AMD becoming the old AMD again, at least from a financial perspective? It is too early to tell, but it is clear that Read has to put out fires rather sooner than later.

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