AMD is in trouble: For the past few quarters it has been hemorrhaging cash and people, screwing up product launches and being beaten around by the competition. The company is reporting hefty losses - $358 million in Q1 2008, bring its total loss since Q4 2006 to $4.3 billion – and will be shedding 10-percent of its workforce in cost-cutting measures.
The Q1 revenue was actually 22-percent above the Q1 2007 result, but 15-percent below of Q4 2007. The loss dropped from $611 million in Q1 2007 and $1.77 billion in Q4, which included a $1.68 billion write-off due to the decreased value of the ATI acquisition.
AMD has a problem: basically it needs to provide $2-billion in revenues to break-even, but it can only deliver $1.5 to $1.75-billion at best. This means that the company doesn’t have the cash on hand to invest in the things it needs in order to make itself really competitive and profitable again, and in the meantime is racking up huge debts.
There has been a lot of speculation from analysts as to what AMD will do next. Certainly the company needs cash, and it has put out $2.2 billion in convertible notes to raise cash this week. The company also has more capacity in its fabs than it is actually making use of at the moment, and it could sell off its upcoming Luther Park fab, or at least part of it, which is being subsidized to the tune of $1.1-billion by the government of New York state. AMD could only sell 49-percent of the fab until 2010 thanks to the x86 licensing agreements with Intel that won’t be renegotiated until then. Still, it would be a good way to clear off debts and free up cash.
Another area of AMD’s business that it needs to address quickly is its processors business. AMD’s recent blunder with Phenom B2 stepping really hurt the company. Processor delays, having to go back and fix major bugs are things that should not have been part of a formal release. Prior to the fix in Phenom B3 stepping, the BIOS fixes that were issued didn’t help either — reviews and users themselves reported drops in performance with the workaround enabled. While Phonem B3 address the problem at the manufacturing level, AMD is still late to the game.
You Can’t Fire Somebody Who’s Already Quit
The staff cuts of about 1600 – 1700 people sees AMD attempting to cut back its overall workforce to around 15,000 people, saving the company some cash but more importantly contributing to its restructuring by the end of Q3 ’08, which is when AMD had said it would be profitable again before the Q4 2007 results were announced.
AMD isn’t just losing people on the ground. Over the past year it has shed executives and senior managers alike. Stephen DiFranco, the company’s corporate vice president of consumer sales and marketing left the company just recently, taking the blame for AMDs failure to increase market share in the desktop and notebook segments.
Earlier in April we saw Phil Hester go as chief technology officer; head of sales and marketing Henri Richard left, and so too did ATIs former CEO Dave Orton.
On the lower end of the corporate ladder we saw Chris Talago, former boss of AMD public relations in EMEA (as he was introduced to us) and Gianluca Degliesposti, director of business development, received pink slips as a part of a restructuring of the firm’s EMEA organization. There has also been a raft of PR people, former ATI people and senior managers at various parts of the company either sensing which way the wind is blowing and jumping ship, or being pushed out the door as a part of AMD’s restructuring.
The company has as much as admitted that it believes that some of its management team at least has been incompetent and directly responsible for the huge losses the company has sustained.
President and chief operating officer Dirk Meyer told analysts that AMD is looking to improve its executive ranks following the departure of Hester. “It wouldn’t be appropriate for me to comment on any specific person’s departure but I can tell you we are focusing on elevating our game and fixing some of our execution problems and in so doing, we’re going to bring into the company people with better talent and better experience, and you’ll see more. I’ll cite as an example the recent addition of a new CMO and a new CIO to the company.”
Intel Won’t Let AMD Have All The Fun Of Shooting Itself In The Foot
Meanwhile, the competition is not sitting quietly by. Intel is taking on AMD on several fronts, including in the discrete graphics arena that AMD should be able to fight strongly in after its $2.5 billion acquisition of ATI.
Intel’s Larrabee is attempting to do what Intel has failed at before: providing high-performance discrete graphics that would see Intel – who has the largest share of the entire graphics market, despite the poor performance of its integrated graphics – really give both AMD and NVIDIA a run for their money in this sphere.
Rather than combating this threat, AMD is so focused on cash and is losing so many key people that it has not come up with a credible counter-stroke for Larrabee. This, after the chip maker acquired the graphics company specifically to integrate CPU’s and graphics on the one chipset in revolutionary new ways. Intel hasn’t had to fork out $2.5-billion for the pleasure of now offering a credible threat in this market. AMD needs to get more return out of its purchase of ATI or else it could very well prove to be the company’s undoing.
Over the course of 2007, AMD’s share of the PC chip market fell by 2.9-percent, whilst Intel’s grew 4.3-percent. AMD has botched product launches, with Barcelona being crippled by the Translation Lookaside bug and brought late to market and in insufficient quantities, with full production delayed from February of ’07 to August.
At best this shows incompetence in execution, and at worst it showed complacency at the company as it sat on its laurels and attempted to get the most out of the 90nm Opterons that were selling like hot cakes at the time. AMD needs to innovate, and quick. Sitting around on legacy success will leave it as a second rate solution.
AMD needs cash, it needs to restructure itself into a better functioning organization, and it needs to replace its more incompetent managers. The company currently seems to be going through a major upheaval, but it will come through in the end. Just don’t expect the AMD that survives this kick up the rear to be the same as the one we’ve been dealing with for the past few years. It will have to be a leaner, meaner, faster, more efficient and better run operation that refuses to sit on its hands and count its past successes rather than project its future ones. But then, doesn’t that sound a bit like an Intel we once knew?
We think that if and once AMD gets its act together, exciting products can come out of the company.
Related Stories
- AMD Reports Another Hefty Loss: $358 Million In Q1
- AMD’s Chief Technology Officer Resigns
- Another AMD Executive Gets The Boot
- AMD To Bring ’Cost Structure In Line With Performance’
- AMD Axes 10% Of Its Staff
- AMD Fires Managers In Europe
- Analysis: AMD Asset Lite Strategy Will Create MAD AMD
- AMD Picks Up CPU Market Share In Q4 2007
- NVIDIA And AMD Vs. Intel: A New Graphics War Emerges That Should Have Been Avoided
- AMD Profitable Again By Q3 2008
