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AMD raises capital spending, speeds Fab36 ramp |
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Apr 13, 2006 at 02:19 PM |
 In an attempt to take a "once in a lifetime opportunity," according to Hector Ruiz during AMD's 1Q06 financial results conference call, the microprocessor company is raising capital equipment spending figures for 2006 to increase the ramp rate at its 300mm facility, Fab36 in Dresden, Germany.
Late last year, Ruiz stated that capital spending for 06 would be around $1.0 billion US dollars, but later the company raised $500 million in a new stock offering with an estimated $250 million allocated to Fab36.
In the conference call with financial analysts, Ruiz stated that capital spending would be raised again and would reach $1.7 billion US dollars for the year. The extra spending would be used to accelerate its 300mm ramp, Ruiz said.
AMD seems bullish on its achievements in the last few quarters and with the ramp of Fab36 producing "outstanding yields," according to Ruiz, the company expects to continue to gain market share against Intel in the 64bit server market as well as in the mobile notebook sector, Ruiz noted.
The increased ramp rate is expected to coincide with the migration to 65nm technology that the company reiterated would happen in 2H06, but again failed to be more specific.
With the increase in capital spending, some financial analysts were concerned with the impact that depreciation on equipment at Fab36 would have on the gross margins and profitability in the coming quarters.
To offset some of the increased depreciation, AMD highlighted that equipment depreciation at Fab36 would be extended to 6 years rather than the current 5 year term that was used for Fab30. One analyst put quarterly depreciation at between $120-150 million US dollars, which the company felt was in the right ballpark but declined to be specific!
Underlying the conference call Q&A session was AMD executives reluctance to provide information on the possible affects of Intel's pricing cuts going forward. Although it was acknowledged that further server business gains were expected due to the technology differentiation AMD has over Intel, concern was focused on lower-end PC markets.
AMD's Henri Richard, executive vice president and Chief Sales and Marketing Officer at AMD, responded by saying that Intel had made "drastic price cuts on products, people didn't want to buy."
AMD executives were also reluctant to give further insight into the capacity ramp at Chartered Semiconductor after analysts enquired due to concerns for falling demand in the 2QO6 period, AMD executives had revealed earlier in the conference call.
It was interesting to note that Ruiz and Rob Rivet, AMD's CFO didn't quite agree on the significance of the reduced inventory levels cited in the conference call. Apparently inventories were down to 55 days, which is below the level set by the company. Ruiz promoted this as good business, suggesting that this was further evidence of a lean and efficient AMD. However, Rivet was quick to jump in and explain that the company planned to increase inventories over the next few quarters so that it had sufficient stocks to meet back to school and year end increases in demand.
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