Online information source for semiconductor professionals

Going back to December when AMD held an analyst conference in New York, Hector Ruiz and his current executive team wanted to convey the theme of the glass being half full rather than half empty. The problem was that no analysts came away from that meeting feeling that things were looking good. 

First quarter 2008 results were always going to be the low point for AMD as this is historically the weakest quarter in any year. The hope was that new products and good PC demand would carry through the quarter with sales down, but only down at seasonal levels. Things would get better from thereon in and profitability was to return by year-end.

The latest news that sales will be down more than the seasonal average is a big headache for AMD, as it is bleeding cash. Promises of a return to profitability this year mean that a new wave of job cuts were inevitable and were already on the cards in late February. Sales were simply south of expectations, with consumer confidence taking a further dive due to the financial troubles at major banks in North America and elsewhere.

First ‘confirmation’ of the job cuts in the media came from Charlie Demerjian over at The Enquirer in mid-March. He got wind of 5 percent cuts and was sure that his sources were reliable. That proved to be the case, but it seems things got worse as the month ended!

There is no indication yet from AMD as to what sector the cuts will affect, but considering previous trimmings it may be the production side that gets targeted this time around. Charlie believed that the cuts were across the board so that there would be no major problem further down the line with an important project, for example.

However, with a 10 percent reduction, that’s harder to achieve and even harder or perhaps more time-consuming to put right should the business bounce back and need to restart or accelerate some key projects at a given opportune time.

Concern therefore is that AMD will find it harder than it already is to react fast to market conditions and take advantage of the situation, should it arise!

With 2008 looking worse than most market analysts anticipated, the need to hunker down at AMD is even more crucial to its possible survival this year than it was in December at the New York meeting.

The ‘spread sheet preservation’ mode AMD is in right now will not sway the financial analysts, as they want more radical transformation of the company.

That road to fabless nirvana being pushed for by the financial community is simply no more than digging for fool’s gold. It will make AMD less competitive over time and that will mean smaller and smaller market share. The end result will be an acquisition by someone and the company will fade into oblivion.

Of course, that is really what some of the analysts covering AMD want to see happen, and Intel (by default) becomes all but a monopoly. The cash registers are ringing in their ears already at the thought, especially as it is obvious to them that the half-empty glass just emptied itself a little more.

I would expect greater pressure on AMD to march down the fabless or at least the asset-smart (originally described by Hector as the ‘asset-lite’) route in the coming months with little positive comment from the analysts after the quarterly conference call, which is coming up.

So the doom and gloom merchants will be feeding off AMD’s job losses and poor cash situation for months to come. Should the momentum for change now build and major structural changes occur before the end of the year, then many industry observers will point back to the first quarter of this year and note where the inflection point occurred.

It could be said - while pointing to a power point chart - that AMD basically fell off the cliff here! First quarter results leading to worsening financials and increased pressure for radical change make up a simple but potentially compelling story.

I hope that’s not the case and I am trying hard to see a glass half-full. The problem is that I can’t see anything coming out of AMD that helps support that belief. Back to you Hector.