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AMD reports first quarter earnings – does restructuring make sense?

Rather than dwell on consolidated results, I think you get more information by looking into the details by segment. This is the first quarter that the Foundry Company (the spinoff that makes the chips) is reported separately from other operations. Note that the Foundry Company has its own management and is actively pounding the pavement for customers other than AMD – effectively it’s a separate company even though consolidated with AMD.

 

AMD Segment Summary

Segment March 2009 Dec 2008 March 2008
Computing Solutions
Net Revenue $938 $873 $1,194
Operating Income (36) (431) (164)
Graphics
Net Revenue $222 $270 $262
Operating Income 1 (10) 13
Foundry
Net Revenue $283
Operating Income (141)
All Other
Net Revenue 17 19 31
Operating Income (124) (833) (83)
Intersegment Eliminations
Net Revenue (283)
Operating Income (8)
Total Continuing Operations
Net Revenue 1,177 1,162 1,487
Operating Income (308) (1,274) (234)

 

What pops out of this summary is the drag that the Foundry Company is on AMD’s financial picture, losing $141 million on revenues of $283 million, while chip sales generated $938 million in revenues with a loss of $36 million. If this is representative of past history, it does not say much for AMD’s vertical integration skills.

Graphics has been pretty much a breakeven operation – does not say much for AMD’s business acumen and underlines the rationale for writing off almost all the goodwill associated with this acquisition.

The “All Other” category is a significant drag on earnings – this includes restructuring charges associated with the Foundry Company restructuring and goodwill writedowns. One hopes that the drag on future earnings will be limited.

The overall picture you get out of this is that AMD just might have a fighting chance – IF the Foundry Company manages to get enough business to at least break even and IF the restructuring charges are minimized and IF the chip business manages to turn the corner during the last half of this year, then AMD might start on a sustainable recovery path. This would be good news for consumers – keeping Intel honest with AMD goes a long way to keeping CPU prices down and innovation on the front burner.

I don’t envy the task that the AMD management team has to keep the ship afloat during what is turning out to be a “500 year” storm. One of AMD’s enduring strengths seems to be the ability to muddle through events that would sink most other companies – I guess that’s a good skill to have these days. However, it would be fantastic to see a robust AMD rather than the perennial also-ran it has become.

My take: Restructuring just might work under the right conditions, but a LOT has to happen the right way.

 

 

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