AMD – A Cockroach?

“Hang on, it’s going to be a bumpy night” (if you know who said this, your age is showing).

More appropriately, it’s going to be a bumpy year.

One thing going for AMD will most likely be a net profit during the first quarter, but NOT because chip sales are taking off – rather due to a one-time cash infusion with the closing of the Abu Dhabi deal to the tune of $800 million to $1 billion. AMD’s revenues may not even break $1 billion during the first quarter, which should translate to a loss on continuing operations of something like $500 million – if things break right.

Nice to have some cash, but one-time selling off assets for cash only lasts so long – you have to assets to sell, and right now AMD’s cupboard is looking pretty thin. Could be that there will be a fire sale – anyone interested in ATI? AMD has written off almost all its goodwill so what’s left are real assets, at least on the books, that could be converted to more spin-out cash. A thought: Who might want to fund a leveraged buyout?

The news during the at least the first half of this year is looking really bleak – some recent headlines:

• AMD, Intel, Nvidia face bleak graphics market “We’re…bracing for what will probably be the worst Q1 and Q2 decline we’ve seen since the Internet bubble pop of 2000”
• Graphics chip shipments decline, outlooky gloomy “Demand suffered as buyers switch their focus away from desktop systems.”
• Netbooks Gain Ground In The Channel “Netbooks also accounted for 23 percent of all notebook sales in the fourth quarter through distributors, according to NPD.”
• NEC to lay off 20,000, close plants as losses widen “NEC didn’t give details of where the layoffs will hit and which divisions will be closed. But the company said it will pursue ‘substantial reform’ at its chip-making subsidiary, NEC Electronics.”
• Hitachi forecasts $7.7 billion loss, cutting 7,000 jobs “The company blamed sharply falling sales in most of its main businesses including electronic devices, power and industrial systems, and consumer products.”
• Shares in Nintendo and Toshiba Plunge After Industry Losses Posted “Toshiba, Nintendo, Sony and NEC Electronics, some of the biggest names in consumer electronics and technology, all reported disappointing results and gloomy outlooks on Thursday, further proof that the slowdown had expanded well beyond big-ticket items like cars and houses, and revealing the extent of consumer pessimism around the globe.”

Need I go on? In reality what is shaping up as a global depression is going to result in some familiar companies going out of business, or in the best case being absorbed by the stronger ones. AMD is NOT a strong company, although it is a survivor. AMD is shaping its operations to break even on sales of $1.3 billion per quarter, although the way things are shaping up, maybe even this is going to be a tough slog.

Electronics markets across the board will be slumping, and those that show some life are going to be low-cost, low-margin products with netbooks a prime example (a market AMD has decided not to enter). This trend is one that’s troubling  “Nvidia CEO [who] says Intel’s Atom could hurt the hardware and software industries.”

I don’t wish ill on AMD, but let’s be realistic – AMD is weak, the markets are slumping badly and AMD’s options are narrowing. However, having endured some very bleak times, maybe a company such as AMD is like the cockroach – best suited to survive what’s shaping up to be a nuked financial scene.