AMD Makes It 9 In A Row

True to form, AMD reports its 9th consecutive quarterly loss.

Revenues were $1.162 billion, a 35% decrease from the 3Qtr 2008 and down 33% from 4Qtr 2007. Total year revenue 2008 was $5.81 billion which is about the same as 2007 ($5.86). Net income for the quarter was -$1.42 billion, below last year’s -$1.77 billion – progress!

A large portion of this loss was due to a $684 million goodwill write-down of the ATI acquisition and a $227 million inventory write-down. The suits at AMD did a real good job on the ATI acquisition, now writing down almost all the goodwill associated with this transaction. So much for synergy.

AMD will receive about a $1 billion cash infusion when Abu Dhabi closes the deal to buy AMD’s foundry assets this February – thanks to cheap petro-dollars. This deal is probably the last rabbit AMD can pull out in its financial bag of tricks.

I was particularly struck with the eloquence used by the AMD Management Team during yesterday’s conference call explaining these results, to wit:

• Factory utilization will be “crummy, based on the environment we’re staring at.”
• “The current environment is pretty murky, visibility’s pretty low.”

Translating from corporate speak, “crummy” means factory throughput will be very low and “murky” means we don’t have a clue where business will be next year. The only guidance on the outlook is that AMD is targeting “breakeven” at $1.3 billion, which they will not hit during the first quarter 2009.

According to an article in the IT Examiner:

It should be noted that AMD’s downward spiral prompted Moody’s to downgrade the firm’s corporate rating in December 2008, citing continued weak demand for end markets as a justification for its revision.

“As a result, Moody’s believes it is likely that AMD will continue to lose money and remain free cash flow negative during 2009,” said the company. However, the investment house noted “the negative outlook rating could be stabilised over time if AMD demonstrates a sustained return to profitability and positive cash flow”.

AMD fan boys will look to things like the Phenom II as the coming thing, but let’s not kid ourselves: AMD is financially on the ropes and has been for the last five years. The current business environment is horrendous and anyone expecting a quick turnaround is in for a rude surprise. Need I say that only the strong will survive?

It would not surprise me that AMD will make it through this rough period, but I would be surprised to see it in its current form – it’s not inconceivable that AMD will change ownership in one way or another through sale, merger or buyout. I continue to believe that AMD plays a major role in keeping Intel in its place, and a liquidation of AMD would be a severe blow for consumers.

If and when the petro-dollars start flowing, who knows what’s possible?