When you look at AMD, there are two critical numbers: the number of processors sold and the price AMD gets for them.
AMD raised its prices considerably across its product range number of months ago, obviously hoping to improve the second.
It didn’t work.
AMD’s processor revenues went up 11% to about $470 million, but the average price per processor went down slightly.
Essentially, AMD sold more cheap chips, especially to China.
AMD basically said its inventory levels is now where it wants it, so that’s no longer an anchor to the company.
Although AMD no longer provides processor sales, processor sales are probably around 6.75 million units. That’s down from the close to 8 million units regularly sold by AMD a while back, but given the inventory buildups at that time, it’s probably a more realistic assessment of AMD sales.
You Can’t Cut Your Way To Profitability
AMD talked about its cost-cutting, but shied away from their earlier predictions of breaking even next quarter.
If you look at their revenues, it’s understandable why. Even if AMD gets its expenses down to $800 million a quarter (they were $865 million this quarter), they just don’t have $800 million in revenue.
This was AMD’s first “normal” quarter for CPUs in quite some time, and they only had about $470 million in revenue. To get into profitability, they have to get revenues back up to $600-700 million a quarter.
CPU sales have been flat, have been so for some time, and probably won’t improve for some time to come, so a growing market won’t help.
There’s some indications that AMD will lower prices significantly over the product range in the upcoming months, but that’s going to be paddling to stay afloat. AMD doesn’t expect any revenue change from processors next quarter, which is essentially saying, “We’re paddling to stay afloat.”
Hammer
Many of you will say, “But Hammer is going to show up and make it all better.” That’s certainly what AMD is counting on, probably because that’s pretty much its last and only way out.
The last few months have shown AMD can’t get more money out of Athlons, and they’ve pretty much done everything they can do with the Athlon core at 130nm, so they will be faced with aging product the rest of the year. Fortunately for AMD, Intel is more of less in the same boat, so matters won’t get too bad until towards the end of the year. They can muddle through until then.
Opteron will be introduced next week. AMD doesn’t expect any serious revenue from it until the second half of the year, and even then, it can’t save the company by itself, no more so than Xeons and Itaniums sales could keep Intel afloat. The potential sales just aren’t there; it’s a nice profitable sideline, but that’s it.
No, for AMD not only to break even, but to also make enough money to be able to keep investing in plant to keep up with Intel, Athlon64s will not only have to do well, but do so at a much higher price point than they’ve been able to get.
Will you pay more for Hammers than you’ve been willing to pay for Athlons? That’s AMD’s problem in a nutshell.
The Next Challenge
Beginning next fall, AMD will have to almost simulataneously do the following:
- Introduce a completely new product platform just before the Christmas buying season, bugs and all.
- Sell 130nm processors just when Intel will be introducing faster 90nm chips CPUs to the market.
- Sell them at a premium even though only somewhat slower Athlons will cost a lot less.
- Transition from Athlon to Hammer within a couple quarters AND
- Transition to 90nm within six to nine months of Intel.
This is a tall order. AMD has little room for error and delay. The only contingency plan they realistically could come up with is a 90nm Athlon, and that cure might be worse than the disease for AMD.
No, I’m afraid AMD’s only real choice is to sink or swim with Hammer.
Could they do it? Sure. Will it be easy? No. Will they be assured of success? No.
Why Don’t You Write Like This About Intel?
This is like somebody writing to CNN saying, “Why do you only have bad news about Saddam Hussein? You are so biased! Why don’t you be fair and report some Saddam happy news, or at least have just as much bad news about W.?”
The answer is that Saddam is at best in deep, deep doo-doo, and George isn’t, and to pretend otherwise to be “fair” is like giving equal weight to what the Iraqi Information Minister had to say about the war.
This is a financial story, and sorry, but as the dot.coms found out, money talks. You don’t make money; you eventually stop existing, no matter what you have technologically.
Intel makes a profit every quarter. AMD hasn’t made a profit in any quarter for quite some time. Intel has considerable financial resources stacked up; AMD is deeply in debt.
By getting the TBredB out and getting help from IBM on SOI, AMD basically stabilized the patient. Had they not, AMD probably would have died later this year. Now it won’t, but just because the patient isn’t on the verge of croaking anymore doesn’t mean he’s in good shape.
AMD is like someone just taken off life support, but is still in the ICU. The patient is still very weak, so what would be the equivalent of a bad cold for the average can kill the patient.
The next series of challenges to AMD’s existence begin next fall with Hammer introduction/90 nm migration. If they get through that, the final challenge will be “Can AMD make enough money to keep pace with Intel as the capital costs of fabbery keep rising?”
All of these are much bigger problems to AND than Intel simply because of the company’s much different financial situations.
That doesn’t mean Intel can’t do stupid things. Of course they can, and have. They just have much more room for error because they can afford mistakes, and more resources to back up a faltering initiative.
For instance, Itanium is at best a questionable project, certainly more questionable than Hammer. It could well fail. If it does, though, Intel won’t go down the drain as a result.
If Intel had Hammer rather than AMD, there would be no question that it would do well, simply because it wouldn’t have to succeed quickly or else.
AMD’s problems right now are primarily financial, and will remain that way until or if they start making a lot of money.
They’ve backed themselves into a corner where Hammer must succeed quickly if they hope to survive, and sorry, but it’s at least a somewhat risky strategy.
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