Intel Sneezes, AMD Gets Pneumonia

Intel reported fourth quarter revenues down 19% with operating income down 50% compared to the third quarter; AMD has not reported yet, but if Intel is down, AMD’s fourth quarter results will be much worse.

AMD’s financial health is an oxymoron – any company reporting anything like AMD’s recent financial statements would be a prime candidate for a Chapter 11 filing. AMD has successfully used its lifelines (eg from Germany, Abu Dhabi and NY State) to keep the ship afloat, but after hitting the global financial iceberg, one wonders if all that’s left is re-arranging the deck chairs.

I took a look at AMD’s third quarter financials and decided to take a whack at estimating how the fourth quarter’s results will shape up. I estimated revenues at $1.2 billion, a drop of about 32% from the third quarter. Plugging in estimates for expenses, etc, I can easily see a Net Before Tax of -$500 million.

AMD has already announced there will be a substantial writedown of goodwill associated with the ATI acquisition – amount at this time unknown. AMD has already taken two writeoffs amounting to $1,606 and $880 million relative to the ATI acquisition. AMD initially booked ATI goodwill at $3.22 billion, so this leaves about $734 million left.

Figuring something like an additional $500 million writeoff, it is not inconceivable that AMD will report something like a $1 billion loss for the fourth quarter 2008. Added to 2008 results to date, AMD will probably report something like a $2.5 billion loss for 2008.

Since 2003, AMD has reported Net Income of -$274.5, $91.0, $165.0, -$166.0 and -$3,379.0 for 2007. With an estimated loss of $2.5 billion for 2008, cumulative losses amount to a staggering $6 billion.

I hope that AMD somehow reinvents itself so that it’s a viable competitor to Chipzilla; Intel recently dropped some CPU prices in response to AMD’s Phenom II, not so good for AMD but good for the consumer. However, I find it hard to believe that AMD’s precarious financial position bodes well for AMD’s continued participation as a key player. If AMD packs it in, we all will be worse off.