The Economy and AMD

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Does the financial crisis doom AMD?

First, a few words about the economy in general.  All this talk about bailouts and such are meant to avoid catastrophe.  It’s not meant to avoid recession or economic slowdown, because it can’t.  The days of easy money are over, and even if all goes well, getting credit is going to become tougher and more expensive, and that’s going to hurt the world economy a lot.  It will probably mean a recession as severe as we’ve had in the United States since the early eighties, smaller recessions or stagnation in most of the rest of the world, and a big slowdown in growth in places like China.      

So what does that mean for AMD?  Let’s break it down into two categories, two musts for AMD:

Breaking Even: There’s a number of factors that should go in AMD’s favor the rest of the year.  Video card revenues ought to be up considerably (next quarter’s results should give a good idea as to by how much and thus how much the ex-ATI can actually help AMD’s bottom line), and increased Phenom sales (plus some Shanghai sales in the fourth quarter) should help the CPU end of the business.  On the other hand, the PC market is already softening, which may put extra pressure on both CPU and GPU prices. 

Some might think that bad times are good news for AMD, since people will be looking for cheaper processors.  Under different circumstances, that might be the case, but right now, AMD doesn’t need popularity, it needs profitability.  A 5% change in the average selling price of CPUs makes almost a $50 difference in profit/loss for AMD.  Also keep in mind that its the OEM prices AMD is getting that matters, not the retail price. 

While making an actual profit isn’t going to happen in 2008, if these folks can’t come close to breaking even by the end of the fourth quarter, that’s going to be outsized bad news for AMD.  No matter what happens on Wall St. or Capitol Hill anytime soon, tech sales won’t seriously tank until 2009.  If AMD can’t break even Christmas season, then what’s going to happen when/if something hits the fan?

The issue won’t be so much a matter of AMD running out of operational money, at least not right away, but rather when they’ll need to . . . .   

Break Open Somebody Else’s Piggybank  AMD has laid heavy hints that they hope to spin off their fabs in some deal with somebody by the end of the year.  What they haven’t said, but what such a move implies, is that after such a deal, they’ll then be able to somehow swing building a New York State fab.  

The latest financial tumbles really haven’t affected AMD in some ways at all.  They haven’t been able to obtain additional commercial loans for quite some time, so tighter credit is irrelevant to them.  The stock price has been flung all around lately, but up or down, the stock price is far too low to raise the necessary money for a new fab even in normal times, and these are not normal times. 

Who knows if the purported Arab (or other) sugar daddy is going to show up by the end of the year, and if he/she/it does, fine, but if he/she it doesn’t, AMD will have only six months left to find somebody, anybody to help them finance that New York State fab.  That’s a do-or-die date.   I suppose they could ask New York State for an extension of time, but that in and of itself would be a can’t-spin-out-of-it admission that they can’t get financing.  That would be a huge admission of defeat from a company that already has attracted plenty of vultures.  

The reason why this date is likely to assume a lot more importance as time goes by is that AMD is going to have to come up with an awful lot of money to upgrade to 32nm no matter where or how they do it, or pay somebody an awful lot to fab for them.  While an alternative approach might cost less in gross dollars, tossing a billion dollars in subsidies away hurts a lot.  Some of the German financiers/governments who backed AMD in the past have had their own loan problems, so it’s tough to see them lending AMD any more money, much less provide additional subsidies.  

It’s more likely an effort would be made to get some of that U.S. federal money being tossed around with such abandon these days pointed in Green’s direction.  This would be most likely to happen after the U.S. elections and after a general Democratic victory.  Maybe Uncle Sam can be persuaded to buy some of AMD’s toxic debt; even it looks better than some of those mortgage securities he’s likely to be buying.  Or maybe a loan guarantee for a few billion will suffice, might not even be noticed amidst all the big sums that will be flying around shortly.  

I could go on and on, but it really boils down to “Is there some sugar daddy out there to bail AMD out or not?”  UAE, USA, doesn’t matter, will anybody do it, or is such talk just a mirage?  Does a white knight exist, or are we talking about tooth fairies?  If there is such a thing, the company will scrape through, regardless of the economy.  If there isn’t, then this company really becomes a lawsuit that makes some CPUs and GPUs.  


About Ed Stroligo 95 Articles
Ed Stroligo was one of the founders of in 1998. He wrote hundreds of editorials analyzing the tech industry and computer hardware. After 10+ years of contributing, Ed retired from writing in 2009.


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