The Business of Tech: Big Quarterly Numbers for Intel & AMDby Ryan Smith on July 18, 2008 12:00 AM EST
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As we promised last week, we have the Q2’08 fiscal numbers for AMD which came out yesterday. And for the sake of completeness we also have Intel, whose numbers came out earlier this week. We’ll start with AMD.
So much for only losing $200 million this quarter. At face value, AMD lost $1.19 billion this quarter, on revenue of $1.35 billion. The biggest loss (and biggest change) since last week was that for the second time AMD has taken a write-down on ATI, this time to the tune of $876 million. In the present-term this is a correction of the value of ATI within AMD’s books, but it’s also ongoing proof that AMD paid too much for ATI. The bit of good news here is that write-offs are not the same thing as actually losing money (even though they are calculated against net income), so AMD isn’t $1.19 billion poorer (not that they could afford to be). Real (operating) losses are around $275 million before factoring in AMD’s one-time sale of old 200mm manufacturing equipment, after which operating losses drop to $143 million, a far more minor hit against what cash AMD still has. Furthermore this means losses are reduced compared to Q2 of last year, a positive sign for the company.
As for a breakdown on what came from where, computing solutions (CPU, chipset, etc) was $1.1 billion, while graphics (GPU) was another $248 million. CPU sales compared to last quarter are down as is traditional for this time of year, however the average selling price is also down, which is a bit troubling. AMD’s inability to capture high-priced (read: high-profit) sales is continuing to hurt the company. GPU sales were not a smash hit either, in spite of the fact that RV770 started shipping last quarter. The Radeon HD4850 was not available until late in the quarter, and the HD4870 effectively missed the quarter entirely, so AMD’s top product was only a $200 part. This means that the average selling price for GPUs was only flat compared to last quarter. With a full quarter of HD4000 sales coming up (including the lucrative HD4870 X2) we’d count on this improving.
AMD has stated that they are hoping to return to profitability in the second half of this year, although we wouldn’t hedge and significant bets on it. AMD’s own predictions for Q3 are to lose around $180 million, so a return to profitability would not be until the 4th quarter. This is timed with the launch of their 45nm parts, or in other words the company is counting on Shanghai and its related parts to hit the right balance of revenue and cost to make the company profitable again. This quarter marked the 7th consecutive loss for AMD, and the next quarter will make for 2 whole years of losses with loss number 8. There’s a lot of speculation on if AMD will need to sell some further assets (equipment, a business division, etc) to make it there, but we’ll see.
Finally in a bit of unexpected news, CEO Hector Ruiz was given the boot. Hector has been fairly unpopular with the press, the public, and investors, so this is good news for the company for at least today. Hector has been blamed for much of AMD’s recent woes since he has been its overseer throughout the entire decline of the company, although he has probably taken on more blame than he deserves. The enigmatic Jerry Sanders is a hard act to follow no matter the situation.
Hector’s replacement is Dirk Meyer, AMD’s current president and COO. Dirk is seen as more of a technical man and less of a business man than Hector, which may be what the company needs right now. He’s credited with the success of AMD’s earlier Athlon processors, and interestingly has been with AMD several years longer than Hector has. The change in CEOs likely won’t affect anything in the short-term, but it remains to be seen just how differently Dirk will run things in the long-term; there’s the potential for some big changes. In the mean time he’s going to have to face the tough job of keeping AMD from losing any more money.
Meanwhile, Intel has had a fantastic second quarter. Revenue was $9.5 billion with a net income of $1.6 billion. This makes for a record 2nd quarter in revenue for the company, along with a surprising 25% jump in profit. This is very much a case of Intel doing well when AMD is suffering, not only are they capturing a larger share of the market, but AMD isn’t able to drive down the prices on their consumer products positioned above the Q6600, or roughly $250. The only thing Intel continues to face stiff competition with is the 4P+ server space, where AMD is still hanging in with the Opteron and its HyperTransport bus.
Besides the above, this quarter makes for a fairly dull earnings report. Intel’s biggest problem is that their own low-end parts are eating in to the sales of their high-end parts. The average selling price for Intel’s processors is down slightly, which Intel credits to very strong sales of cheap laptops. They are not very clear on if “cheap laptops” are the new generation bottom-bin products like the eeePC, or just growth in the traditional cheap laptop market.
Finally, the European Union has no problem raining on what’s otherwise Intel’s parade at the moment. It’s looking increasingly likely that Intel will be found guilty of antitrust charges that were started early this decade from AMD. The EU is adding to its list of charges a claim that Intel paid a EU retailer (through rebates) to not carry AMD products, and a claim that Intel paid a manufacturer to delay launching a line of computers using AMD CPUs. Intel of course is not happy about the latest charges, and there is some continuing concern from outsiders that the entire situation is being unfairly influenced due to AMD’s fabs being located within Germany. It is anyone’s guess when the EU will wrap this case up though; it has gone on for 8 years now with no indication that it’s coming to an end.