Original Link: http://www.anandtech.com/show/3598/the-business-of-tech-amd-q4-2009



AMD’s often perilous financial situation usually bears watching, but this past quarter is of particular interest. On the business side we have seen AMD and Intel settle their long-standing feud over accusations of anti-competitive behavior by Intel, which had several big outcomes for AMD this past quarter. As part of the settlement terms Intel paid AMD a cool 1.25 billion USD, officially to make up for past transgressions – and unofficially as life support for a company that lost money for the last 13 quarters.

On the technology side we’ve seen AMD’s graphics division spend an entire quarter driving their own destiny. With Fermi/GF100 delayed well in to Q1 of this year, Q4 was all about the Radeon 5000 series – and it would have been an even better quarter if only it weren’t for that pesky TSMC 40nm supply problem. AMD’s CPU division didn’t have quite as rosy of a time, but Intel’s price gaps below $200 have left AMD with a viable value market.

So with that in mind, how did AMD fare for the quarter and for the year? It’s a mixed bag, particularly if you throw out the Intel settlement. Perhaps a table will best get at this.

 

AMD Q4'09 & 2009 Operating Income
  Q4 Actual Q4 w/o Intel Settlement 2009 Actual 2009 w/o Intel Settlement
Overall $1178M -$64M $304M -$938M
Processors $158M x $127M x
Graphics $53M x $50M x

AMD booked the final Intel settlement at $1,242 million, giving us the difference between AMD’s actual results for the quarter and year, and what it would have been without the Intel settlement. Officially AMD booked a profit even without the Intel settlement if you go by their non-GAAP (Generally Accepted Accounting Principles) numbers, but we’re sticking with the GAAP numbers here and just yanking out the Intel settlement.

To put things in perspective, last year AMD lost $1.4 billion just on Q4’08, and $3.1B for all of 2008, so this is a massive turnaround for the company. At this point both of their core divisions are turning a small profit, and the company’s reduced exposure to the foundry business has greatly improved their bottom line. AMD took a loss of $99M in Q4 from their share of Global Foundries – so if they were able to drop the foundry business entirely, they would have likely turned a true GAAP profit. Although AMD has several problems, at the moment it’s the foundry business that continues to be doing the most harm to them.

On a broader market outlook, AMD was expected to lose some 18 cents a share this quarter (not factoring in the Intel settlement), whereas they actually only lost 8 cents a share, so the company beat the street in losing less than half as much as was expected. Certainly that’s good news for AMD, whose long streak of losing quarters has made it an unpopular item.

One thing of interest from AMD’s results was the average selling prices and gross margins. AMD doesn’t give us the exact ASP of their products, but they do compare it to previous quarters and years.

 

AMD Q4'09 & 2009 ASP
  Q4 vs Q3 ASP Q4'09 vs Q4'08 ASP 2009 ASP Q4 Gross Margin
Processors Up Down Down 45%
Graphics Up Down Down x

In spite of AMD’s overall better financial position, the ASPs in both the processor and graphics division has fallen both on a quarterly and yearly basis. This isn’t particularly surprising for the processor division with Nehalem regulating AMD to the sub-$200 market, but it is more surprising on the graphics side where AMD had not been able to sell a single-GPU video card for over $300 for years until now. It just goes to show you that the bulk of products really are sold at the low-end, where prices on older 4000-series products continue to slowly drop. Graphics revenue is a similar story: Up slightly on the year, but up significantly for the quarter compared both to last year and to Q3 of this year.

What is surprising is that considering AMD’s financial situation, their processor gross margin is pretty good. At 45% they’re no Intel (64.7%) but it’s the kind of margin the company needs to pay for things like R&D, particularly since they don’t move massive volumes of chips like Intel does.

Wrapping things up, the big thing for the company in 2010 is going to be that they’re finally going to escape the black hole that has been Global Foundries. ATIC – whose long-term plan has always been to completely buy-out GF from AMD – is expected to go through with that transaction soon now that Intel is no longer going to block the sale through the use of the x86 license. Since GF has been a losing proposition for AMD, in the short-term they stand to finally stop losing money on it, meaning they stand a good chance of turning at least a small profit overall since both processors and graphics are profit-generating. Of course it remains to be seen whether this is a great long-term strategy, but you can’t argue with the short-term effects on the balance sheet.

On the tech side, this quarter will see the launch of the rest of the Radeon 5000 series (Evergreen) chi p stack. 55nm products will continue to sell for quite some time, but it should be good for the ASP of the graphics division. Fuzion (CPU+GPU) products are still on-schedule for a launch late this year, so the CPU side of things should see a decent shakeup even though Bulldozer won’t make it this year. AMD mentioned that the first Fuzion products will be SOI-based, so it sounds like they’ll be making them at GF, with later products fabbed at additional foundries.

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