AMD Q1 2010 Financial Results

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ElMoIsEviL

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SAN FRANCISCO (AP) -- Advanced Micro Devices Inc. returned to profitability in the first quarter as the world's No. 2 microprocessor maker benefited from a strengthening computer market.

The company also got a lift from an accounting boost related to the manufacturing division it spun off last year. But more importantly, the quarter's numbers suggest that AMD is being helped by broad trends that could lift many kinds of technology suppliers.

http://finance.yahoo.com/news/AMD-scores-1Q-profit-as-PC-apf-4121061754.html?x=0&.v=6
http://www.thestreet.com/_yahoo/story/10727497/1/amd-swings-to-profit-beats-consensus.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA

Nice to see AMD posting back to back profits :)
 


Yes, but they posted a profit by virtue of selling off or an accounting writeoff of the last remaining interest in their fabs.

IMO AMD really needs to raise their prices and thus ASPs. Having to farm out their fabbing is only going to cost them more in the long term. And I think a plausible reason as to why GF acquired Chartered was to diversify their customer base with less-demanding technology, and not put all those expensive 32nm eggs into the AMD basket.
 


Not true at all. They spun off the FABs for a reason. It does come at the cost of complete control of the process, but it saves money in the end.
 

Chad Boga

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We don't yet know if that will be the case.

For now they are getting a sweetheart deal on wafer costs, but that won't last forever and Global Floundries will be wanting to charge the costs and a profit to AMD for fabbing.

Some people seem to think Global Floundries is some kind benefactor which is looking to give AMD discount wafer rates till the end of time. :non:
 


Absolute truth. If ATIC (& GF) were charities, why did ATIC renegotiate the foundry deal to AMD's detriment about 15 months ago, when they downgraded AMD's share of GF from 50% to 35% based on AMD's then-current stock price?

The fact is, when you fab in-house, you have to spend upfront on capital equipment and hopefully amortize the cost over the usefulness lifetime. If you farm it out to a foundry, you avoid the upfront cost but will wind up paying the equipment amortization plus a profit over the product lifetime. True the amortization can be spread over other customers using the equipment, but considering that AMD still needs SOI, the "other" customer base is substantially decreased...

I would think that AMD not making a profit on its product sales would be evidence of this, but maybe not..
 
You know what I find sick, these guys are raking in profits and here, teh little guys are being paid nothing AND they won't hire because they," do not have enough funds to support the business." I am not hitting on a specific company, ALL of them are at fault. Tell me something is not wrong here.

Though...it is nice to see AMD still in the game.

Sounds to me like somebody is looking for a summer job :p...

I think the economic recovery will be a trickle-down effect - the big companies first, then down to the little ones. So maybe next summer. Depending on whether the US or Israel takes on Iran over nukes (middle east oil), Obama raises taxes to cover healthcare & everything else on his plate (stifling recovery), etc.

You know, the tax burden currently runs around 18+ % of GDP. Whereas gov't spending runs around 25% of GDP. Since the gov't can't just go printing more money due to inflation eventually setting in, the only recourse is to cut spending or raise taxes. So you might wind up hurting for a career, let alone a summer job..
 


But GF itself is a stand alone company so it can set prices higher to profit on their end while AMD barley profits.

Also, loss of control of the product is a bad thing. You have no quality control and as well if its badf QC you lose money.
 

Dekasav

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The possible profit comes from AMD underutilizing process research and equipment on their own. If it costs $10mil to research and develop 32nm tech, AMD before had to eat that and hope they made enough money off the new tech to make the investment worthwhile. Without enough volume, though, it doesn't come out even. Because AMD *HAS* to keep improving process tech, by spinning off their Fabs, while they lose control and have to pay someone else's profit, it can still be lower. Going into the future, this would eventually be necessary for AMD unless they started gaining massive marketshare and profit ala Intel.

It is forseeable that eventually even the almighty Intel will have to either slow down and risk losing their lead in process technology to companies that pool their resources into GF, TSMC or some other fab company or have to they, themselves merge their fab research/spin off their fabs/outsource to a fab company that pools many resources.

Whether Intel will keep enough profit to keep investing in fab research is yet unknown, but I would argue it is more an issue of when, not if.

(I was thinking about doing the math, but I figure you guys are smart enough to figure it out. If you don't get it, I'll be back.)
 

ElMoIsEviL

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Trickle Down Economics?

I see Supply Side Economics as having been a near constant failure. With Speculative bubbles popping up here and there. The American Golden years (1950-1970) practiced Demand-Side Economics.

Therefore I am inclined to think that even if the economy get's better... it will only do so when speculators create a new bubble (maybe Carbon Credit Trading bubble..lol). I think that if the USA continues on the path it is on... another eventual crash and a continuation of the concentration of wealth to the top 5% will be the result (the dismantling of the middle class).
 
AMD had the in house fabs because the original X86 license required it. And that is where a lot of the costs lie. Global foundries can more easily profit by producing product for others which will keep their cost down and AMD can utilize other fabs for volume and/or competition, so cost should stay low.

Its a risky move, but potentially a brilliant one.
 


As I mentioned before, a large part of semiconductor manufacturing does not need to be on the latest & most expensive fab node, which is why IMO GF acquired Chartered.

But I do agree that Intel could conceivably spin off their fabs into a separate subsidiary that could go after other customers (nVidia perhaps, if Jen Hsun Hwuang ever gets over his hate on Intel :p). I doubt Intel would relinquish 50% control/ownership however.
 

sonoran

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While that's true enough, the spinoff does allow GF to spread the massive R&D and capital equipment costs across its customer base. AMD no longer has to shoulder that entire cost (although as GF's largest customer, you can bet they'll still get charged the lion's share of it for the near future).
 

Chad Boga

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On another forum I frequent, where there is a disproportionate amount of EE's working in the semiconductor industry, they were talking about TMSC and how that they probably made most of their revenue fabbing circuits at the 90nm mark and that people would be surprised to find out how many circuits are still made in a process size much bigger than 90nm.

The reason why I mention this, is that I think a few people radically overestimate how easily it will be for Global Floundries to simply amortize AMD's fab requirement costs, to other customers, so that in a few short years when the sweetheart deals AMD and GF currently have in place run out, AMD will be facing relatively high fab costs, especially if they are unable to fully utilize fab capacity that was built primarily(if not exclusively) for them.

It also means that they may not be viable as a company with only 20% or less market share and may need 30% or more.
 

jennyh

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I haven't read anything to suggest that AMD getting wafers at cost will change in the future.

You have to remember this is very much a joint venture. GF has nothing to gain by AMD not being there - there is nobody there to take their place, nobody else realistically with x86. It will never, ever be in GF's interests to squeeze AMD for more cash than they can afford.
 

Chad Boga

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You do realise that implicit in your post is that GF will be prepared to take losses on AMD's behalf, forever.

What swell guys they must be.

ATIC/GF/AMD have already announced publicly that AMD will be divesting itself of GF shares until they are completely separate entities.

 

jennyh

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Dear oh dear Chad if you only thought about it.

You are in pure fantasyland here - you are actually fantasising about a situation where GF would rather have AMD struggle or die off. Sure let's give intel even more cash. Let's say $7bn a year of AMD's revenues...how many more fabs do you think intel could build with that every year?.

You really believe it is in GF's best interests to kill off AMD, when the reality is, GF would be better served taking a loss on AMD's wafers.

Every wafer sold, every point of market share AMD takes from intel is a huge benefit for GF.
 

MarkG

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From 1950-1970 the dollar was gold-backed, thereby limiting money printing. Since 1971 (IIRC), when the US government had printed so much cash to pay for Vietnam that they were about to have to ship all America's gold abroad to pay for it, the dollar has been a pure fiat currency so you should hardly be surprised that we've seen massive bubbles fueled by money printing; fiat currencies always have always led to credit bubbles and eventual collapse within a few decades.

Not to mention that in 1950 most of America's competitors had just been devastated in a global war or were left owing huge debts to the US government so it's no wonder that a country whose factories hadn't been bombed to bits became the global manufacturing center.

Back on topic, it's good to see AMD making some money again.

 


?? How so? GF is a foundry, Intel restricts its fabs for its own products. Two separate customer bases, hence no competition.

Now if GF is only breaking even or even losing money on every wafer of stuff that AMD sells, then it would be in their economic interest to get rid of AMD as a customer as soon as they possibly can, assuming their primary interest as a business is to make profits.

If they have some sort of vendetta against Intel, that outweighs their profit motive, then they are not a true business but more akin to the Mafia :p.. In which case the FTC will find themselves with a countersuit from Intel against AMD & GF.

BTW, here's one take on AMD's last quarter:

Don't Believe Any AMD Hype
April 16, 2010 9:36 AM ET

The first chapter of that story will be published in 90 days when AMD next reports. The "miracle" that will occur will be visited upon their cash flow statement. In the first quarter, AMD recorded a paltry $23 million in cash from operations. That’s what happens when you lose your biggest non-cash charge: depreciation. However, AMD had to report a one-time non-cash charge for the gain/loss on the deconsolidation of GlobalFoundies. This was a negative $325 million. Consequently, you’ll see cash from operations surge forward in the second quarter to the $300-plus million range. With that there will be talk of the repayment of its $2.6 billion in debt. None of that's a bad thing.

The second "miracle" comes in the second half of the year. Keep in mind that management again last night reiterated their 40%-45% guidance for gross margins. However, there’s an anchor around AMD’s neck in the form of an under-utilization charge for the Dresden fab. That facility is currently running at about 75% of capacity, essentially unchanged from the prior quarter. Assuming the economy recovers and AMD’s orders fill that fab, the gross margin drag disappears and gross margins "pop" in the third and fourth quarters. The true believers will shield their eyes from the glow that will be AMD presumably rising from the ashes.

Now, let’s look at the reality of the first quarter’s results. At a time its antagonist posted 44% revenue growth, AMD’s computing products (~75% of revenue) increased 23%. You can do the math on the differential but the market and AMD’s customers are telling you they lost market share.

In response to a question about operating margin in computing products (12.6% in the first quarter), management indicated that any improvement going forward will be top-line driven. There should be some gain when the aforementioned gross margin drag is lifted but in essence there’s little to no leverage in the business model. That’s the case with most fabless semiconductor companies. However, as the industry lurched forward in the first quarter, AMD didn’t.

Management indicated that they’ll start 32nm volume production in the second half of 2010 and we should expect OEM product in the market in the first half of 2011. Translation: It's still a full year or more behind Intel (INTC). Consequently, Intel sets pricing and AMD follows accordingly providing another governor on margins.

AMD won't go out of business; its OEM customers will see to that because they want to keep Intel on its toes. However, none of that makes for a good investment. There are better places to invest your money so don’t get sucked into the hype when it hits.
 

noob2222

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I can see it now, GF bans AMD fabbing, ... runs at 50% capacity due to no one willing to deal with them. TSMC buys GF at 25% of its original value.

I am sure there is a contract somewhere in writing between GF and AMD regarding fab costs.
 

jennyh

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And once upon a time AMD did that too.

Now if GF is only breaking even or even losing money on every wafer of stuff that AMD sells, then it would be in their economic interest to get rid of AMD as a customer as soon as they possibly can, assuming their primary interest as a business is to make profits.

If they have some sort of vendetta against Intel, that outweighs their profit motive, then they are not a true business but more akin to the Mafia :p.. In which case the FTC will find themselves with a countersuit from Intel against AMD & GF.

No that's just not going to happen. I've said it before and it seems like I have to say it again, but without AMD there would be no GF. GF would never have existed. Nobody knows the exact details of the contract, it may well be that AMD gets free wafers indefinitely. Somebody has to drive the technology forward. ARM could jump ship, AMD can't. Both are tied together forever, and if one fails the other fails.

It really is that simple. There is no way whatsoever that AMD going out of business could be good for GF, because GF does not want intel making even more cash, building more fabs and possibly taking away future business on a whim.

What is stopping intel from simply offering ARM a better deal at some point in the future? Nothing. We know for sure that intel won't be offerering AMD a better deal too. By all means continue to believe otherwise, nobody in AMD or GF is considering it and they never will be. :)
 

Chad Boga

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There is no fantasising going on, I am merely speculating on how things may play out.

Sure let's give intel even more cash. Let's say $7bn a year of AMD's revenues...how many more fabs do you think intel could build with that every year?.
Irrelevant to the discussion.

ATIC presumably care about eventually making a profit, they don't have unhealthy obsessions with Intel like you do.

You really believe it is in GF's best interests to kill off AMD, when the reality is, GF would be better served taking a loss on AMD's wafers.

Every wafer sold, every point of market share AMD takes from intel is a huge benefit for GF.
Unless they can be confident that AMD can sustain a 30% plus or more marketshare, then as a foundry looking to take customers from all over the world, then it would be in their best interests to stop propping up a perpetual loss making venture.

Your problem when ever this conversation crops up is that you have deluded yourself into thinking ATIC and Intel are sworn enemies, rather than ATIC wants to be able to make profits.
 

jennyh

Splendid
No your problem is you only looked at it from the perspective of what GF has to gain from ditching AMD.

They have an awful lot more to lose. Nobody smaller than intel wants to see intel getting bigger, that is something you don't seem able to comprehend.
 
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