Dark Days for AMD

When Intel (Nasdaq: INTC  ) reported superb earnings last week, Advanced Micro Devices (NYSE: AMD  ) took a ride on the bigger rival's coattails. Expecting that AMD's quarter would tap into the same market strengths as Intel's, the share price shot up 9% overnight and stayed close to Intel's gains for more than a week.

Well, the numbers are in, and the joyride is over. AMD couldn't keep up with Intel this quarter -- not where it mattered, anyway.

AMD's second-quarter sales stayed flat from the last quarter at $1.18 billion. That's nowhere near as impressive as Intel's 12% sequential sales jump. And AMD lost $0.49 per share -- but that includes $0.13 per share from selling aging inventory that had been written off as losses two quarters ago. That inventory-clearing move may have boosted AMD's GAAP gross margins, but in "real" non-GAAP terms, the company's margins and average selling price both sunk.

Like I said, the joyride is over. In one fell swoop, AMD's shares are back where they were before Intel's report.

As an AMD shareholder, I'm disappointed to see such a weak revenue performance. The company resorted to barn-burning clearance sales tactics, and even then failed to keep up with the big boys down the street. However, management is telling me to keep my chin up.

The six-core Istanbul processor started shipping too late to make an impact on the second quarter's results, but it should play a large part in the next quarter. Large server vendors from Dell (Nasdaq: DELL  ) to IBM (NYSE: IBM  ) and Hewlett-Packard (NYSE: HPQ  ) are already selling systems built around the Istanbul architecture. AMD expects 45-nanometer chips, which cost less to make and run cooler on lower power inputs than the old 65-nm technology, to "dominate" sales in the fourth quarter, with the crossover point somewhere in the third.

And Microsoft (Nasdaq: MSFT  ) Windows 7 upgrades should make a real difference for AMD's graphics division if nothing else -- AMD has beaten arch rival NVIDIA (Nasdaq: NVDA  ) to the punch with video chips that support Windows 7's new DirectX 11 graphics framework.

So, while I'm disappointed in the current state of affairs, those warehoused old chips are essentially gone now, and Istanbul can put up a better fight against Intel's Nehalem chips than Shanghai ever could. I'll hold on for dear life through what promises to be a turbulent summer, hoping to eventually see AMD passing the $1.3 billion revenue mark where the red ink should turn black. Profits have this magical power to launch depressed stocks into orbit, you know.

More chipper Foolishness:

NVIDIA is a Motley Fool Stock Advisor recommendation. Dell, Intel, and Microsoft are Motley Fool Inside Value picks. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Anders Bylund owns shares in AMD, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you'd like, and The Motley Fool is investors writing for investors.


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  • Report this Comment On July 22, 2009, at 1:00 PM, rsinj wrote:

    AMD beat Nvidia to the punch with Windows 7 DirectX 11? Hey - get as excited as you want if that's anything worth getting excited about. See many Windows 7 desktops out there yet? See many people looking to pay for a Microsoft upgrade to whatever they're running today?

    Considering that Nvidia is cleaning ATIs clock and will soon be in the market with their CPU chips, AMD as a company is just about history. Nvidia is making incredible product announcements almost weekly. Next, their chips are going to be the standard in Smartphones and Netbooks. Shortly after, you're going to see Nvidia on the desktop, and the first to lose market share will be AMD.

    Look, everyone knows you invest in the market leader. AMD is not the market leader in any of its markets. Intel mops the floor with AMD, Nvidia does better than ATI. Now, AMD is going to have to also deal with Nvidia for the CPUs - and guess what? Nvidia chips are better. They have better raw performance and significantly lower power consumption. You know that someone is going to put together a massively parallel system pet project with thousands of the chips just to see what kind of performance they can get - and it's going to be record breaking.

    Where is AMDs future? They are being hammered from all directions.

  • Report this Comment On July 22, 2009, at 1:10 PM, kgeechee wrote:

    RSINJ

    I certainly hope you are correct. I could use some good news after the debacle of the Million$Port bombs.

  • Report this Comment On July 22, 2009, at 1:29 PM, Roleplayer wrote:

    The real question to me is when will AMD start making CPUs at 32 nm. AMD's 45 nm production was delayed because of Barcelona problems that really had nothing to do with 45 nm, but slowed things down until 45 nm could be eliminated as a suspect. Alan81 says that Intel should be at 10% 32 nm production in Q4. History says that if AMD is 4 quarters behind (as they were at 45 nm) that AMD is in trouble. 3 quarter behind is status quo. 2 quarters behind usually reflects gains for AMD. So when will AMD start making 32 nm CPUs?

  • Report this Comment On July 23, 2009, at 1:42 AM, ThudThud1 wrote:

    I bought AMD in the early 90s. I also had some Intel. After a year or so, I realized that Intel knew how to fabricate and market better! This is a commodity market. Better technology doesn't matter! Efficient fabrication does. As a result, AMD has had negative growth and is still fighting to maintain profitability.

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