Speaking at AMD's annual analyst day yesterday, AMD CFO Tom Seifert said the company is aiming for gross margins between 44% and 48% next year, up from the targeted range of 40% to 45% in 2010. CEO Dirk Meyer underscored the profitable trajectory: "AMD's business model has consistently delivered operating profits this year."
Indeed, AMD's margins have been on a tear lately. After gross margins bottomed out at 37.4% in fiscal 2007 alongside a -19.7% operating margin, the trailing 12 months have seen a rebound to 45.5% and a positive 7.3%, respectively. Yes, AMD is executing better than management expected in terms of gross margins.
Mind you, the company still lags a fair distance behind archrival Intel (Nasdaq: INTC ) , whose 65.3% trailing gross margin is the envy of the industry -- particularly when you consider that Intel runs its own manufacturing operations rather than outsourcing to third-party foundries such as AMD spinoff Globalfoundries or market leader Taiwan Semiconductor Manufacturing (NYSE: TSM ) . On the other hand, AMD is doing better than fabless graphics rival NVIDIA (Nasdaq: NVDA ) , whose trailing gross and operating margins were hit by inventory markdowns and slid all the way down to 36.3% and 0.5%, respectively.
Seifert and Meyer made their comments between introducing its first Fusion products ahead of schedule and drawing up a highly competitive road map for 2012.
Under Meyer, AMD is building a history of delivering on its promises, often ahead of schedule and below budget. It's a refreshing change from the previous regime under Hector Ruiz, and I believe that Meyer's highly technical engineering background gives him a deeper understanding of what chips can and should do, as well as of the resources you need to get the darn things designed and manufactured. It's the same ground-level thinking that helped Reed Hastings make a technical and business marvel out of Netflix (Nasdaq: NFLX ) . As long as Meyer is at AMD's helm, the positive surprises will keep outnumbering the missteps.
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