AMD Digging the Hole Deeper: Fool by Numbers

"With fiery feet devouring flame
Has hunted down a royal game
At Raening, where King Ingjald gave
To all his men one glowing grave.
On his own hearth the fire he raised,
A deed his foemen even praised;
By his own hand he perished so,
And life for freedom did forego."

-- "Heimskringla," Snorri Sturlason

On April 19, embattled processor pugilist Advanced Micro Devices (NYSE: AMD  ) released first-quarter 2007 earnings for the period ending March 31. Perhaps the National Poetry Month contribution above says it all, but I'll elaborate on how the company appears to be planning its own demise:

  • Given my generally positive coverage of AMD, a few readers have challenged me to put a positive spin on this report, if I dare. Well, it ain't happening. If anything, I'm surprised by the lack of market backlash against the announced cuts in operations and capital expenditures. AMD is mortgaging its future at very expensive rates. There's a more eloquent version of these sentiments available, too.
  • You knew it would be a bad report, but 7% lower sales after adding $197 million of graphics chip revenues with the ATI acquisition? Ouch. It doesn't really matter whether pricing or demand made the bigger difference here -- it's clear either way that Intel (Nasdaq: INTC  ) , whose revenues are looking relatively stable, is taking AMD's cake and eating it, too.
  • You don't see this level of margin drops very often, nor such amounts of inventory buildup. Some of that is the ramp-up of the next-generation Barcelona processor, but some has to be older product that just won't sell, even at ridiculously low prices.
  • President Dirk Meyer and CEO Hector Ruiz have proven their worth to me many times over, and I'm not giving up on them yet. Though my faith in management has been shaken, I will stick it out and give them time to prove that this is the right direction to take.

(Figures in millions, except per-share data)

Income Statement Highlights

Q1 2007

Q1 2006

Change

Sales

$1,233

$1,332

(7.4%)

Net Profit

($611)

$185

N/A

EPS

($1.11)

$0.37

N/A

Diluted Shares

549.0

495.3

10.8%

Get back to basics with the income statement.

Margin Checkup

Q1 2007

Q1 2006

Change*

Gross Margin

28.1%

58.5%

(30.4)

Operating Margin

(40.9%)

19.4%

(60.3)

Net Margin

(49.6%)

13.9%

(63.4)

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

Q1 2007

Q1 2006

Change

Cash + ST Invest.

$1,167

$2,633

(55.7%)

Accounts Rec.

$667

$820

(18.7%)

Inventory

$937

$337

177.9%

Liabilities

Q1 2007

Q1 2006

Change

Accounts Payable

$1,362

$847

60.8%

Long-Term Debt

$3,659

$616

494.1%

The balance sheet reflects the company's health.

Cash Flow Highlights

Q1 2007

Q1 2006

Change

Capital Expenditures

$586

$310

88.8%

Owner Earnings

($883)

$48

N/A

Free cash flow is a Fool's best friend.

Related Foolishness:

Intel is, as always, a Motley Fool Inside Value pick.

Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

At the time of publication, Anders Bylund was an AMD shareholder, but he had no other position in any company mentioned. Fool rules are here. Tissues, in that box by the door. There might be a quart of Vodka in the cupboard. There, right next to the Valium.


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