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Advanced Micro Devices
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AMD Raises Fourth Quarter Sales Expectations

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By Roleplayer
December 6, 2002

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leejp wrote: Bad... How is it possible that a company that's been business for this long to miss their earnings expectations by such large numbers. Yes this is a miss on the upside but Yow!!! I mean there's a reason they don't have the same level of trust that Intel does.

Let me get this straight. Intel announced price increases in flash, especially in its highest end most expensive flash. That was Intel changing the pricing model of that sector. AMD followed suit, since it would be business stupidity to sell a product for $7 when the market will cover $10. AMD makes a higher percentage of their revenues from flash than does Intel. But because of Intel's price increase AMD loses on the trust issue?

Lets try spinning it a different way. Supposed AMD pre-announced $700M in revenues in Q4, as they might have if Jerry was still in charge. Suppose that was based on their expectations that high-end flash prices would increase. Intel's analysts might have said, "You know, we can make an extra $100M in flash if we increase prices, but if we don't raise prices, it's a virtual certainty AMD will fail to meet forecast. Keeping our major competitor down in public confidence is probably worth much, much more than $100M, so lets keep our prices low."

The point is that we, as analysts ourselves (everyone who invests in any stock is a de facto analyst of that stock; we might be lousy at it, but then so are many of the people paid to analyze) are supposed to be aware of all the ramifications and news about the companies we follow. Here on TMF web site there's a lot of great news on technical comparisons, and it's possible that as a whole we (the great unwashed Fools) know as much as or more than any other group of analysts about the technical nuts and bolts of semiconductors. But analysis is not just products: it's marketing and macroeconomic picture and changes in the pricing environment caused by outside forces. We are supposed to remember an entire week back that Intel (who sells more flash than any other single company in the world) raised prices, allowing everyone else to do so, and not blame AMD for making more money because of an Intel price jump.

Look, there's no such thing as knowing what your revenues will be. You know your confirmed orders and your ship dates, the restocking prices and how many new products will be produced, your historical sales patterns and the state of the economy. You put all those into your cauldron, add in whether you want to be known as positive, negative, or neutrally skewing, and pick a number. But Gump happens. Anyone remember the flooding in Dresden this spring. Sure, AMD's plant was untouched, but how many employees were at less than there best worried about their homes, their families, their towns? And I'm sure it was completely coincidental that the flooding coincided with a horrible miss of a quarter by AMD. On 8/31/2001, my startup, Explorati, was about to get our first major contract with Proctor and Gamble ($500,000) as well as having a similar investment delivered by another company that was going to fly from New York to Colorado in a week and a half to get the big check signed. P&G soap operas (and, thus, advertising revenues) were preempted for a long time following 9/11, and they lost the discretionary income to invest in us. The other investment group's plane was routed to Chicago from Denver on 9/11, and they decided to cancel all investments. Bam! Just like that, Explorati went from a reasonable anticipation of having tons of work and money to having none of either. Could we anticipate 9/11? Could AMD anticipate flash price increases? In fact, IIRC from their forecast, AMD did anticipate improving flash picture; they just didn't anticipate it improving this much this soon.

There is no crystal ball.

There is a window, and after reading all the numbers Ruiz stares out the window for a while, and decides which numbers to announce. If out that window is something he should have seen but didn't, we can and should criticize him. But AMD has a ton of flash capacity coming online as Austin ramps, shrinks, and mirrorbits. Ruiz could have raised flash prices sooner and probably forecast (and made) more money for AMD. But he decided that increasing the chances of keeping Austin sold out for the next several quarters outweighed an extra $100M or $200M right now.

When I think Ruiz (or Sanders, or Barrett) should have seen something out that window, I will cheerfully criticize him. Heck, I have criticized all of them. For example, it is obvious that AMD could have shipped small quantities of Hammers this quarter. IMO, Hammers sooner is completely worth the downside in Osbourning risk, in low volume criticism, etc. From my window, that's a billion dollars worth of publicity from shipping the speed king CPU and holding that speed crown. From Ruiz's window, it might have been a billion dollars worth of unhappy customers who have to try and sell AXP 2200+ when Hammer is at 3400+, and only get dozens of Hammers when they need to have tens of thousands to make up that difference. So we look out two different windows and see two different things, and I hope like heck that Hector's window is cleaner than mine.

But to have seen this revenue upgrade in October would have required seeing through a wall, not a window.

My 0.24% of one share of AMD stock,
Roleplayer


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