AMD Plans to Reach Profitability in 2008
Chipmaker AMD Expects Return to Profit in 2008, Delays Widespread Barcelona Launch Until 1Q
NEW YORK (AP) -- The world's No. 2 microprocessor maker, Advanced Micro Devices Inc. said it won't return to profitability until the second half of next year and delayed the full release of the product it says will enable its recovery.
We have gone through a very difficult time, reacted quickly and decisively, and we are on our way to really have, I believe, a phenomenal transition year in 2008," CEO Hector Ruiz said at an analyst conference Thursday in New York.
AMD, which has been struggling to catch up with much larger Intel Corp., is committed to breaking even in the second quarter and returning to profitability in the third, Ruiz said.
In response, investors sent AMD's shares to their lowest level since August 2003. The stock closed at $8.84 Thursday, down 13 cents, but had traded as low as $8.42 during the day.
"The lack of specific information is likely the chief culprit of the shares' weakness," wrote Stifel Nicolaus analyst Cody Acree in a note to investors. He found the analyst day more positive than AMD's share price indicated.
"We believe the information was incrementally encouraging, and that AMD is in the process of a solid recovery," he wrote.
AMD's stock has taken a beating the past two years amid fears the Sunnyvale-based company has been losing some of its competitive edge against Intel because of debt from a costly acquisition and because its technology is aging.
AMD shares have plunged nearly 80 percent from early 2006, when they traded above $40 and the company's market value was more than $20 billion. AMD's market value is less than $5 billion today, and the stock has been stuck under $10 for two weeks.
Many on Wall Street had hoped AMD would provide details on its "asset lite" strategy to sell off some factories and outsource manufacturing tasks to cut costs, but the company did not elaborate.
Acree said investors may have also been hoping for more detail on the current quarter. AMD typically doesn't offer detailed guidance and only reaffirmed its fourth-quarter sales forecast, saying it still expects revenue to increase in line with seasonality.
President and Chief Operating Officer Dirk Meyer said AMD has "done a lot of things very well" since the first quarter. But, he added, "we have done one thing very poorly. Namely, we haven't delivered our quad core product."
The Barcelona quad core server chip, which features four computing engines on a chip instead of one or two, is a key part of AMD's race against its larger rival. While Intel's four-core chips are actually two chips with two cores each in a package, AMD's new Opteron chip incorporates four cores on a single chip.
Analysts debate whether the distinction makes a functional difference to average computer users. But the product is key to AMD's efforts to improve its finances.
Barcelona launched in September, but technical glitches have prevented the company from making it available to customers in bulk. AMD said the problems were not related to manufacturing but were "a design-specific logic problem." Once found, AMD said, the problems were straightforward to fix.
AMD needed a flawless launch to placate skittish investors and infuse its product lineup with new blood to compete against Intel.
AMD cemented itself several years ago in the highly profitable server market as a major competitor to semiconductor industry giant Intel, which spent more on developing new technologies last year -- $5.9 billion -- than AMD rang up in sales.
AMD's launch of its first Opteron brand server chip in 2003, with its focus on energy efficiency and other technical advances, helped AMD capture a chunk of the server market and paved the way for major market-share gains at Intel's expense in other areas.
AMD eventually captured a quarter of the world market for desktop, laptop and server microprocessors, taking most of that share from Intel. But it stumble when Intel unveiled a line of more powerful and energy-efficient microprocessors in the summer of 2006, and it hasn't recovered.
AMD has posted a loss in each quarter so far this year, hurt in part by costs from its $5.6 billion acquisition of graphics chip maker ATI Technologies Inc., as well as declining chip prices. On Tuesday, the company acknowledged it overpaid in the 2006 acquisition and said it will take a "material" charge for goodwill impairment as a result. It has not yet calculated the amount of the charge.
Without giving exact numbers, Chief Financial Officer Robert Rivet said AMD expects sales to grow faster than the market in 2008. The company, which has been growing its revenue even as it posted quarterly losses, also expects its gross margins to continue to expand.
AP Technology Writer Jordan Robertson contributed to this report from San Jose, Calif.
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