1.08.2007

AMD 2006 CC Prediction

Here is my prediction for AMD’s financial report.

AMD will report record shipment. In reality this isn’t as good as it sounds as this is the nature of the industry. AMD will also report record earnings. But what AMD will not report is the proportion of increased shipment to the actual profit. In fact, AMD’s profit in Q4 will drop 40-50%.
But, as much as I wish it, I cannot agree with Sharikou180 that ATI will put AMD in the red.

AMD said that they will be dilutive at the beginning of the year and accretive exiting 2007. This is hard to believe as I don’t see the ATI branch of AMD becoming profitable now that they’re slowing losing the Intel platform business. If they honestly believe that Fusion will turn anything around, they should look at how they thought 64bit adoption is widespread by now.

AMD gross margins will be in the 40’s, thanks to ATI. ATI’s gross margin for 2006 was at 23%. Now AMD will understand the hard way the real reason why Intel refuses to compete in a 3-way discrete graphics competition. Intel only wants high-margin businesses.
AMD’s operating expense will look ok for the last time this quarter. They will admit how their depreciation cost it will double in 2007 as Fab36 is year+1. They themselves predicted at $1.5B, up from $700M. Again revenue isn’t predicted to double next year.

Overall, 2006 will be a good year for AMD but the outlook will dampen investor confidence.
You will hear inventory questions during the CC but I don’t think this will affect the Q4 results. This will hit AMD in Q1’07 as OEM inventories are paid for. OEM cancelled orders will hit AMD in 2007. You can only sell inferior products up to some point.
As per advice from their legal team, you will hear vague description of market share gain as AMD will become increasingly aware that they are in fact losing to Intel. Listen to what weird market segment they will describe now as the area where they gained. Probably something like how they gained market share in the Green Home Business Enterprise er… Network segment. Similar to how they coined the dead-on-arrival platform 4x4 as for the MEGA-TASKING users.
You will hear AMD talk more about its business model and commercial market acceptance and less about product performance and how their ASPs are continually being driven down to compete with P4’s.
You will hear AMD talk more about their business strategy and coming product releases and less about current ones.
Again, it will be an average CC earning report in spite of the benchmark mauling AMD is getting from Intel. But it get’s harder and harder for AMD to put up a happy face and try and cover up the obvious fact that they have a pissed 800lb gorilla of a competition to contend with.

My grim prediction for AMD is the cancellation of the NY Fab for 2007. This will be pushed to 2009 and most likely be cancelled by then. Intel’s 45nm in late 2007 and 32nm in 2009 will finally relegate AMD into a pseudo-competitor similar to early 90s.

2 comments:

Sharikou, Ph.D. said...

75% of Intel’s products are old junk. Intel will BK in Q2’09 when their market share drops to 55%. Never mind that AMD can only supply less than 30% of the market, never mind that AMD’s mostly make single core 90nm products. Something will make intel’s share drop to 55% and then they will be BK. They will be BK because virtually monopoly and cash flow doesn’t matter.

Anonymous said...

Hey, lay off on the ol’ Sharikou. He makes me laugh.