4.30.2007

AMD Brings Down Another Company - Chartered

Singapore News: Chartered Semiconductor Manufacturing's net profit slumped 76 percent in the first quarter, dragged down by seasonally weak demand and excess inventory affecting the industry, the Singapore chip maker said Friday.

Apparently Chartered made a mistake on booking AMD as a customer:
"Hwee acknowledged that AMD - though he didn't mention them by name - had reduced orders to slightly above the minimum monthly contracted levels, which had affected utilization rates at Fab 7 for 90nm production mix. " - Fabtech

It appears that the AMD business environment is collapsing. Remember in my previous article that one of a the criteria's for corporate bankruptcy is the decline of its business eco-system: AMD's suppliers, partners and customers. While I'm quite sure that the relationship is still intact for these two companies, Chartered will be learning a valuable lesson from this mistake.

So along with Dell, Sun, the channel and the rest of the businesses experiencing some form of financial difficulty, mistrust and caution is developing rapily around AMD. While it would be unwise to cut of and not do business with AMD, it will be foolish not to take action to protect your own company from a growing possibility of an AMD collapse.

5 comments:

Anonymous said...

Interesting - I wonder what implications this may have long term if AMD does try to go with a fab light strategy and becomes more dependent on foundries like Chartered... makes you wonder (as you opine), how willing Chartered and others will be willing to sign up to do, and what extra terms (tighter volume guarantees, better pricing, etc..) they may demand.

Funny how AMD was touting the move to a more heavy % of OEM business as a way of having more predictable demand... it seems to have done the exact opposite! (I'll have to find the Ruiz quote or was it Richards?)

Perhaps a large % of the market chose to stay with Intel despite AMD having a superior product (until C2D), for reasons other than "monopolistic" practices? Perhaps having a stable, predictable supply of chips is important?

Roborat, Ph. D. said...

Perhaps a large % of the market chose to stay with Intel despite AMD having a superior product (until C2D), for reasons other than "monopolistic" practices?

You have to put yourself in the shoes of these small companies. These non-OEM companies survive on very slow margins. These are scrappy businessmen that just wants to turn a profit. They don't care about the same things AMD fanboys care about.

They have inventories of motherboards, HDDs, PSU, etc, and what they care about is a CPU delivered on time to push products out. AMD dropped the ball on these white box makers and left them holding on to parts depreciating and accumulating in their shop while Dell gets 100% ontime delivery on products they couldn't even sell. Intel on the other hand has great demand for their products with consistent delivery. If you owned the company what will be your next quarters product line? Common business sense would make you load systems that can be built quickly and sold quickly. Today, those aren't AMD systems.

Scientia from AMDZone said...

roborat

"It appears that the AMD business environment is collapsing."

Didn't you overlook part of that article? How about what Chartered actually said:

"The revenue decline was primarily due to weakness in the consumer sector and to a lesser extent the computer sector, partially offset by strength in the communications sector," said George Thomas, senior vice president and chief financial officer."

So, wouldn't it be more correct to say that Chartered made it's biggest mistake in booking consumer business? And, amid all that talk of gloom and doom didn't you leave out this part:

"Barring any severe macro-economic issues which are difficult to predict, we continue to expect growth for the foundry industry in the second half of the year, driven primarily by seasonal strength as well as the continuing depletion of excess inventory across the semiconductor supply chain," said chief executive Chia Song Hwee.

Aren't you also leaving out this:

"Last year, AMD had picked up the slack at Chartered's 300mm facility, Fab 7, as MPU production for the Xbox 360 using SOI wafers declined."

So, in other words, AMD's orders are not enough this year to pick up the slack of the reduced Xbox orders. Also, you conveniently overlooked the reference to 90nm. I think it is a safe bet that AMD has all the 90nm it needs from FAB 30.

Finally, amid all your speculation I notice you didn't mention this item:

He noted that GPU production with an unidentified customer could enter 65nm production in the second half of this year.

I assume you didn't want to mention anything that could possibly refer to AMD and might then interfere with your claim of a "growing possibility of an AMD collapse".

Roborat, Ph. D. said...

Scientia said: "I assume you didn't want to mention anything that could possibly refer to AMD and might then interfere with your claim of a "growing possibility of an AMD collapse".

From another news source:
Chartered, which produces chips used in Apple's video iPods and Advanced Micro Devices' computer processors, forecast sales and profit to fall this quarter as PC customers scale back orders to trim their stockpiles
http://www.iht.com/articles/2007/04/29/bloomberg/sxchartered.php


The key to a successful foundry is to maximize utilization. These companies have an army of capacity planners making sure wafer starts from different companies are coordinated and sequenced in such a manner that there is no idle time. Margins are so tight that they live and die throuh correct planning.

AMD mid-quarter changed direction due to inventory build up. And Chartered is saying that AMD is again scaling back. That is quite a short notice for Chartered which is why their next quarter forcast is down, thanks to AMD. Fab capacity loading is planned at least 6 months in advance. Chartered is not happy about this. I didn't say chartered will stop working with AMD. All i said is that companies working with AMD are feeling the effects. Any wise businessman learns from such events and protects themselves, maybe with a little caution.
This mistrust and caution is what creates the spiral downward.

you cannot argue my point with one example like chartered. Maybe you're right about chartered not really bothered by this. but what about Dell's poor sales, Sun's poor server sales, the channels lost revenues? AMD needs to show business consistency and viability to reverse its current image.

Anonymous said...

"So, wouldn't it be more correct to say that Chartered made it's biggest mistake in booking consumer business?"

I would say Chartered biggest mistake will be not having an ironclad contract - they should have had better contractual minimums (the min value is so low, that one wonders if it is worth it to be doing this), and they either vastly overestimated what AMD's demand might be, or relied on AMD's incompetent sales and planning forecasts.

1000 wafer starts per month? Why bother? Intel's DEVELOPMENT lines have higher volume. This is 250 wafer starts per week or 10lots per week! I'm stunned that AMD doesn't have the flex capacity in house to support an additional 10 lots/week.

Actually they probably do have it, but given their pie in the sky projections when they did this deal they must have assumed demand would be bursting at the seams and they would simply not have enough capacity to do this in house. Now they have increased costs for production for these lots (unless Chartered is making them free of charge for AMD) when they could just as easily be doing this in house...I'm sure in typical corporate fashion someone got a promotion/award for the foundry deal!

But on the bright side they probably have the whole 90nm thing nailed by now, and those products should last for...ummmm....never mind!