AMD's Massive Drop in Graphics Share

The sinking ship seems to have more holes to plug than AMD can poke fingers at. The former ATI division not wanting to be outdone managed to show an equally depressing performance of lower revenue, lower ASPs and now a significantly smaller market share. I was always puzzled with the terrible results the Graphics and Consumer Electronics (CE) division showed during the last conference call. It's easy to expect that 3 quarters after the merger, a consolidated organisation should be allowing this division to turn a profit. I suppose I have once again underestimated AMD's ability to exceed even my gloomiest expectations.

AMD’s Q2 numbers are now explained by the latest market report from the John Peddie Research.

AMD's Q2' Earning Report:
Graphics -------------------------Jun 07------- Mar 07
Net revenue -------------------------195---------- 197
Operating income (loss) ---------(50)---------- (35)

Consumer Electronics
Net revenue --------------------------85 ----------118
Operating income (loss) ----------(22) --------- (4)

From TGDaily:
According to a report released by Jon Peddie Research (JPR) today, ATI is estimated to have reached a market share of 19.5% in the second quarter of this year, down from 21.9% in Q1 and down from 26.7% one year ago. Nvidia, on the other hand, is listed by JPR with 32.6%, up from 28.5% in Q1 and up from 19.7% last year.

Characteristically, AMD shows us the art of selling less and losing more money. They promised last December that the graphics side of the business would follow market trends and bring the merger into accretion. But then again, they also predicted that they will be growing the CPU business at 2X the growth levels. We all know how that turned out.

Of course, the biggest challenge for the Graphics & CE division is that it is operating at very low margins with 100% of its production already outsourced. With an almost consolidated SG&A, there isn't a lot more AMD can do unless it wants to touch the division's R&D budget which is always a bad idea. AMD is relying on foundries to improve cost by moving to smaller process nodes but these are short term gains. Everybody moves to smaller nodes. NVIDIA is just too nimble now for AMD to compete while Intel is quite happy with maintaining enough IGP’s/chipsets to enable its platforms. AMD needs a re-think of the graphics side of computing, but it seems this is hoping too much for the struggling company. My only advice after their abysmal performance last quarter is similar to their own asset-lite strategy. I think its time for the Board of Directors to start considering outsourcing the entire management team.