The AMD Pyramid Scheme

According to Wikipedia, over 90% of the people who get involved in a pyramid scheme never recover their investment. Fitch, a leading credit rating agency have rated AMD’s latest offer of convertible senior notes as “Poor recovery prospects given default” with a chance of recovering investments below 10%. As an issuer, AMD is rated as a ‘B’, which we can only assume means ‘Bad’ if you look at the rate this company keeps recruiting unsuspecting creditors as the base of this hollow pyramid gets bigger and bigger.

Wikipedia lists the identifying features of a pyramid scheme:

  • Products being sold having no intrinsic value or being sold out of line with its fair market value – QuadFX, R600
  • Highly excited sales pitch (sometimes including props and/or promos). – PowerPoint slides, Best Premier of 2007
  • Little to no information offered about the company unless an investor purchases the products and becomes a participant. AMD mum about company plans
  • No product or a product being sold at a price ridiculously in excess of its real market value. As with the company, the product is vaguely described. – AMD ramps PPT slide manufacturing while real products gets pushed out.
  • An income stream that chiefly depends on the commissions earned by enrolling new members (creditors, investors) or the purchase by members of products for their own use rather than sales to customers who are not participants in the scheme. – AMD borrows money, again, and again
  • A tendency for only the early investors/joiners to make any real income. Hector Ruiz’ Ginormous Payslip in the midst of AMD’s massive losses.
  • Assurances that it is perfectly legal to participate. – http://www.breakfree.amd.com/

Just like any pyramid scheme, the collapse of AMD's business is inevitable if it doesn't choose to re-adjust its strategy. Of course AMD isn't an illegal money making scam, but the parallels are astounding if not hilarious. It's very obvious AMD is approaching the limit of its ability to raise cash while everyone estimates the company to return to profitability sometime in 2009, which is really too long and without guarantee. After trying to borrow $3.7B within less than 6 months in order to survive, I'm beginning to doubt AMD will be around very long.

As a consolation for those that continue to follow this company, Fitch believes that in a case of bankruptcy, AMD will be re-organised rather than liquidated simply because it believes this company isn't worth much if sold piece by piece. Like I said in my previous article. If Ruiz and his posse doesn't restructure, someone else will do it for them.


Anonymous said...

Scientia's stupid!

Anonymous said...

AMD is rated as a ‘B’, which we can only assume means ‘Bad’ if you look at the rate this company keeps recruiting unsuspecting creditors as the base of this hollow pyramid gets bigger and bigger.

Oh you're good haha

Anonymous said...

Pretty funny...

Seriously this is not a pyramid scheme, it's just AMD believing their are greedy idiots in the banking world and there are... I say they are idiots because they just take AMD's statements and plans at face value and don't put in the work to understand if they have credibility... By the time these bonds don't actually get re-paid (or converted to stock), the people behind making these decisions have already moved on (and in the short term they looked good because they were getting a decent return on the bond short term).

This is not unlike Scientia - heh that Analyst day was "quite a surprise" (even wrote a blog on it!) , DTX? That'll fix the ASP issues for sure and give AMD a competitive advantage over Intel! Lowered cap ex spending - hey our production is so good (3.0 APM BABY!), that we don't even need as much as we thought....

Market share - well we'll just choose to show, I don't know, let's say Jul14 retail US market data point. Yeah I know we've been showing quarter by quarter overall market share for some time now - but hey did you see that Jul 14 data point! Why aren't Q1'07 and Q2'07 on the graph? Uh....I'll have to get back to you on that - that data's still coming in...did I mention the Jul 14 data point, yet?

Like a good magician, AMD gets you to see what they want you to see, when the obvious is right there in front of you.

Anonymous said...

Hector admits Barcelona too late and have lost customers.

Hector ready to hand over the company to Dirk


SPARKS said...

Ok, investment bankers are a greedy lot, no doubt. With the current $1.5 B offering, they paid off Morgan Stanley, done. The stock is diluted, fact. They can now sell assets, they will. So what’s left as collateral that makes greedy banker drool? (besides pump the neighbors cat, Power Point Presentations)

The only other things left are the Fabs themselves and any other tangibles, including real estate, tooling, etc. Does anyone out there know exactly what they have (besides Dresden) and how much it’s worth?

I do know one thing, whatever it is; they’re going to sell it to survive. Asset Light mean sell assets. That’s next.


SPARKS said...

Oh. Yeah, by the by, the Intel, Nvidia tag team match so brilliantly orchestrated by the ATI purchase has come to a climactic crescendo. Intel’s at the front door with a chain saw at Nvidia is beating down the back door with a ten pound sledge, while Wrectum Ruinz is hiding in the basement, while holding a 2 Gig Barcelona in one hand and doing unmentionables to investment bankers with the other.


Even with CPU magazine pimping ATI/AMD’s midrange garbage in the month issue, they’re still not gonna make those pigs fly.

Looks like there’s going to be TWO monopolies! “WHOOPS, is there room for Nvidia on the Break Free website?”


Anonymous said...

Penryn runs like ice ice bab.

Leaving AMD in the cold.

Plow past them 20% faster at the speed of high-k! Destroy with SSE4, 100% improvement.


Anonymous said...

Barcelona is hot
Penryn is not


high-k > slow

Anonymous said...

Can AMD Regain Your Trust?

"The scar is permanent," said one system builder that has decided to switch more of its business to Intel. "The channel is getting hit on two sides: Multinationals selling below the channel's cost and taking away customers, [and] then AMD stuffed the channel and then kept lowering pricing and not extending price protection to the channel. Most channel guys can't afford to be burned even once, let alone three times in two months."

Scientia is in denial and over at his hive claiming that those that say AMD stuffed the channel are full of it. You've claimed this!

Anonymous said...

AMD's slack in releasing some numbers THIS CLOSE TO LAUNCH can only mean one thing.


Anonymous said...

I admit to ignorance about how many of these financial institutions work, so I have to ask-- are there safety nets of some kind that these companies have, that allow them to invest in risky companies without suffering a disaster if they do not pull out of their tailspin?

I can believe that financial companies are greedy, but if they were reckless and/or stupid, I assume that they wouldn't be in business very long. So there must be some way that they can hedge their bets when they help to keep a company like AMD afloat. While they are hoping for the best (AMD recovers, pays off it's debt, etc), they must be prepared for the worst (AMD goes belly up).

Carving up a dead company and selling off assets might ease the blow, but it would still be a net negative, wouldn't it? Is there some upside to taking on such a risk, or do they know something that the ignorant masses do not?

Anonymous said...

"are there safety nets of some kind that these companies have, that allow them to invest in risky companies without suffering a disaster if they do not pull out of their tailspin?"

Morgan Stanley has these "safety nets" in place as they put specific terms in their loan...(any new cash AMD earned after the loan had to go in some part to paying back the debt, assuming it was cost beyond "normal operations") - I'm not too sure about the convertible bond offerings though... (I suspect not with the convertible bonds, but I don't know).

SPARKS said...

Well here they are, price ET AL. The pricing vs. performance is very interesting, too. But still, no benchies.



Anonymous said...

Break free "from reality".... what's up with the pricing on Barcy?

Twice the power consumption over the new Xeons (at same clock) AND it costs more?

A $70 increase from 1.9GHz to 2.0? This is ~20-25% price increase for ~5% increase in clockspeed?

A 2.4GHz chip for $1190? What are they going to charge if they ever do get a 3.0GHz chip out?

Giant said...

Harpertown launch date revealed!


Click on that link, then click Boxed Server/Workstation Processors >. It reveals November 11 as the launch date.

Just as AMD tries to raise the K10 clockspeed past 2GHz, the Harpertown quad core CPU will open a new performance gap that AMD will never be able to fill; resulting in their inevitable BK sometime in Q2'08.

Giant said...

You can also see the Tigerton launch date of September 2 using the same link as I showed before. Barcelona? Officially pre-fragged.

SPARKS said...

Great link 'G'.

Conspicuously absent from the 'Desktop Processor' Link, however, is the immensely JUICY Yorkies. (Not to mention the lovely X38 on their entire site).

INTC knows the desktop arena is a wrap, obviously, a fore gone conclusion at this juncture. Now, the great server assault begins!

Poor, Poor AMD its days in the sunshine have come to close. Do Ya think they’ll be Skywriting INTC company picnics next summer, as they did last summer?


SPARKS said...

Even the AMD pimps at INQ see the hand writing on the wall!



Giant said...

Link, however, is the immensely JUICY Yorkies.

Indeed! I can't wait to get one of these for my system. ASUS has already confirmed that my existing motherboard is 45nm ready with a simple BIOS update. I do a lot of video encoding, so the SSE super shuffle and SSE4 will help a LOT.

INTC knows the desktop arena is a wrap, obviously, a fore gone conclusion at this juncture. Now, the great server assault begins!

This much is blatantly obvious. AMD is launching a 3.2Ghz CPU for desktops, but it's still 90nm and still dual core. Pathetic.