12.30.2008

AMD Bankcrupt in 2009

Despite an improving economy, large-scale capital spending projects continue to be delayed in favor of maintenance spending. Technology shares continue to lag badly, and Advanced Micro Devices files bankruptcy. - Doug Kass, "20 Surprises for 2009".

"AMD ends 2008 (until we see fourth-quarter results) with $1.3 billion in cash, four times that amount in debt, and an operating loss of $1.9 billion over the last four quarters. Add to the mix an unprecedented slowdown in global economic demand and AMD's own tenuous market share in servers and PCs, and it becomes increasingly difficult to see the company's failure as an outlying event". - Michael Goodman, The Street.

2008 was supposed to be the year AMD's went bankrupt but was averted by a unique financial agreement with an entity that was enjoying record oil revenues. But the realities on the ground are changing and rapidly getting worse. While Intel continues to spend on 32nm, AMD on the other hand will look at someone else to make the several billion dollar gamble. The bet includes the following: a) that market demand is there to recover the investment, b) AMD will have viable products and c) AMD is still around (with an x86-license) to design chips. Terrible odds if you ask me.

9 comments:

Tonus said...

But I thought that it was AMD that was putting pricing pressure on Intel?!?!?!

SPARKS said...

Lets say, for the sake of argument, Mr. Cass’s prediction does come to pass. Where does this leave the beleaguered NYS taxpayers and the AMD/Luther Forest deal?

Forget the infrastructure money, I know that’s history.

Additionally, what happens to AMD IP and AMD’s several thousand patents?

SPARKS

pointer said...

I do not think that AMD would bankrupt. Investor especially Abu Dabi would pump in more money if AMD is indeed financially trouble (it is now, but still has cash to operate), because the new Foundry Co has symbiosis relationship with AMD, at least for the first few years.

Nevertheless, even if Chapter 11 is filed, AMD would still exist. With drastic restructuring, it can easily become profitable as their products (CPU and GPU) are good (enough) and fabless model reducing cost when producing smaller chip quantities (no more cost impact due to low fab loading) ; just that it might become much smaller in size and harder to compete with Intel in the future.

InTheKnow said...

Pointer, it is my understanding that if AMD goes bankrupt that they lose the x86 license. So declaring bankruptcy isn't an option.

Frankly, I don't see them going under. The CPU space is just too valuable to leave to Intel alone. Looking at the shenanigans that AMD has played with the licensing agreement so far, I'm sure there is someone out there with deep pockets willing to work some sort of deal in the grey area to get a piece of the x86 action.

pointer said...

Blogger InTheKnow said...

Pointer, it is my understanding that if AMD goes bankrupt that they lose the x86 license. So declaring bankruptcy isn't an option.


you are right. Anyway, never thought of AMD would BK anyway.:)

happy new year everyone!

and onto the BK stuff, our long forgotten Sharikou 2nd prediction (after being dissapointed by Intel not being BK at Q2 2008) on Intel to be BK is Q12009 right? :)

Tonus said...

The x86 license agreement would be invalidated if AMD declared bankruptcy, but is it possible that Intel would allow a revision to the deal if that came about? Or possibly that they would agree to a new contract? A neutered AMD would be very convenient for Intel-- unable to even attempt to compete at the mid/high-end, and the x86 license would keep antitrust regulators at arm's length.

And it would be very difficult, absent a smoking gun, to blame anyone but AMD for its bad fortunes. Capacity constrained and financially constrained by the ATI purchase, it's hard to point a finger at anyone but AMD for its troubles.

A Nonny Moose said...

I gotta think that with the ~$450M in lowered revenue and the $200M in lower payment from Abu Dhabi and the $170M loss in the Lehman Bros. bankruptcy, AMD will have to do more than just cut another 600 jobs this quarter. I expect they will have to cut back on R&D. Given their recent success with GPUs and chipsets, I imagine that is where they will concentrate their R&D budget, not CPUs where they have failed for the last 3 years...

No Bobcat, Bulldozer pushed out a year (and likely more), 32nm pushed out to 2011, etc etc. Slowly but surely AMD is conceding the CPU wars to Intel.

Anonymous said...

Count down to the new year and a count down to AMD BK Tick Tock Tick Tock

With new architecture design development closing on a cool billion, new process development in the same league and a new fab at a couple billion AMD simply doesn't have the MS nor cash flow to compete. Actually that was the case 3 years ago as well. With the credit crunch and the plunging of price of oil as the western world moves into a deep recession the arabs got bigger worries at the moment then whether their investment in AMD can be rescued.

Their house of cards is no different then the housing bubble or other Ponzi schemes. For those that appreciate what it takes have known for a long time they won't make it.

Happy New Year Sharikou, Scientia and other green lovers. Can't wait to see what 2009 brings to you all

Anonymous said...

Not too sure about BK. With the foundry spinoff, AMD's cash burn rate should be much lower going forward (the viability of the foundry is a whole different story).

Basically, AMD has chip/GPU/chipset design expenditures, probably expenditures for tapeout work/validation work and salary and typical operating expenses (I'm assuming the foundry is taking up all the process R&D and IBM licensing costs). AMD will have minimal issues with factory loading if they are doing a typical foundry model with the spinoff so they can probably reduce their cash burn rate pretty quickly if needed. I assume they have some minimal capacity commitment to the foundry but unless that is set too high the chip cost is largely a variable cost for AMD now and they should be able to adjust that as market conditions warrant (of course the foundry will bear the brunt of this)

The issue will be with the foundry - if it is underutilized, it will not be break even and its viability will be an issue as the spinoff is not targetting non-AMD customers until 32nm (late 2010 best case?) - so it's success/loading is solely tied to AMD for the next 2 years or so. Also the demand for leading edge technology from a foundry may be somewhat limited early on as their are significant costs moving products to 32nm, especially if you are not making high volume products (like many foundry customers).

The problem with Kass' analysis is he compares cash on hand to the operating loss of AMD as a whole; the operating loss going forward of AMD (design) should be less as a significant chunk of the operating costs has been offloaded to the foundry. Of course I have no idea when the split gets finalized - if I remember correctly the earnings will be reported in a single report with the #'s split out for the near term.