AMD left reeling after poor quarterly results
Chip giant faces massive company restructure after revealing $611m first quarter loss
AMD has posted disastrous first quarter financial results and admitted that it now faces the largest restructuring effort in the company’s history.
The chip maker had warned that Q1 revenues would be lower than expected (CRN, 16 April), but the industry was still shocked when it posted a net loss of $611m, against a net profit of $185m for the first quarter of 2006. Turnover for the quarter was $1.23bn against $1.33bn in Q1 2006.
Analysts had predicted a Q1 loss of 48 cents per share, but AMD’s loss came in at more than double that at $1.11 per share. Only $113m of the loss could be attributed to the acquisition and integration of ATI Technologies.
Robert Rivet, AMD’s chief financial officer, said: “After more than three years of successfully executing our customer expansion strategy and significantly growing our unit and revenue base, our first quarter performance is disappointing and unacceptable. We are aggressively addressing the issues that led to our significant revenue decline.”
AMD blamed a number of factors, including significantly lower processor unit shipments and lower average selling prices (ASPs). AMD traced its problems back to Q2 2006, admitting that ‘product mix and delivery issues’ meant that it failed to properly serve its distribution partners. A fierce price war with Intel, which raged throughout all of 2006, also played a large part.
An executive task force has been created to oversee a massive restructuring project. AMD chief executive, Hector Ruiz warned: “I expect this transformation to be bigger and more dramatic in impact than the one we undertook in 2002. This quarter was more than a miss, more than a series of concurring issues or challenges. This quarter was a major inflection point in our timing of action plans to continue to innovate effectively on behalf of our customers.”
According to Chris Caso, analyst at FBR, AMD is in danger of running out of cash.
“While the company’s two pre-announcements took away any surprise on the revenue line, margins and profitability were still materially worse than expected,” he said. “In addition, AMD lost approximately $883m in free cash flow in the quarter, worse than expected, and putting the company within two quarters of running out of cash.”
AMD’s Computing Solutions business, which included a full quarter of ATI chipset revenues, reported Q1 turnover of $918m, down 38 per cent sequentially. Server and desktop chip unit shipments and revenues were down significantly, while mobile processor unit shipments and revenue increased. The graphics segment reported revenues of $197m, up 19 per cent from Q4 2006.