AMD Fires Shot at Intel After Reporting Quarterly Loss

Advanced Micro Devices, struggling with poor internal financials and a crashing economy in which commercial buyers and consumers are cutting back on PC purchases, reported another quarterly loss Jan. 22.

After reporting its fourth-quarter results, AMD fired back at its main rival Intel with a statement about its plans to spin off its manufacturing division into a separate company. In the statement, AMD wrote that its plans to split into two separate businesses would not violate the cross-licensing agreement it had signed with Intel that allows AMD to use Intel's x86 instructional in exchange for royalty payments.

Since AMD's October 2008 announcement, Intel has questioned whether the creation of the new company would violate those agreements.

Still, AMD's war of words with Intel could not gloss over another quarterly loss for the chip maker. For the 2008 financial fourth quarter, which ended Dec. 28, AMD reported a net loss of $1.42 billion or $2.34 a share. AMD recorded revenue during the quarter of $1.162 billion. In the fourth quarter of 2007, AMD reported a loss of $1.77 billion or $3.06 a share.

Wall Street analysts were calling for AMD to post a loss of 54 cents a share with revenues of $1.23 billion. On Jan. 16, a week before the company announced its financial results, AMD said it would eliminate 1,100 jobs to cut expenses and post a $622 million impairment charge related to the 2006 acquisition of graphics maker ATI.

Like Intel, AMD is struggling in an economy that has seen commercial users cut back on their purchases of hardware such as desktops, notebooks and server systems. At the same time, consumers, who helped fuel the PC market in the past few years, have slowed down their spending. As with Intel, AMD is dealing with an oversupply of processors in its supply channel that PC and hardware vendors do not need, meaning there is less demand for AMD's x86 processors, ATI graphics and chip sets.

"We saw the beginning of a severe inventory correction across the IT supply chain, particularly acute in notebooks, and one that is continuing into this quarter," AMD CEO Dirk Meyer said. "The impact on the economy is going to continue to dampen user demand—the degree to which is uncertain. This combination makes the future particularly murky."

AMD did not give any guidance about the first quarter of 2009, but noted that it does expect its revenues to decrease from the fourth quarter of 2008.

During the a conference call with Wall Street analysts Jan. 22, Meyer also faced questions about Intel's concerns about The Foundry Company—the temporary name of the business that will be formed from AMD's manufacturing facilities. The deal is expected to close Feb. 10.

On Jan. 20, Intel sent a letter to AMD questioning whether The Foundry Company qualifies as a "subsidiary" under the cross-licensing agreement. On Jan. 22, AMD released a statement saying that the spinoff does not violate any previous agreements between Intel and AMD.

"The creation of The Foundry Company is not a breach of the provisions of either of the Cross-Licenses and … neither the transaction establishing The Foundry Company nor the Company's acquisition of ATI constituted a change of control of the Company under the Cross-Licenses," AMD's statement said.

Meyer also defended AMD's position, saying, "we constructed that transaction consistent with the terms and conditions of all of our IP [intellectual property] license agreements. That was true then and it's true now."