AMD Admits Mistakes with Quad-Core Chips

NEW YORK—Advanced Micro Devices stumbled in bringing quad-core chips to the market this year, executives said while speaking with Wall Street analysts here Dec. 13.

However, CEO Hector Ruiz and other company officials said AMD will return to profitability next year while refreshing its product portfolio.

During its annual meeting with financial analysts, Ruiz and his management team repeatedly admitted to AMD's problems with bringing quad-core server and desktop chips to the market in 2007, but promised that chip maker will correct those problems starting in the first quarter of 2008.

"We blew it and we are very humbled by it," Ruiz said, adding that the company had not properly prepared for unseen problems in bringing both the quad-core Opteron chip and its desktop counterpart, Phenom, to market. Last week, AMD admitted it had discovered a technical problem with the chips—specifically a bug in the translation-lookaside buffer—that is being addressed.

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With those failures in mind, Ruiz said that AMD's "number one priority is to return to profitability" in 2008. Under the current plan, he said the chip maker should be able to turn a profit by the third quarter of 2008. AMD has posted losses in the last four quarters.

AMD executives said the company plans to ship hundreds of thousands of quad-core desktop and server chips this quarter, but OEMs will likely not release new clients or systems until at least the first quarter of 2008. At the event, AMD demonstrated a Dell PowerEdge 2970 server and a Sun Microsystems Sun Fire x4600 system running with quad-core Opterons.

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In addition to fixing those problems with its quad-core chips, AMD plans to refresh a large portion of its product line in the next year, including a new notebook platform code-named "Puma." Notebooks are one area that AMD has managed to remain competitive with Intel during the past year, and the company is planning to expand its consumer lineup in 2008.

Chief Financial Officer Robert Rivet said AMD is also planning to expand into several other areas, including commercial clients and the small and midsize business market, as well as new products for workstations and handheld devices that will use graphics technology from its ATI division.

Rivet said AMD also plans to increase its gross margins—a key metric in the microprocessor community that determines profit and market share—to 50 percent next year as well as grow the amount of money the company spends on research and development.

AMD also will ramp up its production of 45-nanometer processors by the first half of 2008, and chips based on the new manufacturing process should hit the market by the second half of the year.

"Every part of our business will be profitable next year," Rivet said, adding that every division suffered a loss in 2007.

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While AMD has not announced reductions to its 16,000-person work force, the company is planning to tighten its belt next year. For example, it will reduce its capital expenditures from $1.7 billion this year to $1.1 billion in 2008. The company could also sell some of its 200-milimeter equipment after it fully ramps up to 300-mm wafers used in the 45-nm manufacturing process.

One area that neither Ruiz nor his team would discuss is the AMD's "asset-lite" strategy, which it now renamed to "asset smart" during the meeting here. The goal is to help AMD reduce the costs associated with chip manufacturing, but the company has refused to offer details despite calls from analysts for more information.

During the meeting, Doug Grose, senior vice president for manufacturing and supply chain management, said the company was increasing its partnership with both Charter Semiconductor as well as IBM, which announced Dec. 6 that it had developed a new technique for 32-nm chips.

AMD is planning to deliver its first 32-nm chips in 2010, with 22-nm to follow in 2011.

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