News Analysis: When AMD comes to Wall Street Dec. 13, executives will face questions about the company's direction.
These are tough times for Advanced Micro Devices.
A year ago, AMD executives spoke confidently about the company's future with the anticipation it had created around the release of its new Opteron processor"Barcelona"and the company's approach to quad-core design. Now, as 2007 comes to a close, the company finds itself struggling financially, partly due to the burden of its ATI acquisition, and questions have been raised about its technology and execution after delays in releasing its signature quad-core Opteron.
Adding to these concerns, AMD announced Dec. 5 that it has been experiencing problems with both quad-core server and desktop chips that company officials said will be fixed soon. The fix also requires a BIOS patch from motherboard makers.
On Dec. 13, CEO Hector Ruiz and his management team will head to Wall Street to address analysts and offer a vision of how AMD will pull itself out of its current funk, which includes four straight financial quarterly losses, and how it plans to compete against its much larger rival, Intel, which has spent the past year delivering its products on time. In late November, Ruiz told journalists in Bangalore that returning to profitability was the company's top goal.
"This is not a good period for them," said analyst Roger Kay, president of Endpoint Technologies Associates. "They have been faced with a number of delays and there's been a series of disappointments around the launches of their chips with issues like clock speeds."
Click here to read eWEEK's interview with CEO Hector Ruiz.
The current situation involving AMD seems to parallel the same situation Intel faced about two years ago, when it was caught flat-footed by the dual-core Opteron processor and had to contend with its own product delays. It took some time, but Intel revamped its microarchitecture, cut costs and began delivering products in volume to its OEM partners.
While AMD has not set an official agenda for the meeting, some analysts are expecting manufacturing and cost-cutting information to emerge from the Wall Street meeting, including some answers about the company's so-called "asset-lite"or "fab-lite"strategy, which Ruiz has touted as a fix for the company's manufacturing and cost woes. However, details have been scarce.
AMD spokesmen have declined to comment, which has added to the skepticism.
"Fab-light can't be executed overnight, and as a result it could take much longer than anticipated to convince investors that fab-lite is the right path for AMD to take and not just a move out of financial desperation," wrote Doug Freedman, an analyst with American Technology Research, in a research note to investors Nov. 28.
In terms of technology, AMD executives are likely to focus on the value proposition of their upcoming products, such as the company's switch to a 45-nanometer, new mobile platforms and graphics, and other innovations the company has planned for 2008.
Analysts are also going to be looking for AMD to explain the delays in releasing Opteron, and the impact of those delays on the company. While all the major OEMsSun Microsystems, Dell, Hewlett-Packard and IBMvoiced early support for the quad-core processors, there has been a noticeable lack of announcements about systems shipping with the new Opteron.
A check of the Web sites for both Dell and HP does not show any systems listed with the quad-core Opteron. When Dell announced updates and additions to its PowerEdge portfolio in November, the company included information on Intel's new 45-nm Penryn processors, but there was no news about an Opteron-based system. An HP spokesman said the company will support Opteron, but it will not offer a system based on the chip until early 2008.
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"Right now, there's not a lot of product availability," said John Spooner, an analyst with Technology Business Research. "On the other side of the coin, the buying cycle for new servers starts in the first quarter [of 2008], and just because these systems are not available now doesn't mean that they won't be available in mass quantity then. The fact is that not having Opteron out there now is a PR issue for AMD. The problem really begins in 2008 if [Opteron] is still not available and companies begin their qualification cycles."
AMD has tried to counter some of the disappointment in the new Opteron's delivery and clock speed performance by emphasizing other aspects, such as its ability to help with virtualization. However, without volume sales, it's been hard for the company to gain traction.
An AMD spokesperson told eWEEK that the company expects to begin shipping processors for volume server sales in the first quarter of 2008 and it will ship "hundreds of thousands" of quad-core desktop and server chips in the fourth quarter to meet demand. The company has also provided processors for testing to its customers to meet qualification cycles.
"We are working to meet our customers' needs and we are shipping product as quickly as possible," the spokesperson said.
Spooner said that glitches, such as the ones AMD announced Dec. 5, are not insurmountable problems, but add into the perception that the company's technology is not up to the guidance the company offered.
"I think that the main issue with AMD's quad-core Opteron [Barcelona] TLB [translation look-aside buffers] cache erratum and the company's work to fix it is that AMD set very high expectations for the chip's availability and performance but has been unable to match them to date," Spooner said.
There are also some questions about how much money AMD will be able to borrow from the markets, even after Abu Dhabi's Mubadala Development company purchased an 8 percent stake in the company in November. While research and development adds to AMD's costs, the company needs to continue to innovate and fine-tune its chips to stay competitive with Intel.
"We do not believe AMD needs to be at the leading edge process node ahead of Intel to succeed, as was proved with Opteron, but without a better marriage between process technology and architecture, the company will continue to under-perform on the technology front," Freedman wrote in his November research note.
An AMD spokesman, while declining to offers specific details, did say that the presentation will offer specific guidance on research and development as well as road maps for future products.
While there are problems, analysts also see some bright spots that AMD can use to help boost the company in the long term. One of those areas is notebooks, where the company has made some serious inroads within the consumer and small business markets, including its new OEM relationship with Toshiba.
"The OEM community is very much interested in having a second processor company and the vendors want to keep them [AMD] alive," Kay said.
That trend seems reflected in two recent reports from the market research firm iSuppli. While one reported predicted AMD would fall out of the Top 10 in terms of semiconductor revenue for 2007, another report found PC sales boosted the chip maker's revenue in the third quarter of this year.
The iSuppli reports also indicated that the pricing war between Intel and AMD may begin to cool off, which should help AMD's bottom line.
"There are a few bright spots in what has been a gloomy picture," Kay said. "I think they will survive, but the question is will they thrive? I think that's what the issue is."
Editor's Note: John Spooner is a former senior writer for eWEEK.
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