AMD Sees $177 Million Q4 Loss on Weak Graphics Sales, Restructuring Charge
Advanced Micro Devices generated solid revenue out of it PC chip business and saw encouraging numbers from its server processors, but falling sales of its graphics products and charges the company paid related to its relationship with Globalfoundries and its restructuring plan resulted in a $177 million loss in the fourth quarter of 2011.
The loss, announced Jan. 24, comes after a third quarter in which AMD, the world's second-largest chip maker, earned $97 million, and $375 million in the fourth quarter of 2010. Revenue for the quarter was $1.69 billion, about the same as the previous quarter and a little better than the $1.65 billion in the same period in 2010.
AMD's projection of an 8 percent decrease in revenue for the current quarter also missed analyst expectations.
President and CEO Rory Read set a positive tone during a conference call with journalists and analysts, saying the company has made significant improvements in execution, and that demand for both its PC and server chips are growing, but admitted that the graphics business was hurt in part by the flooding late last year in Thailand that significantly impacted the worldwide production of hard-disk drives (HDDs), which in turn reduced demand for graphics boards. Thailand produces more than 40 percent of the world's HDDs.
Still, Read said, he expects the industry to bounce back in the coming quarters as the HDD market returns to normal. AMD executives also are hoping for a bounce from the company's Radeon HD 7970 GPUs, which were released late last year. However, AMD and other graphics chip makers, like Nvidia, are facing a world where demand is increasing for chips that offer integrated graphics capabilities.
AMD also was dogged by its relationship with manufacturing partner Globalfoundries, which was created two years ago when AMD spun off its manufacturing business. AMD took a $209 million charge during the quarter in connection with the Globalfoundries investment, and took another $98 million charge related to its restructuring plan, which includes laying off 10 percent of the workforce.
During the call, CFO Thomas Seifert said AMD expects to save about $200 million from the layoffs, money it plans to reinvest in the company's product development.
However, Read and other executives said they were pleased with the performance of AMD's accelerated processing units (APUs), which were first introduced in January 2011. The APUs, first offered in notebook and desktop chips, offer graphics and CPUs integrated onto the same chip. Read said the company's "Brazos" APUs, for lightweight notebooks and netbooks, have been the most successful product in AMD history, and the company saw a 25 percent increase in shipments of mobile chips throughout 2011.
The chip maker is recovering from the stumble it took in the third quarter, when issues at a Globalfoundries' manufacturing plant limited the number of 32-nanometer "Llano" chips hitting the market. Read has been vocal since about the need to improve AMD's execution, and said that Llano processors for mainstream notebooks and desktops accounted for 80 percent of the company's shipments in the fourth quarter.
AMD is hoping to see that trend later in the first half of 2012 when it launches "Trinity," which it said will enable OEM partners to build very thin and light notebooks to meet a rapidly growing demand for such devices. The chips will offer double the performance-per-watt capability of current APUs and will fuel a new line of what AMD executives are calling "ultrathin" notebooks, which Read said will be as thin as 17mm.
Such devices will compete with Intel's ultrabook push, which the larger chip maker kicked off in May 2011. OEMs such as Lenovo, Acer, Asus and Hewlett-Packard have introduced first-generation ultrabooks, and Intel officials have said they expect as many as 70 ultrabook designs based on their upcoming "Ivy Bridge" chip when it's released later this year.
However, cost has been an issue with ultrabooks, with prices ranging from $900 to about $1,400. AMD officials believe that with Trinity, manufacturers will be able to make ultrathins that are almost as thin and light as ultrabooks, but at prices in the $500 range. Read said he expects consumers to embrace ultrathins, which will give them the mobility they want at an affordable price.
"We want to develop that kind of ultrathin experience that reaches the masses," Read said. "Everyone."
He also said the company is seeing strong interest in its 16-core Opteron 6200 and eight-core Opteron 4200 server chips, based on the new "Bulldozer" core. Read expects that interest to grow now that HP has announced five ProLiant servers based on the chip, and Dell is offering four PowerEdge blades powered by the new Opterons.