AMD Continues Its Struggles Under the ATI Burden

While the ATI acquisition continues to hurt AMD's bottom line, the chip maker says it believes it's ready to turn the corner with its quad-core processors.

Advanced Micro Devices reported its fifth straight quarterly loss Jan. 17, due in part to the burden of its acquisition of ATI.

With this quarterly report, AMD officially closed the books on a nightmarish 12 months for the company. After struggling for most of 2007, AMD executives have detailed plans that call for the company to return to profitability by the end of 2008. This includes ramping up its quad-core desktops and server chips to full production and bringing a number of new products into the market, including a new mobile platform called "Puma."

Before that could happen, however, AMD had to report a significant fourth-quarter net loss of $1.77 billion or $3.06 per share. The loss included a $1.61 billion or $2.89 per share charge related to the 2006 ATI acquisition. If not for that charge, the company's net loss would have only been $97 million, or 17 cents per share, for the quarter.

AMD's total revenue for the quarter stood at $1.77 billion, which was virtually unchanged from a year ago. Wall Street had been calling for revenue of $1.79 billion and a total loss of 36 cents a share for the fourth quarter of 2007.

While the ATI acquisition will eventually help AMD deliver new platforms for PCs and help in the development of microprocessors that combine CPU and graphics on the same piece of silicon-an approach dubbed "Fusion"-the decision to buy the company has continued to hurt AMD's bottom line. In the third quarter of 2007, AMD also reported a $120 million charge related to the acquisition that factored into a $396 million loss.

Still, several analysts had positive reactions to the latest quarterly report. AMD also announced that it had shipped about 400,000 quad-core Phenom processors for desktops and Opteron chips for servers, which made good on the promise executives had given during a December meeting with analysts.

Nathan Brookwood, an analyst with Insight 64, said the fact that the company's ASPs (average sale prices) for processors were up during the quarter, combined with the ATI charge and quad-core shipments, shows that the company is moving away from the problems that plagued it during the last 12 months.

"The story line for most of the year is that AMD has been on the ropes and I think that was a story line that was a little more dire than the facts would justify," Brookwood said. "I think the results demonstrated that things are getting better and the problems that the company had with Barcelona, while hurting its financial performance in the quarter, were not life-threatening."

In the last few months, AMD has admitted to a series of mistakes regarding its quad-core desktop chip and its quad-core processor for servers. Some of the problems included a bug within the chips' translation-lookaside buffer, which caused problems involving data being transferred from the Level 2 to the Level 3 cache.

During a call with analysts after the results were announced, AMD CEO Hector Ruiz and President Dirk Meyer said the company plans to ship even more quad-core Opteron chips to OEMs in the "next two to three weeks." Most vendors are expected to start introducing new systems that use the quad-core Opteron chip in the second quarter of 2008.

Even with the problems associated with AMD's quad-core desktop and server chips, however, John Spooner, an analyst with Technology Business Research, said he believes that the company still managed to ship a large amount of its other processors during the quarter.

"We acknowledge that AMD was able to grow its processor unit shipments despite the quad-core Opteron glitch, thanks to demand for its notebook and desktop CPUs," Spooner wrote in a research note. "However, we believe that the prompt delivery of AMD's revised quad-core Opteron will be a vital to the company's ability to improve its 2008 financial performance, as it will determine the rate at which the chip maker can increase its quad-core server processor shipments, thus improving its revenue and profitability."

The reaction to AMD's loss could not have been more different from what many analysts said about Intel's quarterly report, released on Jan. 15. Intel reported more than $10 billion in revenue during the quarter, but cautioned that the weakening U.S. economy could have an impact on its business in 2008.

Click here to read more about why the U.S. economy's strength concerns Intel.

Brookwood said that while Intel, a much larger company, depends on the U.S. economy for growth, the smaller AMD can present itself as a winner by just doing well and capturing a point or two or market share from the larger chip maker.

"Intel is just so much larger and it's really dependent on the economy for its growth," Brookwood said. "AMD is smaller and has a much smaller market share. If it can take one or two points from Intel, it fuels a lot of growth for them."