AMD’s Bataan Death March (AMD)

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Advanced Micro Devices Inc. (NYSE: AMD) just posted earnings, or at least its results.  It is as far from earnings as ever, and it is also seeing steep declines like other technology companies.  The #2 processor company posted -$2.32 EPS on an operating basis and a 28% sequential drop to $1.162 billion in revenues.  Thomson Reuters (First Call) had estimates pegged at -$0.54 EPS and $1.23 billion in revenue.   What lies ahead for technology companies that supply the guts and brains for PC’s isn’t a cakewalk either.

If you want to know just how bad these results are, the numbers areatrocious.  The good news is that there are items in that huge loss.  The bad news is that there are always items now, and no one cares. The loss was a monster $1.414billion from continuing operations and a $1.274 billion if you consider the units sold off.

These results for continuing operations include totaling $996 million, or $1.64 against EPS.They  included an ATI impairment ofgoodwill and acquired intangible assets, an incremental write-down ofinventory, process technology license revenue, marketable securitiesnet impairment charges, amortization of acquired intangibles,integration and other charges, restructuring charges, a tax benefitfrom ATI acquisition-related charges, and the Foundry Company formationcosts.

The company claims that gross margins were 23%.  That includes a 20-point hit due to a $227 millionincremental inventory writedown.  We don’t buy into that notion that the company’s gross margins are anywhere close to that, and we doubt anyoneelse does either.  The company said it is still lowering its breakevenpoint.  When companies lose this money, who cares about the "grossmargin" figures from the company.

We do not blame the company for not issuing guidance since the technologyleaders it competes against have begun not doing it either.  All the company said is that first quarter 2009 revenue will decrease from the fourth quarter 2008 because of the slowing economy.  Thanks.  We wouldn’t haveguessed that.

Unfortunately, we see no end in sight to the company’s problems.  AMD  couldn’t make large profits when times were good.  Even under new leadership and under a lower-cost operating structure, what can it do to make money now?

Shares closed down almost 10% at $2.02 on an unofficial basis today.  The initial reaction has shares down about 1% at just under $2.00 in after-hours trading.  AMD doesn’t really have to worry about its quarterly numbers from here on out.  It has to worry about its relevance and its ability to survive.

Jon C. Ogg
January 22, 2009

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