AMD Q1 2015 Earnings - 23 cents a share loss, to exit dense server (SeaMicro)

[ShintaiDK]

Then why don't you flame Intel for not doing so? Their iGPU adventure has turned out even worse.

Last time I checked Intel made buckets of money on their CPUs with integrated IGP. Its a clear business success.

While AMD on the other hand is a hole in the ground.

 

[AllDayBreakfast]

X-Post from Video Cards forum:

AMD is in quite a lot of trouble because they are running out of cash, and need a way to get more. Accounting profits and losses as in this thread ("Earnings") are entirely irrelevant to whether a company can keep going.
AMD has had accounting losses for most of the last decade and is still here. However, the running out of cash thing is an actual real tangible problem that will actually mean they might go out of business.

They need money, but problem is that people probably won't lend them much more money to add to the debt pile, and they only have about 5 quarters of cash left at the most recent quarter's burn rate.
They do have a $500m revolving line of credit until 2020 which is only $130m drawn currently, so they have $370m available to draw, but that also makes the debt pile bigger so it just gives them some breathing room, but doesn't solve anything much.

They have $1.3b in current liabilities and $2.5b in current assets, with $300m in other assets plus $300m property, plant and equipment, and $2b of debt.
That's a total of $3.3b debt and other payables, and $2.9b "actual" assets.

(The $300m of "other assets" is $200m of software and tech licenses which probably don't have a sale value, plus some other stuff, so I removed the $200m from the actual assets above.)

There is zero stockholder equity, and the only thing AMD have to borrow against as a security is Goodwill. Which isn't something you can really securitise against.

The only other thing that you can borrow against is future earnings. Which is where the problem comes. If your earnings are tanking and you are making losses, you can't borrow much against those earnings.

AMD is at a situation where there is a real possibility of running out of cash in the near future.
Their credit rating is "Highly speculative", which is the second level of non-investment grade ratings.
Further, at year end the repayment balance on the debt was $2,025 (which is how much they would have to pay the lender) but the market value of the debt (effectively how much the lender could sell it for/how much they think they will get back of it) is only $1,858, so the market things AMD won't be able to fully repay its CURRENT debt, let alone any future debt it would need to keep cash flowing. At the end of 2013, the market value of the debt was higher than the repayment amount (because of the future interest payments), indicating there were no concerns over the repayment ability of AMD 15 months ago.

The debt starts to mature in 2019, so anyone looking at giving AMD more money would need to consider the likelihood of AMD repaying its current debt in 5 years time.

AMD is at the point where I would think that in 2 years time it's unlikely to still be able to function, maybe sooner, since there doesn't seem to be much sign of their situation improving. Not saying that as an investor, but as a consumer. The chances of longer term (>3 year) support of anything bought right now doesn't seem to be strong. That would then potentially also lead to even lower sales, accelerating the downfall.

This is out of left field, but what about raising equity and diluting the hell out of the current shareholders?

 

[Arachnotronic]

Then why don't you flame Intel for not doing so? Their iGPU adventure has turned out even worse.

You do realize that these "failed" iGPUs are shipping by the millions integrated inside of Intel's highly successful Core processors, right?

 

[mrmt]

This is out of left field, but what about raising equity and diluting the hell out of the current shareholders?

What's AMD new business plan that could entice new investors to hop aboard of that stock? Right now they are in an especially weak position, because they fired the responsible for the last plan and are under heavy pressure of their main competitor.

 

[mrmt]

Then why don't you flame Intel for not doing so? Their iGPU adventure has turned out even worse.

Intel never spent 1 year of revenues in acquiring iGPU companies, they never said that graphics would be a major income stream for them, and they never touted graphics as their main edge on the market.

And despite all AMD GPU prowess their graphics business is a total failure. They end up matching Nvidia in each generation but only Nvidia makes money, AMD just gets to break even and that's it. And don't even mention the console chips, less than 100 million per quarter doesn't make their GPU business less of a failure.

 

[Lonyo]

This is out of left field, but what about raising equity and diluting the hell out of the current shareholders?

You can only raise equity if someone wants to invest money in your company.
Who would want to pour more money into AMD?

 

[pablo87]

Not correct, they made a commitment to buy 1B worth of wafers from GF in 2015. They have bought 161M worth of wafers in Q1 2015.

In other words, its even worse than I thought - its an $839M commit, not $750M, for the next 3 quarters.

Worse, its take or pay. They have to pay no matter what, there is no way out, even if TSMC had a faster, lower power process at a lower cost per wafer, AMD cannot take advantage of it. They are locked in.

Therefore, saying its strictly for parts, is disingenious.

We know in the past they had to take more parts than they needed resulting in bloated inventory (which btw, is the subject of a class action suit I believe), and they promoted same against all logic (when Bobcat came out, they basically didn't want to sell those as they were fabbed at TSMC) - bigger parts over smaller ones in order to meet their financial commitment.

 

[pablo87]

She was COO and VP before assumming the CEO position, she had to know those things before. What caught my attention is that she doesn't seem to have a consistent plan to turn the company around. She's being too slow in changing things, like taking 6 months to close down SeaMicro and 7 months until coming forward with a public, reshufled product roadmap.

Kumar is a weak CFO, but I don't think he's the main issue there. That company needs a CEO who knows where to head the company, that understand the IHV market and can make money out of it. No CFO could have made Bulldozer to be a better product on the market, simply because Bulldozer was running against every single market trend we can think of, and by the looks of it AMD screwed up again with K12/Zen, they will reach the Microserver market by the time every big OEM company is hitting the brakes on these initiatives.

My guess is another reorg in Q3, but not before another product line being scrapped at the FAD.

As Buffet said, when good management is tasked with turning around a failing business, its usually the management's reputation that suffers.

As far as direction goes, there's no magic wand as far as I can tell. Return to the GPU roots, narrow it down to 1 CPU core (I believe they are running 4 programs currently).

 

[MiddleOfTheRoad]

How would AMD create an APU without an iGPU?

They could have purchased a much cheaper GPU maker like XGI or S3. They clearly paid way too much for Ati.

 

[MiddleOfTheRoad]

So if Qualcomm does semi-custom jobs, and if Intel does semi-custom jobs, isn't that bad for AMD as there is more competition for contracts?

Semi-Custom probably has a much brighter future than traditional desktops. I don't think their is any market that doesn't have competition.

 

[MiddleOfTheRoad]

And save 4-5 billion in the process. Billions that should have been spendt on improving products.

There is no excuse, the ATI buy simply destroyed both companies. And it took AMD 5 years before the first brutally bolted on GPU on a CPU was released. The ATI buy did absolutely nothing.

All AMD got left is consoles. But that wont last forever.

I agree with Shintai on this one. AMD paid way too much for ATi -- and it still clearly haunts them with their debt load. AMD would have been better acquiring a smaller firm (S3, XGI) or simply licensing the IP (PowerVR).

 

[Fjodor2001]

Last time I checked Intel made buckets of money on their CPUs with integrated IGP. Its a clear business success.

While AMD on the other hand is a hole in the ground.

It's because the customer does not have any option if they want to buy an Intel CPU. The iGPU is included on the die regardless.

If the customer could have bought an Intel CPU with an iGPU from AMD or nVidia, you can bet they would.

So back to the original question: Would Intel have been better better off licensing the iGPU from e.g. nVidia or AMD/ATI compared to designing their own from scratch?

 

[Fjodor2001]

I agree with Shintai on this one. AMD paid way too much for ATi -- and it still clearly haunts them with their debt load. AMD would have been better acquiring a smaller firm (S3, XGI) or simply licensing the IP (PowerVR).

Sure the price may have been too high, just like when Intel bought McAfee for $7.7B! But the question is whether or not it's good business strategy to own the GPU part of an APU (compared to e.g. licensing it from an external partner).

Lately, the (i)GPU has become an ever larger and more important part of the APUs sold. So it's really belongs to the core business of both Intel and AMD.

 

[Lonyo]

Sure the price may have been too high, just like when Intel bought McAfee for $7.7B! But the question is whether or not it's good business strategy to own the GPU part of an APU (compared to e.g. licensing it from an external partner).

Lately, the (i)GPU has become an ever larger and more important part of the APUs sold. So it's really belongs to the core business of both Intel and AMD.

It wasn't conceptually a bad strategy, as such, but it was too expensive and too early.
It's like the tablet/UMPC push in 2004-2006. The idea was fine, but it was too early.

Long term, the result is that AMD is now nearly dead. Whether it's entirely due to that acquisition (they have had other mis-steps as well, plus Intel preventing them fully exploiting their performance lead when they had it) or not is a matter of debate, but at the end of the day, it's not really worked out.

By working with another party, they could potentially have created a fourth competitor. PowerVR, who made discrete cards back in the day, are still found in ARM CPUs and are making DX 10/11 compatible GPUs, but it's too late to consider what might have been really.

 

[jpiniero]

I agree with Shintai on this one. AMD paid way too much for ATi -- and it still clearly haunts them with their debt load. AMD would have been better acquiring a smaller firm (S3, XGI) or simply licensing the IP (PowerVR).

It was just bad timing. If they had waited 6 months even, ATI could of been had for a third less easy. Still, the while the debt will cause AMD's demise you can't blame it.

When you think about it, the only real success AMD has had recently was Jaguar, and that's gone now since Intel is giving away Bay Trail.

 

[B-Riz]

I am curious how many commentators here work for a large to very large corporation.

Because if you are working for a company that does not have cold hard cash coming in every month to pay bills, you are screwed.

If a large company truly has problems, IE, no cash flow at all, it would be chopped up and sold in a heartbeat.

AMD has money coming in to develop new stuff, produce current stuff, keep the lights on and pay the staff.

Corporate debt is largely irrelevant anymore, merely a line item that can be deferred and refinanced when needed.

Debt is a motivator to make money and get rid of said debt.

They have a lot of worth in IP and x86 experience; the United States gov. would never let it get sold to another country; if they did fold, only an American company would be able to buy the assets and the debt would essentially be dissolved.

AMD completely failing would not be good for Intel, as they have helped them out a great deal, contributing the current x86_64 extension we all know and love.

AMD offers a competing product that performs lower, but costs less. Intel can justify its higher prices (to the market) by having higher performance.

The fixation of failure prediction of a hardware company that is vastly smaller than its nearest competitor, but is able to offer competing products, is very very strange.

 

[GRAFiZ]

I think this entire thread can be summed up quite simply with two words:

Rory Read

 

[jpiniero]

If a large company truly has problems, IE, no cash flow at all, it would be chopped up and sold in a heartbeat.

Give 'em time. They are getting there. The problem is that AMD loses the x86 license if AMD is bought or goes bankrupt so the buyer would have to have no interest in anything x86.

 

[ShintaiDK]

I am curious how many commentators here work for a large to very large corporation.

Because if you are working for a company that does not have cold hard cash coming in every month to pay bills, you are screwed.

If a large company truly has problems, IE, no cash flow at all, it would be chopped up and sold in a heartbeat.

AMD has money coming in to develop new stuff, produce current stuff, keep the lights on and pay the staff.

Corporate debt is largely irrelevant anymore, merely a line item that can be deferred and refinanced when needed.

Debt is a motivator to make money and get rid of said debt.

They have a lot of worth in IP and x86 experience; the United States gov. would never let it get sold to another country; if they did fold, only an American company would be able to buy the assets and the debt would essentially be dissolved.

AMD completely failing would not be good for Intel, as they have helped them out a great deal, contributing the current x86_64 extension we all know and love.

AMD offers a competing product that performs lower, but costs less. Intel can justify its higher prices (to the market) by having higher performance.

The fixation of failure prediction of a hardware company that is vastly smaller than its nearest competitor, but is able to offer competing products, is very very strange.

You may have missed AMDs financials. Debt is increasing, quarterly debt burden increasing, cash amount reduced, revenue collapsing. All while they are busy looking for the next thing to cancel.

Corporate debt is certainly not something you go easy with. Specially not when you are rated junk and have to pay a very high interest for the few willing to even lend you money.

AMD offers about the same competitiveness on the market today as VIA and DM&P Electronics. Both also making x86 CPUs.

 

[ShintaiDK]

Give 'em time. They are getting there. The problem is that AMD loses the x86 license if AMD is bought or goes bankrupt so the buyer would have to have no interest in anything x86.

The main problem isnt losing x86 as such. A good bankruptcy could have cleaned up the company for a purchase.

The issue is the rest of the company is close to as worthless. The graphics IP is losing whatever value it had left really fast these quarters. So instead of just losing an x86 company, everything else goes down with it.

AMDs path looks to be a long road on semicustom, far away from the PC. Until that one also runs out due to low R&D spending and someone else outbid them.

 

[ShintaiDK]

I think this entire thread can be summed up quite simply with two words:

Rory Read

It goes way back longer. AMD simply havent had compentent management is what now, 13 years?

And even if they get good management, 13 years of destruction is virtually impossible to fix. Specially when the pipeline is 3-5 years.

 

[Boze]

I suspect what's actually going to happen is that the R9 390X is going to give Nvidia TITAN X cards a run for its money. I'll also run hotter, use more power, and be around 25-30% cheaper. Same damn thing we see from the rest of the R9 line almost across the board.

Zen will be lauded by tech people as a great product, but it has no home. You can't sell it to enthusiast gamers because we'll just buy a top-of-the-line Intel processor and pair it with a top-of-the-line NVIDIA GPU. You can't sell it to the corporate world, because they don't need the integrated graphics power it provides... an Intel Core processor is more than enough for business. The only people interested are budget gamers, and they're not enough to make up the difference. Console gamers are like the humans from Men in Black. For the most part, don't have a clue; they don't want one or need one, either, they're happy... they think they have a good... bead on things.

AMD will declare bankruptcy and/or sell to Samsung or some other large multinational technology corporation that can leverage their IP portfolio.

Steam boxes take over gaming; Microsoft, Sony, & Nintendo all become 3rd party developers.

May not work out quite like that, but I can dream...

 

[AtenRa]

People were predicting the death of AMD was imminent back in 2012 when Revenue shrunk to 1.1B in Q4. AMD is still alive in 2015, fighting with what it has for the moment until 2016 and its new 14nm FF products.

I guess those Nostradamus out there should ask Intel to upgrade their predictors :biggrin:

 

[krumme]

X-Post from Video Cards forum:

AMD is in quite a lot of trouble because they are running out of cash, and need a way to get more. Accounting profits and losses as in this thread ("Earnings") are entirely irrelevant to whether a company can keep going.
AMD has had accounting losses for most of the last decade and is still here. However, the running out of cash thing is an actual real tangible problem that will actually mean they might go out of business.

They need money, but problem is that people probably won't lend them much more money to add to the debt pile, and they only have about 5 quarters of cash left at the most recent quarter's burn rate.
They do have a $500m revolving line of credit until 2020 which is only $130m drawn currently, so they have $370m available to draw, but that also makes the debt pile bigger so it just gives them some breathing room, but doesn't solve anything much.

They have $1.3b in current liabilities and $2.5b in current assets, with $300m in other assets plus $300m property, plant and equipment, and $2b of debt.
That's a total of $3.3b debt and other payables, and $2.9b "actual" assets.

(The $300m of "other assets" is $200m of software and tech licenses which probably don't have a sale value, plus some other stuff, so I removed the $200m from the actual assets above.)

There is zero stockholder equity, and the only thing AMD have to borrow against as a security is Goodwill. Which isn't something you can really securitise against.

The only other thing that you can borrow against is future earnings. Which is where the problem comes. If your earnings are tanking and you are making losses, you can't borrow much against those earnings.

AMD is at a situation where there is a real possibility of running out of cash in the near future.
Their credit rating is "Highly speculative", which is the second level of non-investment grade ratings.
Further, at year end the repayment balance on the debt was $2,025 (which is how much they would have to pay the lender) but the market value of the debt (effectively how much the lender could sell it for/how much they think they will get back of it) is only $1,858, so the market things AMD won't be able to fully repay its CURRENT debt, let alone any future debt it would need to keep cash flowing. At the end of 2013, the market value of the debt was higher than the repayment amount (because of the future interest payments), indicating there were no concerns over the repayment ability of AMD 15 months ago.

The debt starts to mature in 2019, so anyone looking at giving AMD more money would need to consider the likelihood of AMD repaying its current debt in 5 years time.

AMD is at the point where I would think that in 2 years time it's unlikely to still be able to function, maybe sooner, since there doesn't seem to be much sign of their situation improving. Not saying that as an investor, but as a consumer. The chances of longer term (>3 year) support of anything bought right now doesn't seem to be strong. That would then potentially also lead to even lower sales, accelerating the downfall.

Narrowminded crap. As long as there political interest in investing in gf tech - mubadala - there is cash for amd. Unless you beliewe gf can beat tsmc and you got to be insane to have that thought.

Never in amd history have it been more secure than now. Sharevalue will go near zero, ownership structure will change, but cash will be there.

 

[ShintaiDK]

People were predicting the death of AMD was imminent back in 2012 when Revenue shrunk to 1.1B in Q4. AMD is still alive in 2015, fighting with what it has for the moment until 2016 and its new 14nm FF products.

I guess those Nostradamus out there should ask Intel to upgrade their predictors :biggrin:

Nobody is predicting AMDs death. Rather their complete irrelevance and PC market withdrawal. AMDs revenue will be less than 1B$ in Q2. And semicustom will be the main revenue driver. And thats only because they keep failing in the PC space.

Nobody is saying VIA is dead either.