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Chips (and Revenues) Are Down for AMD

Things went downhill fast for the world's second largest chipmaker in the fourth quarter of 2008 when revenue slipped to $1.2 billion, 33 percent lower than the fourth quarter of 2007, according company's earnings report. For the year, AMD reported a net loss of $1.4 billion based on revenue of $5.8 billion.

AMD's chip-making rival Intel also took a hit in its fourth quarter, reporting revenue of $8.2 billion, representing a 23 percent loss compared with 4Q 2007. Intel wrote down $1 billion of its investment in fixed wireless service provider Clearwire during the quarter.

The fourth quarter generally was marked by a decrease in new PC sales, according to a Gartner report, with a ripple effect across hardware and software industries.

In short, "the fourth quarter of 2008 is going to be remembered for the severe stresses placed on the global economy and on our industry," said Dirk Meyer, AMD's president-CEO, during the company's earnings call.

The decline, while not unanticipated, was tough to gauge because it happened in different stages, Meyer said. AMD "started perceiving a softening in enterprise purchases earlier in 2008 before the Q4 meltdown" while "consumer spending and hence consumer PC consumption was still healthy and growing," he said.

AMD's forecast was further impeded by notebooks shipped into the United States by slow boats from Asia, "so the supply chain is long," Meyer explained. Desktops generally reached the market quicker, making market shifts easier to detect.

The world's economic mess makes it "tough to predict" what will happen in 2009, but Meyer did not hold out hope for a quick turnaround.

AMD has established a "clear set of priorities" that includes reducing headcount by another nine percent "primarily in manufacturing" and spinning off the fabrication business into a separate entity. AMD will also complete the sale of its DTV business to Broadcom and sell off some handheld device assets to Qualcomm, bringing in a total of about $207 million in cash.

AMD's Foundry spinoff, which has all regulatory approvals in place and is just awaiting a February shareholder vote, will shift some expenses from the company's bottom line. However, the restructuring also will add costs because AMD will pay a markup for materials as a customer of the new spinoff.

AMD sees prospects in the 45-nm microprocessor market in "netbook" products using its Yukon platform. Netbooks differ from notebook computers in that they are smaller and have less computing power.

"Our Yukon platform offers a full PC experience at really low price points [and] the market is really reacting positively to that value proposition," Meyer said.

Company executives -- including Meyer and Robert Rivet, executive vice president, chief operations and administrative officer and temporary CFO -- resisted offering any guidance for the first two quarters of 2009. Things don't look as if they're going to get much better, so the company is trying to reach a $1.3 billion break-even target.

"We will get there by the second quarter. We will make significant progress in the first quarter from that perspective," Rivet said. "We won't get there fully just based on the timelines of executing some people reductions and salary cuts and other activities we're doing, but we'll make significant progress in the first quarter."

Rivet promised AMD will have a "significantly better" product lineup in 2009, built primarily around 45-nm microprocessors. Even so, the future rests on an unknown variable: consumer demand in an ailing economy.

"Going into 2009, it's awfully tough to forecast where consumption is going to go across either market segment (desktops or notebooks), which is why we're so reluctant to create a forecast," Meyer said. "The real wild card is going to be to what degree the current economic climate has an effect on consumer spending patterns and how that affects PC spending."

If the third-to-fourth quarter figures are a guideline, things look bleak. Consumer spending generally goes up by more than 10 percent between the quarters, Meyer said.

"The fact that it decreased is noteworthy," he concluded.

About the Author

Jim Barthold is a freelance writer based in Delanco, N.J. covering a variety of technology subjects.

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