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CEO Calls AMD the Victim of a 'Perfect Storm'

The loss was double what Wall Street anticipated

AMD's first quarter was a disaster.

It's not just that its ASPs were gutted by the price war with Intel, "80%" of AMD's problems were simply shipments, its CEO Hector Ruiz said.

ASPs were only a "small piece" of the picture, Ruiz said, a fact that has a lot to do with Intel's product overhaul. He said it took Intel four years to do it, but "they did a good job."

AMD lost $611 million, $1.11 a share, in Q1 on revenues of $1.233 billion, coming in a bit above the $1.225 billion number it gave out last week when it slashed its forecast from $1.6 billion-$1.7 billion.

The company said its operating loss amounted to $504 million and its gross margin was a piddling 31%, down from 59% a year ago.

The loss was double what Wall Street anticipated.

And AMD's not expecting things to improve greatly this quarter. It's expecting revenues to be flat or, God willing, slightly up. AMD claimed to see some price stabilization and some recovery in the channel at the end of Q1 but it's "still competitive."

The one bright spot AMD could claim was its design-win pipeline, which it described as being as full as it's ever been, but it's unclear when any of that will produce revenue. Yet it thinks it might see market share increases this quarter. It's not too concern with inventory since the pieces are pretty current. "Well positioned in 65nm," it said.

The Q1 numbers include ATI acquisition-related and integration charges of $113 million, or 21 cents a share.

MPUs accounted for $918 million in revenues, including a full quarter of ATI chipset revenues. Year-over-year server and desktop processor units and revenues declined "significantly." Mobile apparently improved "significantly." Graphics contributed $197 million.

In the fourth quarter when AMD started flailing it lost $529 million on revenues of $1.773 billion.

AMD CFO Robert Rivet called the Q1 showing "disappointing and unacceptable" and a "major setback." Ruiz called it a "perfect storm," a combination of competitive products, market complexity and pricing pressure. (Wonder if he remembers how that movie ended.)

Among other things, AMD seems to be undone by the new complexity of the market it complains of. It says it needs to improve the top line and change its cost structure.

The company is now scrambling to reinvent itself, what Ruiz called "accelerating the second half of its transformation" and everything's on the table. The possibilities are "damn near infinite," Ruiz said.

It's pulling together a task force to oversee and implement whatever they come up with.

It's depending heavily on the success of the Barcelona server quad, which should be in products in Q3 and naturally it claims OEMs are delighted with the part. "Barcelona can't come quick enough," AMD said. It's also trying to accelerate its 65nm transition and knows it has to bring 45nm on board as soon as it can.

It's also counting on ATI's next round of 600 Series graphics.

It's simplifying its account management and is hoping to pick up new OEM accounts and broaden its profile in existing accounts. It is also trying to stimulate channel demand.

It's toying with a scheme it calls "asset-lite" to move some of its R&D and manufacturing costs over to partners like it's done with IBM Microelectronics and the Chartered Semiconductor foundry. It's already pulled in its horns on 300mm wafer capacity hoping to save $500 million, a move that will impact it at least into '09, and although it hasn't started laying people off yet, it intends to reduce its workforce and save $100 million on discretionary spending.

AMD is considering moving production of certain products to emerging markets and stratifying existing products. Barcelona, for instance, will apparently produce a desktop chip. It is also looking into monetizing its IP.

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SYS-CON's Virtualization News Desk trawls the news sources of the world for the latest details of virtualization technologies, products, and market trends, and provides breaking news updates from the Virtualization Conference & Expo.

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