Scumbria,
Below what the San Jose Murky News has to say about AMD this morning. The segment I cut out describes what is often called a death spiral in this (or any) industry. Vendor loses mucho money. Customers lose faith and go elsewhere. Vendor loses more money. I forget, which way does the spiral go in the northern hemisphere, clockwise or counter-clockwise?
''It is a self-fulfilling prophecy,'' he said. Once the company starts losing huge
sums of money, the research squeeze ''only gets worse.''
Wednesday's release from AMD contained another ominous sign for the Athlon,
the centerpiece of AMD's push into the market for more powerful and higher
profit-margin chips.
AMD said its quarterly sales suffered because frustrated potential customers
didn't return to the fold once AMD solved the manufacturing problems that
plagued the K6 last year. The company chose to supply only its ''first-tier'' PC
manufacturer customers when chip yields lagged.
Customer confidence is an even larger concern with the Athlon, because it is the
first AMD chip in years whose design differs significantly from Intel's chips.
Computer manufacturers and component makers will have to design their products
specifically to support AMD's new processors.
mercurycenter.com
Posted at 9:50 p.m. PDT Wednesday, June 23, 1999
AMD to post record loss
It's producing more chips than it can sell
BY DEBORAH CLAYMON
Mercury News Staff Writer
Advanced Micro Devices Inc. -- which has stumbled in
recent quarters because of production problems and
price competition -- said Wednesday it expects to post
its worst operating loss ever because of a new
dilemma.
This time, AMD made too many chips.
W.J. Sanders III, AMD's longtime chairman and chief executive, said in a
statement that AMD expects to manufacture more than 6 million of its flagship K6
microprocessors during the quarter ending June 30. But it is unlikely to sell more
than 3.7 million of them.
For that reason, Sunnyvale-based AMD expects less than $600 million in
operating revenues and more than $200 million in losses in its second quarter.
Yet these results -- which Sanders termed ''a bitter disappointment'' -- are more
than just the latest evidence of AMD's failure to capitalize on the K6, its strongest
potential competitor in years to chip giant Intel Corp.'s product line.
The numbers also leave AMD in a weak position as it introduces its newest chip,
previously called the K7 but now dubbed the Athlon microprocessor. AMD
simply cannot afford to incur such enormous losses at a time it needs to invest
research and development funds to push its technology ahead, said Keith
Diefendorff, editor-in-chief of Microprocessor Report.
''It is a self-fulfilling prophecy,'' he said. Once the company starts losing huge
sums of money, the research squeeze ''only gets worse.''
Wednesday's release from AMD contained another ominous sign for the Athlon,
the centerpiece of AMD's push into the market for more powerful and higher
profit-margin chips.
AMD said its quarterly sales suffered because frustrated potential customers
didn't return to the fold once AMD solved the manufacturing problems that
plagued the K6 last year. The company chose to supply only its ''first-tier'' PC
manufacturer customers when chip yields lagged.
Customer confidence is an even larger concern with the Athlon, because it is the
first AMD chip in years whose design differs significantly from Intel's chips.
Computer manufacturers and component makers will have to design their products
specifically to support AMD's new processors.
The continuing bad news is also likely to put more pressure on company founder
Sanders, recently singled out by national business magazines as one of the nation's
worst performing CEOs.
An AMD spokesman, however, defended the company's performance. ''Clearly
these kinds of losses are not good news,'' said Scott Allen. He called the
company's execution ''pretty good'' but said to successfully compete against Intel,
the company's actions must be flawless.
AMD and Intel have been battling at the low end of the PC market, where the K6
contends with Intel's Celeron for a place in sub-$1,000 PCs. Intel has driven the
average selling price of these microprocessors well below $80, squeezing
AMD's profits and helping to drive a third competitor, National Semiconductor's
Cyrix Corp., out of the market altogether.
AMD believes the Athlon will allow it to escape its low-end woes. Industry
analysts believe this strategy may work, but said it's a risky one for a company
that has had such trouble with execution.
''AMD is living on the edge, there's no question about it,'' said Charles Boucher,
a semiconductor analyst with Credit Suisse First Boston in San Francisco. Still,
Boucher said, the release of the Athlon is a silver lining.
''If AMD executes the Althon well, it could start to build an R&D war chest to
keep the fight going,'' said Boucher. ''But if the company stumbles again, they will
be really challenged to produce any next generation technology.''
To avoid that fate, AMD is experimenting with ways to make chips with less
capital expenditure than Intel. It recently forged a partnership with Motorola to
combine production efforts and reduce overall costs.
Even though quarterly sales fell way short, computer manufacturers have not
abandoned AMD, said George Iwanyc, an analyst with Santa Clara-based
Dataquest. He believes PC makers want AMD to remain a viable competitor to
Intel. ''AMD provides the best negotiating argument to Intel,'' he said.
AMD's ailing stock -- which closed down $1.06 at $18.19 Wednesday -- is likely
to dip further today on the announcement, which came after the close of market.
Analysts had expected AMD's quarterly loss to be about one-third what Sanders
projected.
In its first quarter, AMD had a loss of $118.8 million, or 81 cents a share.
''Athlon is AMD's one hope,'' said Diefendorff. ''If they can't pull it off then it
looks like nobody is going to be able to compete with Intel.'' |
