Semiconductors: Losing Money and Its President, AMD Will Try Athlon
By Marcy Burstiner
Staff Reporter
SAN FRANCISCO -- It's amazing that even after dishing out a dire
preannouncement last month, Advanced Micro Devices (AMD:NYSE) can still
manage to pull even more bad news out of its hat.
On a conference call Wednesday to report second-quarter results,
chairman and CEO Jerry Sanders announced the resignation of Atiq Raza
-- AMD's president, chief operating officer and chief technical officer
-- for "personal reasons." Raza is the man largely credited for
bringing to the company the K6 microprocessor.
The announcement shocked investors who regularly trade news via message
boards. While Silicon Investor had 11 postings on its AMD board in the
hour prior to the announcement, 44 messages were posted in the hour
immediately after. One wrote only this: "stunned silence."
BancBoston Robertson Stephens analyst Dan Niles said the resignation
came as news to him as well. "That was definitely surprising, and I
know Atiq pretty well," he says. "I have no knowledge on why he is
leaving."
The news comes at a time when Intel (INTC:Nasdaq) is hurting AMD so
badly with price cuts on the low end of the PC chip market that Sanders
has all but given up on the K6 family of processors. Raza is also
leaving just as the company is shipping to customers its one hope for
glory -- the new Athlon processor, also known as the K7, designed for
high-end PCs that many in the industry say is superior in design to
anything Intel currently produces.
Sanders said the company is shipping "hundreds of thousands" of the
Athlon this quarter, which will sell at prices that range from $323 for
a 500 megahertz chip to $699 for the 600 MHz version. If it can sell as
many as it can produce, the chip promises to be a cash cow.
The company sold 3.7 million K6 chips in the second quarter at an
average selling price of $67 to produce microprocessor revenue of about
$248 million. This quarter, the K6 will carry an ASP in the $50 range,
Sanders predicted. To generate that much money with ASPs of $400, the
company would need to sell only 620,000 Athlon chips. On the call,
Sanders said that AMD could easily produce over a million Athlon chips
in the fourth quarter.
Sanders has boasted in the past about the company's ability to produce
chips, then failed to deliver on promised productivity. And even if AMD
can shoot off super-fast Athlon chips out of its plant, the question is
how fast they will sell. Even Sanders, who has not hesitated in the
past to make warm and fuzzy predictions, wouldn't venture to predict
demand levels.
"It is just a big unknown," Sanders said.
It's all or nothing now. "We won't fight a price war we can't win,"
Sanders said. "AMD's return to profitability depends entirely on the
success of the Athlon microprocessor in the marketplace and the
revenues it can generate."
For the company to be profitable, it needs to generate $500 million in
sales each quarter, and that won't happen, Sanders admitted, until
early 2000 at the earliest.
So what can AMD investors hold on to? Well, the second-quarter loss of
$162 million was narrower than the loss of $200 million Sanders
predicted on June 23. And at a loss of $1.10 per share, it came in 16
cents better than the $1.26-per-share loss predicted by First Call
consensus.
Niles also points out that Raza's resignation came after the Athlon's
debut, and Raza said he would continue to work with the company in some
undefined capacity. "Atiq owns a lot of the company," he said. "I'm
sure he wants the stock to do well. The resignation came after the
Athlon is out and already shipping.
Niles said he's waiting to see how well the Athlon does. "I think the
K7 will be good for the company," he said.
Still, he said he has no plans to change his hold rating on the company
any time soon. (BancBoston has no underwriting relationship with AMD.)
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