Jackson - Re: 'with a 500 million debt at 5% that is 6.25 million per quarter"
AMD's long term debt is $1.58 BILLION :
"Total debt was $1.58 billion. "
I believe a THIRD of that debt requires 11% INTEREST PAYMENTS.
Why don't you redo your numbers - you should get $120 MILLION/YEAR debt service.
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Thursday July 29, 3:32 pm Eastern Time
Company Press Release
SOURCE: Duff & Phelps Credit Rating
Advanced Micro Devices, Inc.'s Debt Downgraded, Removed from Rating Watch--Down
CHICAGO, July 29 /PRNewswire/ -- Duff & Phelps Credit Rating Co. (DCR) has downgraded the ratings of Advanced Micro Devices, Inc. (NYSE: AMD - news) because of continuing operating losses and the need for substantial additional capital expenditure before AMD realizes what could be large returns from its attractive new generation of microprocessors. DCR is lowering its ratings of AMD's senior secured notes from 'BB' (Double-B) to 'B' (Single-B), senior unsecured debt from 'B+' (Single-B-Plus) to 'B-' (Single-B-Minus) and convertible subordinated notes from 'B' (Single-B) to 'CCC' (Triple-C). At the same time, DCR is removing AMD's ratings from Rating Watch-Down, where they were placed in June following AMD's pre-announcement of a second quarter operating loss. The AMD rating outlook is uncertain.
In June, AMD said it expected a second quarter operating loss 'in the range of $200 million.' The actual reported operating loss was $162 million. After the $432 million gain from the sale of its Vantis programmable logic division and a modest restructuring charge, AMD reported net income of $80 million in the quarter. Problems leading to the operating loss included intensified price competition from Intel; customers lost due to a first quarter manufacturing glitch not returning; and availability on the market of low-priced Cyrix microprocessors after National Semiconductor exited the business. The second quarter average selling price of AMD microprocessors was $67, compared to $78 in the first quarter. AMD's non-microprocessor businesses moderated the operating loss with a 17 percent sequential revenue increase and improved margins. Non-microprocessor revenues were 47 percent of the total.
AMD ended June with $651 million of cash, up from $489 million in March due to the Vantis sale. Total debt was $1.58 billion. Capital spending in the first six months of 1999 was $348 million, and the company expects to spend in the low $800 millions for the year. Much of that will be in the Dresden fab and partly funded through loans from a consortium of mostly German banks.
Intel is able to price chips for the low-priced PC market, in which it competes with AMD, at slender margins because it can price chips for the high-end market, which it dominates, at very high margins. During the second quarter AMD began shipping its Athlon microprocessor, formerly known as the K7. Athlon is substantially faster than AMD's current K6 product and expected to be faster than Intel's fastest chip. AMD has moderated its K6 pricing discount relative to Intel's Celeron low-end product, with the result that it no longer expects K6 revenues or market share to increase. Instead, the key to AMD's profitable participation in the microprocessor market will be its ability to open a broader competitive front against Intel with the Athlon, including broaching the hugely profitable server, workstation, notebook, and high-end desktop commercial markets. AMD expects computer makers to introduce Athlon-based systems beginning in August.
DCR believes that AMD's microprocessor product line is attractive and competitive, especially with Athlon, and that the microprocessor market offers profitable opportunities for participants other than Intel. Furthermore, DCR expects AMD's other product lines to benefit from an industry upturn already at hand. However, with the weaker K6 earnings outlook in the background, the DCR rating changes signal concerns about the period of losses and continuing large investments before such time as market success of the Athlon begins to generate cash. At this time Athlon market success remains uncertain. The product requires a larger commitment by computer makers due to a different bus and interface structure. Success requires making deeper inroads into the commercial market than computers based on previous AMD microprocessors have achieved. The commercial market is more conservative than the consumer one, with buyers afraid of relying on non-Intel microprocessors despite sometimes substantial savings. Finally, assuming market acceptance, Athlon's success depends on AMD's ability to make it in volume, on schedule and with good yields. The company has a history of manufacturing execution problems.
DCR views the AMD rating outlook as uncertain. Considerable improvement is possible if Athlon is successful and AMD's other product lines continue their recovery, but further deterioration is possible if AMD is not able to generate enough cash to cover its continuing capital investment requirements for a protracted period.
SOURCE: Duff & Phelps Credit Rating
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Paul |
