Bill,
In a price war, AMD might win the battles, however by focusing on lower prices casuing AMD to lose money will, in the end, cause them to lose the overall war.
You can't win on price alone. With AMD constantly driving the prices down, causes AMD to bring in less cash each quarter.
When you view AMD's last 10Q, a couple of points to consider...
Over the past 9 months, AMD generated 56M in cash from operations. Assume CFO does not deteriorate, AMD has an annualized CFO of 74.67M. AMD, currently, has a cash, equivalents, and ST Investments position of ~903M.
However, AMD has a current portion of LT Debt, etc. of 192.5M, meaning that 192.5M is due within at most 365 days from 30 Sept. 01. Additionally, AMD has interest expenses (annualized) of 152M (from Cash flow statement).
It is pretty clear to me that AMD has too much debt in its capital structure and must find ways to reduce its debt. However, does AMD need to continue to spend to increase its PP&E????
Pretty much, in order for AMD to generate the cash necessary to continue operations, AMD issued additional debt and stock.
AMD is at a critical juncture at this point in time. Over the past 9 months, AMD spent over 550M in PP&E, thus causing their FCF to be -500M. The critical juncture is this, do they need to continue to modernize their facilities? If so, should AMD issue more debt, causing their Interest expense to increase? If they issue more debt, and their earnings situation does not improve, CFO will continue to go down. Next, AMD could choose to issue equity, causing dilution. Or, AMD could choose to do nothing and no longer modernize. |
