Struggling AMD to face investors
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Company has been losing market share to Intel for months
By Tom Abate
San Francisco Chronicle Staff Writer
Thursday, May 3, 2007
At a time when financial losses have sparked takeover rumors, AMD Chairman Hector Ruiz must take the stage today to convince investors that the company is heading up, not spiraling down, when he convenes its annual shareholder meeting in San Jose.
How different was the mood a year ago when AMD was riding high as it gobbled up microprocessor market share at the expense of Santa Clara's Intel Corp.
But in recent months, as a reinvigorated Intel has battled back with better chips and aggressive pricing, AMD has seen its earnings turn red, with back-to-back net losses in the fourth quarter of 2006 and the first quarter of 2007 totaling $1.185 billion.
On Wall Street, where sentiment is a numerical construct, the Sunnyvale company's stock has slid from about $34 per share last year at this time to $13.63 at Wednesday's closing bell.
To stanch its losses, AMD recently floated about $2.2 billion in convertible debt, which puts its current cash position at around $2.7 billion, a spokesman said Wednesday, adding that the company considers $600 million its "minimally acceptable level."
AMD's weakness has fueled speculation that private equity firms, which have been on a buying binge in semiconductors, among other industries, might lust after Intel's competitor.
Ruiz seemed to fuel that speculation when he responded to a question about the takeover rumors during the company's recent earning call. "We have absolutely no prejudice or bias toward the source of capital as long as it makes sense for us, and we are very open to any of those options," he said.
Analyst Doug Freedman, who follows AMD for American Technology Research in San Francisco, considers it highly unlikely that private equity firms would want to swallow AMD. But, said Freedman, AMD might try to boost its cash position by selling a piece of itself -- possibly a unit that makes high-performance plug-in graphics cards.
Freedman, who has a sell rating out on the stock but still calls himself "an AMD fan," said that while shareholders clearly have reason to be displeased, he sees no signs of a shareholder revolt that would shake up the leadership.
"I think they've got maybe until the end of the year," he said, to turn the company around.
Dale Ford, vice president with the El Segundo (Los Angeles County) research firm iSuppli, said the story of AMD's rise and stumble is told in market share numbers. AMD traditionally held about 8 or 9 percent market share, he said, but starting in 2005 and continuing into late 2006 its share rose about 16 percent on the strength of innovative chip designs that caught Intel off guard.
"But Intel has taken steps to reassert themselves," Ford said, and in the first quarter of 2007 it recaptured more than four points of market share and drove AMD back down to a bit above 11 percent of the microprocessor sector.
AMD's efforts to regain it momentum ride on a new high-end microprocessor code-named Barcelona. AMD corporate Vice President Randy Allen said the company expects to deliver the processor "in mid-2007" and promised that it will leapfrog Intel once again.
"I believe we will have the performance lead at least through the end of 2008," Allen said.
Jim McGregor, microprocessor analyst for the Arizona market research firm In-Stat, said the AMD processor "will likely have higher performance than competing Intel products." But just how much of an edge and for how long remains unknowable until computer-makers start indicating their purchasing preferences.
Meanwhile, AMD is trimming expenses. Spokesman Drew Prairie said the company is delaying a $500 million equipment upgrade to one of its factories and saving another $100 million by curtailing travel, marketing and discretionary spending. He said the company will also cut about 500 jobs from its workforce of roughly 16,500 by year end, but the details have not been decided.
Prairie said Ruiz will not deliver any bombshells when he faces shareholders today, but will reiterate his basic message: "There is no way to sugarcoat our performance," according to an excerpt from his prepared remarks. "But while we are extremely disappointed, our resolve and commitment to finish what we started has only grown stronger."
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