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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: Process Boy who wrote (74519)	10/7/1999 1:35:00 PM
From: Maverick	Read Replies (2) \| Respond to of 1572778

Cash dropped 42% to $377M.AMD used $1.5B to make K7.Where's money for K8 ? Excerpts of AMD Chipping Away Its Losses By Brian Graney (TMF Panic) October 7, 1999 There's no getting around the fact that a loss is still a loss, of course. The struggling company still has quite a bit of work to do to get its financial house in order management is staying on the cautious side of the fence and a return to profitability appears to be at least another quarter away. The balance sheet remains the most intriguing window into the future of the company. It is at this point that many semiconductor investors lose their analytical way, since it is all too easy to place greater weight on technological advances and how they will impact the income statement in future periods and ignore what is happening on the balance sheet. For long-term investors aiming to achieve a market-beating return, this mistake is akin to stockpicking suicide.AMD's ability to stay alive in the declining-price environment of microprocessors and make a serious run at entrenched gorilla Intel (Nasdaq: INTC) in the high-end of the market will ultimately boil down to expert capital allocation and asset management. On AMD's balance sheet, things still look messy. The company was forced to dip into its cash reserves to keep operations going, and cash, equivalents, and short-term investments dropped 42% to $377 million during the period. The large drop is discouraging, especially considering the $432 million gain from the sale of its Vantis unit last quarter has already been wiped out through plant and equipment purchases. Inventories rose as a consequence of the Taiwan earthquake, which helped explain the sequential decline in the company's working capital and the erosion of working capital management measures such as the current and quick ratios. AMD is reining in its capital spending plans for the year to about $650 million, but that still suggests a huge cash outflow compared to the cash inflow investors can expect from operating activities. More asset sales from non-microprocessor activities, such as the sale of the company's data communications chip business that was announced last night, will help. However, judging by the rate at which AMD blew through the money from the Vantis sale, operating cash flows are going to have to pick up the business funding slack at some point. With AMD announcing this week that it will challenge Intel in the high-end market with its own 64-bit chip -- codenamed SledgeHammer -- based on its mainstay x86 architecture and set to debut in 2001, investors are left to wonder where the money for Athlon's "Sista' Sledge" is going to come from. A small die size and the conversion to a 0.18 micron geometry fabrication process should help make the SledgeHammer cheaper to produce than chips based on Intel's all-new 64-bit "Itanium" architecture. But the efficiencies of the design likely won't be enough to fully offset the costs associated with making a full-out run at Itanium, which will have the added advantage of hitting the market a year earlier. AMD has already used $1.5 billion to get Athlon to where it is today; coming up with even more money to fund the development and roll-out of SledgeHammer will be an enormous challenge. At some point, shareholders are going to demand a return on all of this investment. With the profitability horizon being stretched to the limit and an entrenched rival with a whopping $10 billion war chest laying in waiting, the clock is ticking for AMD.