Posting the article found via Lombard news search. Judging from the article, it seems that AMD's destiny will be known in another month when the K6 yield figures are in. This tells me that the share price will stay in the current trading range unless something comes in out of the blue. Any comments?
Electronic Engineering Times Oct 21:
Silicon Valley- Gamblers, place your bets: The near-term future of Advanced Micro Devices Inc. is at
stake.N
A little more than a month from now, AMD engineers will examine the latest batch of wafers containing
the company's flagship processor, the K6. If yields match expectations, analysts predict the company
will reach its target of 2 million units for the quarter, gain market share, and once again post healthy
profits.}
If not, AMD's best opportunity for growth in years could be lost, casting a long shadow over its
prospects.R
"From a company perspective, the K6 determines the company's fate," said Scott Randall, an analyst at
SoundView Financial Group, Stamford, Conn. "For the next year, AMD goes as the K6 goes."R
Near the end of the company's second quarter, AMD sent in a "task force" of engineers to improve the
yields of the K6. After twice revising its K6 production estimates downward for the third quarter, AMD
confirmed that 1 million K6 units had in fact been produced, down from a projected 1.5 million units,
analysts said.?
Although AMD maintains a sizable presence in networking, PLDs, and flash memory, the importance of
those businesses pales in comparison to the K6, most analysts said. Nonmicroprocessor businesses
accounted for $419 million in third-quarter sales, but growth rates were essentially flat, AMD reported.s
For the third quarter ended Sept. 28, AMD reported a net loss of $31.7 million on sales of $596.7 million,
down from a gain of $9.97 million on sales of $594.6 million in the previous quarter.d
Revenue from the K6 in the third quarter was $150 million, up about $50 million from the previous
quarter. The average K6 selling price was $150, down from $285 in the second quarter. Yield information
was not disclosed.S
"However, we thought revenue from the K6 would be higher," said Marv Burkett, chief financial officer of
AMD, Sunnyvale, Calif., in a conference call with analysts.e
The lower revenue was due in part to the fact that second-quarter sales of the highest-margin K6, at 233
MHz, were only 150,000 units, according to W.J. Sanders III, chairman and chief executive of AMD.T+
If AMD could have made 1.5 million units, the blended ASPs would likely have topped $200, said
Nathan Brookwood, microprocessor analyst at Dataquest Inc., San Jose. With the cost of wafers,
employees, and sales held constant, higher yields could have meant a $70 million profit.s
"{Yields} are pure profit that would have flowed easily to the bottom line," he said. "Instead of putting
money in the bank, they threw wafers in the trash."
Sanders declined to confirm whether the K6 will be designed into a $999 PC from Compaq Computer
Corp., as analyst Ashok Kumar of Southcoast Capital Corp., Austin, Texas, indicated in the conference
call.i
Previously, the company's focus was merely to win OEM support, Sanders said. "Now, our biggest
challenge is simply to make more parts."
To do that, AMD will have to refine its 0.35-micron process even as it ramps up its 0.25-micron process,
critical in manufacturing the K6 at higher clock rates and lower voltages for the higher-margin notebook
business.s
"Although we've left no stone unturned, 2 million units this quarter is a very tough number," Burkett said.
"We're going to have to do everything absolutely right."k
Despite the company's recent troubles, many analysts see no reason to doubt AMD's long-term ability to
capitalize on the K6.
"I have confidence that the task force can succeed," said Krishna Shankur, an analyst at Donaldson
Lufkin & Jenrette, San Francisco. "AMD is a good manufacturing company."
Shankur also pointed out that the mobile-PC market is growing at 20% to 25% compared with a 15%
growth rate on the desktop. That allows a $50 to $100 difference in pricing versus the same speed grade
on the desktop, he said.
Just as the K6 has become the most important element on AMD's bottom line, it has also become a
critical symbol of the company as an alternative microprocessor supplier.s
Any customer willing to go with AMD over Intel takes a certain amount of risk, Dataquest's Brookwood
said. With each successive negative announcement, that relationship becomes further strained.Y
"This really isn't an economic issue, but one of credibility," he said.c(
Copyright (c) 1997 CMP Media Inc.
(Copyright 1997 CMP Publications, Inc. All rights reserved.) |
