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

To: Jim McMannis who wrote (34535)	7/15/1998 2:41:00 AM
From: Paul Engel	Read Replies (1) \| Respond to of 1572036

Jim - Another Downgrade in AMD's Bond Status DCR Downgrades Advanced Micro Devices, Inc.; Removes Rating Watch - Down PR Newswire - July 14, 1998 17:02 Jump to first matched term CHICAGO, July 14 /PRNewswire/ -- Duff & Phelps Credit Rating Co. (DCR) has downgraded Advanced Micro Devices, Inc. (NYSE: AMD) senior secured notes to 'BB' (Double-B) from 'BBB-' (Triple-B-Minus), senior unsecured debt to 'B+' (Single-B-Plus) from 'BB' (Double-B) and convertible subordinated notes to 'B' (Single-B) from 'B+' (Single-B-Plus). Debt affected by this rating action totals $1.3 billion. With the ratings changes, DCR has removed AMD from Rating Watch--Down. The rating downgrade reflects a protracted decline in operating results, weaker semiconductor industry conditions, and the company's continuing investment in production facilities and operating expenses to capture a potentially sizable market opportunity with its K6 microprocessor. Although AMD's product positioning puts it possibly on the verge of turning the corner in its microprocessor business, revenues continue to fall short of expenses, and a deepening semiconductor industry slump and product transition issues have hurt the company's communications, programmable logic and memory chip businesses which still generated 58 percent of second-quarter revenues. After overcoming a series of hurdles, AMD finds itself with an attractive microprocessor product, a list of top-tier PC customers and capability to make enough units to satisfy increasing demand. The interest in sub-$1,000 PCs plays into AMD's strengths, and if it spreads from U.S. retail to other PC markets, could significantly expand AMD's prospects. The physical attributes of the K6 design (simpler packaging and smaller die size) appear to give enough cost advantage compared to Intel products to overcome the latter's scale and manufacturing efficiencies, allowing AMD to offer PC customers equivalent integer performance at a 25 percent lower price. However, AMD must continue to make substantial investments in plant and equipment, research and development, and sales and marketing to exploit its microprocessor advantage. It is adding equipment to bring its Austin wafer fabrication facility, Fab 25, to full production capacity and beginning to equip its new fab in Dresden, Germany. The Dresden project is aided by German government grants and loan guarantees but still increases AMD's fixed obligations. The company's R&D reached 26 percent of second-quarter revenues. Although R&D is inflated by developmental expenses for Dresden, the company must continue substantial investments to maintain its competitive design advantage. Similarly, AMD is increasing marketing expenses to take advantage of the coming back-to-school and Christmas prime PC sales seasons. Although these investments are nominally discretionary, scale is important to AMD's financial profile, and it must spend to achieve higher revenue levels. Financing the investments increases leverage and absorbs cash flow, reducing credit protection measures until the scale is achieved. DCR has reduced its AMD ratings to reflect current leverage, cash flow and debt coverage levels. DCR recognizes the possibility of substantial near-term improvement driven by AMD's microprocessor business, but weak semiconductor industry conditions and likely competitive reactions present difficult challenges, adding to the high uncertainty normal to AMD's business. SOURCE Duff & Phelps Credit Rating Co. /CONTACT: Martin Ressinger, CFA, 312-368-5470, or ressinger@dcrco.com, or George J. Podrasky, CFA, 312-368-3207, or podrasky@dcrco.com, both of DCR/ (DCR AMD) {======================} Paul

To: Jim McMannis who wrote (34535)	7/15/1998 11:41:00 AM
From: Foad	Respond to of 1572036

From SmartMoney Interactive: INTEL'S CHEAP CHIPS STRATEGY WILL Compaq's (CPQ) good fortune shine on Advanced Micro Devices (AMD)? The PC giant announced Monday that one of the few bright spots in its upcoming quarterly filing is its $899 home line of personal computers, a product for which AMD has been a supplier of microprocessors. Analysts expect Compaq to just break even this quarter, with a loss of more $5 billion after special charges for purchasing Digital Equipment last fall. But today's Wall Street Journal has the company stating that the $899 PC has been its most profitable personal computer for the consumer market, demonstrating that it may be possible to make money on really cheap computers. The model in question, a version of Compaq's Presario, uses AMD's K6 chip, according to a company spokesperson; Intel as yet has no chips built into the low-priced model. That's a business that caused AMD to lose 45 cents per share in the latest quarter, reported last week, as AMD cut prices almost to the bone to compete. It's fair then to say that much of Compaq's upside has come from AMD's pain. The question is, will Compaq's good fortune in the sub-$1,000 market shine on AMD? Don't count on it. Ashok Kumar with Piper Jaffray says the success of the $899 model will prove little comfort to AMD now that Intel has made clear it is willing to slash profits drastically to maintain processor share. Price cuts on Intel's low-end Celeron chip, and the upcoming release of its next budget processor, code-named Mendocino, are designed to allow Intel to compete across the board, giving original equipment manufacturers systems they can sell at $799, $999, and $1,199. Intel's product road map will continue to cause AMD trouble. The company plans to take Mendocino to speeds of 450 megahertz by about the first quarter of next year, says Kumar, while AMD's ability to produce 350 and 400Mhz chips by the end of this year is still an uncertainty. "It requires all kinds of process tweaks," says Kumar of AMD's challenge. "[AMD is] still struggling to put out a 333 megahertz [chip]." And Intel is changing the way Mendocino attaches to computer motherboards, abandoning its Slot 1 interface in favor of a different pin configuration, which could make it very difficult for AMD to sell parts at all. The long-term result of Compaq's success in the sub-$1,000 may be simply to emphasize how desperately Intel is willing to play loss leader in order to pummel AMD. Intel is expected to ship 21 million units of its microprocessors this quarter, vs. 18 million a year ago. The cost of increasing sales is extreme, however. The company today reported 66 cents in profits per share, down from 92 a year ago. Things have gotten so desperate at Intel that chip equipment research firm Infrastructure says the company has cut back on costly maintenance services it usually outsources to Applied Materials (AMAT) and other equipment makers, instead using its own in-house staff. Does AMD have any hope of survival if Intel has taken the attitude that "Only the homicidal survive?" AMD is losing money despite hitting its targets, but the losses are worth it, say some observers, if AMD can increase its speed grades over the next six months and win some deals for more expensive chips. "A lot of [AMD's sales] came from fire sales of trailing edge products," says Michael Slater, founder of Microdesign Resources. But now, says Slater, AMD must produce faster chips if it hopes to compete against an Intel that has suddenly been converted to the religion of the sub-$1,000 PC. -- By Tiernan Ray