Thursday, December 13, 2007

Analysts Day

Today AMD will be holding its annual Financial Analysts Meeting. To put the meeting into perspective, I wanted to write several things about what AMD's management has been forecasting and what has been happening. I can understand the optimism of AMD a year ago, after all the period of great successes had barely finished. You can check the review of 2006 in Bob Rivet's presentation to get the feeling. The problem is that they applied the model of great successes for a period on which it didn't apply. As I explained in "important about K10", AMD is in "full lying" mode, it can not say the truth because it is just too horrible, then, it is important for tomorrow to be able to detect lies. To help in that regard, below I will summarize other statements from the company.

Fortunately, Roborat64 already summarized the last meeting for us, he wrote an article about this subject [ formatting changed ]:

[H]ere is what AMD projected for 2007:
  • K10 quad-core ramp: 2H’07; actual result: pushed out possible mid Q1'08
  • Barcelona performance: 40% better; actual result: ~40% worse (non-compliant SPEC benchmarks)
  • CAPEX: $2.5B; actual result: 2007 estimate will be at $1.7B (Fab38 delayed)
  • Revenue (long term target): ~$7.6B; actual result: $6.02B (average analyst estimates)
  • Gross Margins: 50+/-2%; actual result: 35% (last 3 qtrs)
  • 2007 growth: 10% above industry (16%); actual result: -455% [ sic ]
I wish to mention a few things more:

In Mr. Seyer's presentation, slide 16/52, the quadcore was projected to have 40% superior performance, accelerated virtualization, and 60% improved power efficiency. Well, the kind of workloads that the TLB bug affect more are related to virtualization, it can be as much as 50% slower. Regarding the power efficiency, Jason Mick @ Daily Tech wrote a blog demonstrating the lies about K10 power consumption [ thanks to the Intel vs AMD blog for the link ]:
To put [the datum that K10 consumes 137 Watts] in perspective, a 3.16 GHz Xeon X5460 from Intel squeaks in at a still weighty 120 W. While AMD failed to disclose in the white paper on what frequencies its selected processors operate, it is almost surely 3.0 GHz or lower, as 3.0 GHz is the highest speed K10 processor currently demonstrated. The best case scenario is that a 166 MHz slower AMD processor consumes 17 more watts [my emphasis]
[...]
However, if the samples tested were lower than 3.0 GHz, obviously the picture becomes far worse. And since AMD's 2008 roadmap states that its 2.4 GHz processors are rated at 125 Watts TDP, this is almost certainly the case. Architecture and design advantages aside, K10 is a chip that is almost a gigahertz slower but with a significantly higher power consumption rating.
So much for the often repeated superior power efficiency of the "native" quadcore...

We can not forget that last year the company was speaking of fabulous forecasts in December 14, and less than a month afterward, they had to report a miss warning because the fourth quarter was much worse than anticipated.

In Q4 2006 CC (transcript), Mr Meyer's presentation said things like "We need to improve our financial performance relative to what we delivered in Q4. We will do so by delivering improved products, lowering our manufacturing costs, increasing our operating efficiencies across all disciplines, and continuing to grow share". Interestingly enough, things like the employee count hasn't gone down, which means that perhaps there weren't synergies between AMD and ATI, at least from the Human Resources perspective. So much for all Mr. Meyer said. Dr. Ruiz "I am incredibly optimistic and excited by the future of this company, more than I have been in the seven years that I have been with this company": Very well, let me know the next time you feel optimistic, I will gamble against your optimism. Mr. Rivet reiterated the Analysts day guidance, when it already was very clear that the guidance was pure fiction. Also, Mr. Meyer felt "very bullish" that as soon as the "native quadcore" was introduced, it would recapture the performance lead...
I wrote "Catastrophe" regarding the tragic comedy of Q1 2007 CC (transcript), so, I will not reiterate it here.

Then, it is Q2 (transcript). Meyer: "Our Fab 36 conversion to 65-nanometers is complete, with yields exceeding expectations and we now turn all our attention to 45-nanometer" [!!], "We are on a path to bring our gross margins and operating expenses back into a reasonable balance and improve our cash flow". Then, in the Q&A: Meyer: "First of all, we’re very happy with our 65-nanometer yields across all products, including Barcelona, so no issue there. The fact of the matter, Barcelona, while being an absolutely great product, is complicated and it’s taking a little bit more design work than we anticipated getting the final rim in place", Dr. Ruiz: "as Dirk mentioned, on 65-nanometer have been phenomenal, been outstanding". Rivet: "We would really like Q4 to be break-even, or to be specific, not just the month of December but definitely Q4". Then, there is an all-time greatest pieces of bullshit by Henri Richard that I hope someday to write an entire article about:
I don’t know of any IT manager that ever asked what was the nanometer in this processor and I don’t know of any student walking into a store and really wondering what the die size of a processor, let alone in some cases what’s the frequency? What they do is they look at more and more what is this machine going to do for me? How does this look? Is it a fashion statement? Is it responding to my needs?
In Q3 (transcript): Chris Danely, JP Morgan asks: "When do you guys expect to start shipping either at 2.4GHz or 2.5GHz Barcelona?" Meyer: "The plans that we have haven't changed from what we talked about around the timeframe of the Barcelona launch, which is to ship the 2.5GHz product in the middle of this quarter", answering to another question: "Based on the input we're getting from our customers and end users, there is a lot of demand for Barcelona, I tell you. We're just seeing people licking their chops and ready to get their hands on the product".

I am saving the bullshit of "asset light" for the end: Asset Light is empty talk because very probably AMD is forced by contractual obligations to manufacture in Dresden, otherwise the government wouldn't have pitched in. The x86 license caps the number of processors that can be outsourced. If AMD cuts its production scale, then it will suffer worsened economies of scale. AMD's inviability stems from being forced to sell a quantity of products to remain in a given scale, but since the products are mediocre, the only way the market can absorb the quantity is through very steep discounts that induce severe losses.

Since ATI imploded inside AMD, sooner than later the company had to adjust the "Goodwill". Currently, AMD's net tangible assets are negative, that in a way means that the company is worthless. This subject will be covered soon, but since we have the analysts day, I wanted to advise to interpret the statements of today in terms of viability of the company. Today most investors and analysts are not really thinking on an eventual bankruptcy, but as I have been explaining, the crisis may be more severe than what it seems at first sight, so, the question of viability will arise later and today is the day to be preparing for that. I am very surprised of AMD's recent stock price crash, because in reality there are no news, all the latest stuff of the K10 bug, delays, slowness, lacklustre performance, etc., are mere confirmations of things that were very plausible possibilities. Think about what may happen if today you do your due diligence and determine that AMD is inviable, and then, in 9 months time the market begins to seriously question AMD's viability? You would make a bundle!

6 comments:

Khorgano said...

Think about what may happen if today you do your due diligence and determine that AMD is inviable, and then, in 9 months time the market begins to seriously question AMD's viability? You would make a bundle!

So I take it you are loading up on AMD Put LEAPs?

Overall, good article, I'm also beginning to question AMD's viability, but I'll keep my judement until we hear the extent of the ATI Impairment as well as Q4 resulsts. If they look really bad, I can see them having a very hard time receiving hand-outs when their cash runs dry.

Eddie said...

<<
hink about what may happen if today you do your due diligence and determine that AMD is inviable, and then, in 9 months time the market begins to seriously question AMD's viability? You would make a bundle!

So I take it you are loading up on AMD Put LEAPs?
>>

Negative, Khorgano. That would be a cause and effect correlation too easy. I am scared of Wall Street, they can manipulate any stock price whichever way they want. Didn't you see how AMD's stock price hovered above $13 and at times climbed to $15 during this year when it was becoming increasingly clear that the company is in a severe crisis on all fronts?

I honestly think the next manipulation phase is "up" for AMD, but it gets much worse: It is clear that the AMD financial numbers are beyond its control, they depend on 1) Intel's mercy: If Intel decides to raise prices, Intel will make a fortune and the crumbs may keep AMD relatively healthy. If Intel decides to go for the kill, they will succeed. And 2) AMD will have to go cap in hand to Wall Street to ask for some more money, thus Wall Street will have all sorts of privileged information and chances to manipulate the price even easier.

I think that the way to play is indirectly, to consider the implications on companies like nVidia, Intel, Sun, Cray, etc.

I am reducing my total AMD (bearish-biased) positions, and I am moderating the bearish bias, not because I have lost any bit of conviction, just because the stock price will depend less on the things I can evaluate; still, it is an opportunity to indirectly play. There is something clear to me: There will be plentiful cheap processors in 2008

Anonymous said...

Until recently, I had no question in my mind that AMD would be viable in the long haul; however, the recent spate of news, the complete denial of upper management to understand the extact predicament they find themselves, and an out look of sufficient insufficient products for 2008 and I to am beginning to question AMD's viability.

There are a few things AMD did very well in their best days ...
1. They had a top performing part.
2. Once they finished their manufacturing struggle, they were able to deliver to large OEM customers.

As a result, they shook the enigma of being a poorly performing, second source supplier to Intel and gained credibility of being a top notch supplier.

Within a year and half, they wasted away what took them a decade to accomplish ... credibility.

Each slip in the schedule, each time they push a 'Lucas Film Theatre' launch to be followed by store shelves gathering dust, and each time the show a power point promising a bright future and next quarter fail to produce... they solidify themselves back to the position of the early 90's.

The difference is ... the stakes are higher, they have committed themselves to growing big but have failed to generate the cashflow to accomplish the task. The mountain of debt, the lack of credibility, and most importantly, the lack of a strong product and long term roadmap may just do them in....

Profitability in 2008??? No way.

Eddie said...

Thanks for your comment, one of the best I've received. It is a shame that you didn't put a name (again, there is no need to sign-in, just to overwrite anonymous).

"Until recently, I had no question in my mind that AMD would be viable in the long haul; however, the recent spate of news, the complete denial of upper management to understand the extact predicament they find themselves, and an out look of sufficient insufficient products for 2008 and I to am beginning to question AMD's viability."

I anticipated this crisis in July 2006 without knowing the company decided to acquire ATI, I knew that without consumer coprocessors the advantages of K8 will vanish, Core would take over and an AMD operating only in the low, mid-low segments is not viable. The ATI acquisition complicated things for me 'cos I didn't understand its implications, but then, it was very easy to get to a strong conclusion, they overpaid for a company they will not have the chance to find synergies thus the process of annihilation was sped up to warp speed, so fast, that the company may even get a break (see my comment up).

I like of your comment that you mention the attitude of management of not fully acknowledging the problems. That is precisely the orientation of the article, let's see what Management has been saying when this process was unfolding. I saw that arrogant attitude of denial in July 2006. The problem is that these guys are believing their own bullshit, otherwise they wouldn't have made terrible mistakes such as opening the Dell business at a terrible cost in Channel business and alienation of other partners, this was a mistake because the market share expansion was going to be so expensive to maintain that it was crazy to over extend. That way they blew the best quarter of 2006, Q4, and Q1 2007 too.

This brings me to the other thing you mention: Now the stakes are higher, meaning that this is not a company that you can save with a few million dollars and a good product; AMD may probably be still gaining market share due to the sheer momentum it created two years ago, but now, not even with truly good products the company will revert the tendencies put in motion by a year and a half of exemplary behavior on the part of Intel.

Today, AMD is not viable. But it can go back to its subsistence as an irrelevant player and Intel may dedicate to abusive profits again.

Paradoxically, it was the very same people who took AMD to great heights the people who destroyed its credibility...

ConcernedInvestor said...

What does this mean wrt even getting the Barcelona products ramped on 65nm?

http://www.x86watch.com/news/amd-barcelona-analyst-meeting-188.html

We should know more about Intel's Nehalem intentions.

Things not looking good for AMD.

Eddie said...

Hello, concernedinvestor

Following your link, it seems Mario Rivas couldn't even say when is Barcelona going to have the speed it was promised for its introduction, which was 2.6 GHz, and then revised successively down to what it is today, 2.0 GHz. Not surprising at all. They couldn't do it with Phenom, that has less stringent quality control issues, so, don't be counting on them having right now the technical capacity to do K10 Opteron at 2.5 or 2.6 GHz.

The other part, of the launching of Swift rather than the ever further into the horizon Fusion/Bulldozer just means a tiny bit of confirmation of what we've known all along: ATI and AMD didn't mix, they are like water and oil, probably they are still figuring out how to use ATI's silicon libraries to produce a SOI graphics chip or how to encapsulate an MCM with bulk silicon and soi chips.

I was reading HardOCP when I noticed your post