AMD management fails to think big
Frankly, AMD's goal of achieving 30% market share by 2008 is lame.
It's not even self-consistent.
AMD is ramping up FAB36 to 17000wspm, it also needs Chartered FAB7, which means FAB30 is also running at full speed. With this kind of capacity, it should be able to supply 55% of the market, unless its yield is only 25%, or nobody wants the AMD64 CPUs.
Even INQ is doubting AMD's purpose of building another FAB. If you are only planning to get 30% of the market, then those new FABs are a waste. The world only needs about 250 million x86 CPUs and is not going to switch to 64 core, 3600 mm^2 die size ones in 2008.
For both 4Q05 and 1Q06, AMD reported shortages on packaging material. This is clear indication of management's failure to forecast demand. It's a chicken and egg situation, unless AMD tells customers that it can supply 1000 truck loads, customers will think AMD is too small to provide that.
Dell may be a screw driver company, but it at least has an ambition to be number one. Kevin Rollins can talk about $100 billion revenue and how Dell is going to rule the PC market all day long , even though Dell has only 17% market share today. That's forward thinking, that's vision. If Dell sets a goal of $100 billion, and it achieves $75, that's very good progress, nobody will complain. Even when Dell set a $100 billion goal but only achieved $60, people still like that positive attitude. Even Google is talking about $100 billion revenue. If you set a small goal and achieve it, nobody cares.
Imagine you are fighting a battle, and your general tells you that the top goal is only to defeat a small piece of your enemy and survival is more important.
AMD's tiny goal fails to inspire.
Also, AMD issued a guidance that was inconsistent with rest of the story. It stated that it's ramping production day and night, increasing ASP, lowering inventory, and market is strong, yet it guided flat to down for 2Q06 with an extra week. That doesn't compute.
posted by Sharikou, Ph. D. @ 4/13/2006 11:00:00 AM
11 Comments:
You blow as an analyst and a thinker Shariou. AMD is not at fault, you are! You should think "growth" rather than "explosion." You are thinking rabbit while Hector is thinking Turtle. The turtle ends up winning by slow and steady means. If you think intel can be taken down because of one fab, you are wrong sir, dead wrong. Your work blows. Thanks
I don't think it mattered how positive it was about its forward guidance yesterday. It was pre-ordained to fall today. That's the typical pattern of AMD after earnings call.
Look at Dell, it's stretched to its limits. Dell has less stock equity than AMD but possess a $60 billion market cap. Dell may become the next Enron, or it may indeed rule all PC markets. There is always risk there. AMD has spent 30 years battling Intel, now it finally has an advantage across the board, Intel is on the run. And AMD management says: let's slow down, let's be cautious, dangers ahead. That's not the story people want to hear. Life is short. Sanders is how old?
The guidance is lame. Basically, AMD is saying the quarter will be down 7%, since it has an extra week. This again makes people question the wisdom of AMD folks. If the quarter will be down, then why you are adding more capacity? And how you can keep inventory low?AMD simply fails to deliver a logically consistent story. Even I was confused. Not to say the folks who don't like AMD.
Sharikou, two things:
1. During the next year FAB30 will be out of order - it's 90nm production.
It means that AMD in 2007 is going to produce only Semprons there or maybe chipsets? They are NOT saying what they are going to do with FAB30.
So the total capacity is very positive this year. Only.
2. You are saying that AMD is ramping up 17,000wspm FAB36 - how did you calculate that?? Producing 17,000wspm in FAB36 + FAB30 30,000wspm means 50% of the market Q1 2006. Doubling the production means doubling the income and Q4 05 and Q1 06 are almost the same! The marings were higher - so the production demand was smaller or equal to Q4.
I think that FAB36 can achieve 5-7wspm. Another 10k will come in Q3 or later but in 65nm.
The only logical explenation is that AMD is going to produce chips for DELL and AM2 pile of CPUs is growing every week to supply one big OEM. Any other explanation is just nonsense, because AMD should double the income to 2.7bln Q1.
And they didn't...
Then AMD must be giving DELL 10 million CPUs for free, therefore no upside on revenue.
I think the AMD are trying to do everything within their control to be number one, but with a wary eye on Intel, This what you would expect considering the complexity and
volatility that industry has.
Corvettekid: Sharikou, maybe AMD is conservative because they KNOW better than us? Mabye they know INTC will fight back, that PC demand slows down in Q2/Q3, and that price pressure may accelerate?
Very good comment.
(todospara1 here)
I would appreciate if you comment on this opinion and bear with the questions.
We know that you preferred Dr. Ruiz to Mr. Sanders in the past, have you changed your opinion?
Sanders always kept AMD at the brink of collapse to try to maximize gains. He had the company with the fantastic Athlon, brought Mr. Meyer, chose Dr. Ruiz, etc. But the company during those 30 years never was a serious challenger to Intel. Why? because when you are doing a bernoulli test of gambling all you have on your current advantage, probability says that you will fail at least once. All it takes for bankruptcy is one misstep.
If, on the contrary, you play the turtle in the "turtle vs. rabbit" thing, in this situation, caution lead to definitive success, but a little later.
That's why *this* management has Intel against the ropes with barely one 200mm Fab really operative.
What are your fears? why can't it wait another year? do we need to gamble when the Grand Masters are a guarantee of increasing the performance lead?
Now, I join you in your excellent criticism on the failure to inspire of this management.
But thinking hard about it, I prefer good engineers leading this technology company, although they are morons at marketing; than marketroids that are morons at engineering.
Do you agree?
Who would be the technosapient marketroid that you would propose for AMD?
I liked Hector, because he filed the lawsuit against Intel.
What I don't like is the mismatch between AMD's stated goals and their resource planning. If AMD only aimed at 30%, it doesn't need four FABs.
I also don't like AMD's refusal of acknowledging a potential price war but nevertheless guided down on a longer quarter. The downward guidance is in direct conflict with their assertions on capacity, ASP, inventory and demand. You can't just say "yeah, everything is super, but to play safe, let's guide down". I think that's negative attitude.
Either you admit the potential issues and bring out counter measures, or you must guide up.
An inconsistent story can't convince anyone.
AMD will wait to "talk big" until the anti-trust lawsuits are done cooking.
Right now, the tireless cash-strapped, borrow a dollar today and pay you back Tuesday, green-is-the-new-blue collar 'doing our best', 'working hard for you every cycle' persona is the right role to play.
When some tasty morsels out of Intel's "crooked computing" corporate modus come into light... the hardworkin "we do more for your cycle" AMD boys will be looking good. And that's good for the green. Very good indeed.
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