Friday, June 02, 2006

AMD: time for the kill

AMD's tech analyst meeting yesterday was huge. The most impressive one was AMD's rapidly expanding capacity and its quadcore roadmap with next gen core. AMD is planning to add another 5K wspm to FAB36 and convert FAB30 to 20K wspm at 300mm. The conversion of FAB30 is a brilliant move, as it cuts the time. The total 45000wspm capacity will be enough for 80% of the world's x86 processor consumption. Also, AMD stated that Chartered FAB7 will be a major supplier.

In the near term, by the end of July, with FAB36 ramping and Chartered FAB7 producing one million units, AMD should have enough capacity for 30% of the CPU market. This represents a 50% increase of AMD's capacity over 1Q06. What will AMD do with this extra capacity?

Sell them.

As I previously pointed out, Intel will be most vulnerable from 3Q06 to 4Q06, during the transition period from Netburst to Conroe. Right now, Intel is stuck with $7 billion worth of legacy chips ($3.5 billion inventory, 49% gross margin), those are Netburst based chips that are hot and slow. Moreover, Intel has squandered most of its cash. Intel is financially very weak. It can't continue to feed 103K employees and will start mass layoffs as I predicted last year. Intel is hoping to convert this huge pile of legacy Pentium 4 chips into cash to fund the production of its Conroe CPUs. Due to Intel's manufacturing inefficiency, it won't be able to switch to Conroe production quickly. Its projected units for Conroe is 35% in 1Q07. Intel must dump its legacy inventory, or it will have to write it off later. Intel's price for the Pentium D 945 3.4GHZ dual core CPU is expected to be $163.

If AMD can succeed in preventing Intel from clearing the legacy inventory at a good price (above $120), Intel will find itself unable to fund Conroe capacity expansion. To achieve this strategic goal, AMD should prepare to sacrifice margins on desktop CPUs. While maintaining prices on Opterons and Turion X2s, AMD should introduce a low priced dual core and single core processors to stop the Pentium and Celeron dumping. There should be a 2.2GHZ, dual core, 2x 256KB cache AMD64 chip, priced at $150. There should also be a 1.8GHZ, 128KB L2 Sempron at $50 to halt Intel's Celeron flood in the 3rd world. In 1Q06, AMD's ASP was about $95, with rapidly increasing capacity, AMD can lower the ASP while maintaining revenue growth for 3Q06 and 4Q06.

By the end of 4Q06, AMD will have 50% of FAB36 converted to 65nm and 65nm parts shipping in volume. AMD quad-cores should be out by then too. AMD can then start a trade-in program for Sempron AM2 users to upgrade to 65nm dual core chips.

Even with massive cuts on desktop CPUs, AMD can still profit nicely from Opteron, Turion 64 X2 and 4x4.

AMD MUST make 4x4 available for the general market by dropping the requirement for FX CPUs. Why not give this awesome 4x4 power to the non-gamers? Personally, I like to have a 4x4 equiped with two energy efficient AM2 X2 3800+ at 35 watts each. Others may just start with one CPU, reserving the right to add another one. AMD 4x4 gives AMD64 systems much longer life. In this sense, 4x4 for desktop is a disruptive technology. Those CPUs with 4x4 stickers can sell with a 20% premium.

AMD's added capacity comes online with almost perfect timing. As long as AMD can sell all of its capacity, Intel is bound to collapse due to is weak financials and huge overhead cost.

21 Comments:

Anonymous Anonymous said...

"AMD quad-cores should be out by then too"

Unless I'm looking something wrong I think your mistaken...

Quad-core release dates are showing middle of 2007...

HKEPC Hardware

I posted this earlier but got no response.

Isn't this the same quad-core your talking about?

2:35 PM, June 02, 2006  
Blogger Sharikou, Ph. D said...

HKEPC Hardware
Currently, AMD is at Rev F for desktop, Rev F Opteron will be out this month. There will be a Rev F quadcore. Rev G quadcore was demoed yesterday, AMD slides said Rev G is ready for production. The Rev H is two generations away--that was HKEPC was talking about.

2:38 PM, June 02, 2006  
Anonymous Anonymous said...

Lately I have been seeing more and more Intel Centrino desktops, laptops and fewer AMD machines at stores like Best Buy, Circuit City, Office Depot, .... Is this a cause of concern? Is Intel getting back the market share?

8:32 PM, June 02, 2006  
Anonymous Jeach! said...

"Lately I have been seeing more and more Intel Centrino desktops, laptops and fewer AMD machines at stores ..."

Being an AMD stockholder I can tell you that it is my concern too!

Intel is a psychotic company. The kind which would say "If I go down, your going down with me".

I'm afraid that by acting on the above statement, Intel will sell or give away their unsold Pentium inventory at close to nothing. They might not make any money, but it will result in one less sale for AMD in the desktop/mobile segment.

I doubt AMD would even compete with that and not even lower their prices. Instead they'd concentrate on the good money coming in from server sales.

The best counter attack to all of this would be just as Shakirou has stated:

AMD should introduce a [very] low priced dual core and single core processors to stop the Pentium and Celeron dumping.

8:45 AM, June 03, 2006  
Anonymous Anonymous said...

That's probably for several reasons:

- Mobile computing has been an area where Intel traditionally leads by a very large margin.

- AMD's current offerings are not very competitive with Intel's mobile offerings.

1:27 PM, June 03, 2006  
Anonymous Anonymous said...

Sharikou,

Leave your bias at the door and look with fresh eys on the AMD promises. AMD is promising virtualization and management capabilities which Intel is already shipping! AMD is promising that in 2007 they will take you to the past.. And you are cheering that!... Hmmmmm

2:25 PM, June 03, 2006  
Anonymous Anonymous said...

What happened to performance sharikou.. How many claims did AMD have in their presentation.. Again, no details.. Makes you wonder, doesn't it?

2:26 PM, June 03, 2006  
Anonymous Anonymous said...

Sharikou,

your empror has no clothes. Take is easy when he disropes.

2:28 PM, June 03, 2006  
Anonymous Anonymous said...

AMD slides said Rev G is ready for production.

this month?

4:09 PM, June 03, 2006  
Anonymous Anonymous said...

If you shop for a future proof product then the Turion x2 64 bit is your only choice in the notebook market.

10:00 PM, June 03, 2006  
Blogger PerennialRebel said...

Let me ask you something: What is AMD's aim? To destroy Intel?

I don't think AMD is in a war with Intel.

I think AMD's only aim is to do business, and do whatever that earns them money.

So, I think they will just concentrate on that, rather than trying to "kill" Intel.

11:41 AM, June 04, 2006  
Blogger Sharikou, Ph. D said...

I think AMD's only aim is to do business, and do whatever that earns them money.

Last year, I emailed Intel and AMD's CEOs. I called for peaceful co-existence between AMD and Intel. The proposal was for Intel to ramp down capacity to maintain revenue in expectation of AMD's capacity increase. I could see the disaster coming for Intel if it continued to over produce legacy P4 chips. Intel refused to listen. Now, Intel's total collapse is quite certain.

It is Intel wanting a war.

11:51 AM, June 04, 2006  
Anonymous Anonymous said...

How many total chips is AMD producing this quarter and next? Also, what is the percent share of that for Opteron and turion X2 chips?

10:05 AM, June 12, 2006  
Blogger Sharikou, Ph. D said...

AMD sold about 13 million CPUs in 1Q06, there was no output from FAB36. FAB36 started delivery at the very end of March. This FAB should have produced at least 2 million CPUs. It was reported that Chartered has started producing 1000wspm for AMD, that translates to 1 million dual cores per quarter.

10:38 AM, June 12, 2006  
Anonymous Anonymous said...

How do you calculate 1 million dual cores per quarter from 3000 wafer starts/quarter - 333 dual cores/wafer?

Are you assuming perfect yield? I'm not sure even with perfect yield you will get that many dual core die per wafer on 90nm technology. Could you comment on your calculations please?

10:26 PM, June 13, 2006  
Anonymous Anonymous said...

"If AMD can succeed in preventing Intel from clearing the legacy inventory at a good price (above $120), Intel will find itself unable to fund Conroe capacity expansion."

The 65nm technology (and fabs) to support Conroe capacity is already built out. It is only a matter of changing product mix from P4 to Conroe (changing mask sets in litho tools) The manufacturing process to make both of these chips is the same.

10:30 PM, June 13, 2006  
Anonymous Anonymous said...

AMD has to ammortize ~$850Mil of depreciation for Fab36 capital over the next 3 quarters (or a little under $300Mil/quarter additional expenses).

As AMD's operating income in Q1 was $259Mil, they will have to outperform the Q1 #'s just to avoid going back to losses. With a price was looming how will AMD be able to finance Fab30 Conversion if they return to losses?

10:37 PM, June 13, 2006  
Anonymous Anonymous said...

Well I got a catalog from HP the whole line are of AMD products there are no Intel sign at all!

3:46 AM, June 14, 2006  
Anonymous Anonymous said...

It's not war it's buissines.
in june06 there was bad rumors for intel. Analysts said "dump intel shares and run". But JP Morgan in august06 stated advanced technology shares are underestimated. All this game is a game of states and rumors. You expect great differences with quadra core release? I don't.I remember the great difference of intel 486SX/66Mhz vs 80286 systems before 15 years. I gave 2000$ before 15 years to buy it. wasted money. Now i got a 64bit processor which will be retired in the next year and has never work on 64 bits. if amd sold this year 10million CPUS with average pice 200$ and let assume 30% profit??!!, they got about 600mil $. But ATI shares cost them about 4billion! intels shares cap is about 110Billions while AMDs is about 12 Billions. There is no point for intel to kill or buy AMD.
By just raising of 6% of intels shares, they get the annual sales of AMD!? So where is the truely competition?
Both companies have their products policy wich not reflect their money demands. Thank you.

8:46 AM, August 31, 2006  
Blogger The_Physicist said...

Ok keep in mind AMD is in an extremely weak financial situation also. They just purchased ATI for 5.4 billion, and took out 2.5 billion in loans. If I'm not mistaken their Q3 profits were 134 million (source from AMD), if you simply multiply that by four, not so much a good measure, but it will give you a jist it is 536 million, thats a pretty big loan for how much they are making. If the 4X4 does fail or for some reason they have to cut prices then they are in a very deep hole. Come to think about it Intel is in prime postion to attack AMD. First if they put some creative input into NVIDIA or just stop supporting ATI then AMD will be even deeper. Face it it doesn't look good either way, and personally I think that having too much in inventory is a much better deal than being up to your ears in debt and putting all your faith in a company that you just purchased. If anything happens with ATI AMD can't support it with the meager 134 million that it makes in profit and still make payments on their loans. Not to mention that the loan pulled their debt higher than any other time it has been before, 2 billion in 2003, if you add it to the 2005 debt of 1.4 billion you have 3.9 billion. Thats almost equivalent to their annual revenue. Also considering that the C2D is faster it may just put them in a bad spot.

11:46 PM, November 13, 2006  
Blogger Shelby said...

And the result of the price war to date is....

Merrill Lynch comments on AMD (NYSE: AMD - News) after they a chance to sit down with the company's top management recently to see just how deep the hole is. ...

The market may still not appreciate just how much money AMD is likely to lose in Q1 and Q2 as it struggles to work off 90nm product inventory. They are revising their earnings estimate for 2007 down again, to a GAAP loss of $1.29, and they expect AMD to burn through about $900 million in cash by the end of June. The firm is Neutral - AMD's near-term problems are too great to support a more positive stance even at the stock's current level.

The bad news is that detailed analysis of AMD's cash situation indicates that the company likely can't get to the end of the September quarter without an equity financing in the $1 billion range. Investors need to remember that AMD's ability to offer additional debt may be constrained by the need to pay back the company's existing bridge loan.

HaHa....

9:14 PM, April 05, 2007  

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