The Business of Tech: AMD Q4 2009by Ryan Smith on January 22, 2010 12:00 AM EST
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- Ryan's Ramblings
AMD’s often perilous financial situation usually bears watching, but this past quarter is of particular interest. On the business side we have seen AMD and Intel settle their long-standing feud over accusations of anti-competitive behavior by Intel, which had several big outcomes for AMD this past quarter. As part of the settlement terms Intel paid AMD a cool 1.25 billion USD, officially to make up for past transgressions – and unofficially as life support for a company that lost money for the last 13 quarters.
On the technology side we’ve seen AMD’s graphics division spend an entire quarter driving their own destiny. With Fermi/GF100 delayed well in to Q1 of this year, Q4 was all about the Radeon 5000 series – and it would have been an even better quarter if only it weren’t for that pesky TSMC 40nm supply problem. AMD’s CPU division didn’t have quite as rosy of a time, but Intel’s price gaps below $200 have left AMD with a viable value market.
So with that in mind, how did AMD fare for the quarter and for the year? It’s a mixed bag, particularly if you throw out the Intel settlement. Perhaps a table will best get at this.
AMD Q4'09 & 2009 Operating Income
|Q4 Actual||Q4 w/o Intel Settlement||2009 Actual||2009 w/o Intel Settlement|
AMD booked the final Intel settlement at $1,242 million, giving us the difference between AMD’s actual results for the quarter and year, and what it would have been without the Intel settlement. Officially AMD booked a profit even without the Intel settlement if you go by their non-GAAP (Generally Accepted Accounting Principles) numbers, but we’re sticking with the GAAP numbers here and just yanking out the Intel settlement.
To put things in perspective, last year AMD lost $1.4 billion just on Q4’08, and $3.1B for all of 2008, so this is a massive turnaround for the company. At this point both of their core divisions are turning a small profit, and the company’s reduced exposure to the foundry business has greatly improved their bottom line. AMD took a loss of $99M in Q4 from their share of Global Foundries – so if they were able to drop the foundry business entirely, they would have likely turned a true GAAP profit. Although AMD has several problems, at the moment it’s the foundry business that continues to be doing the most harm to them.
On a broader market outlook, AMD was expected to lose some 18 cents a share this quarter (not factoring in the Intel settlement), whereas they actually only lost 8 cents a share, so the company beat the street in losing less than half as much as was expected. Certainly that’s good news for AMD, whose long streak of losing quarters has made it an unpopular item.
One thing of interest from AMD’s results was the average selling prices and gross margins. AMD doesn’t give us the exact ASP of their products, but they do compare it to previous quarters and years.
|AMD Q4'09 & 2009 ASP|
|Q4 vs Q3 ASP||Q4'09 vs Q4'08 ASP||2009 ASP||Q4 Gross Margin|
In spite of AMD’s overall better financial position, the ASPs in both the processor and graphics division has fallen both on a quarterly and yearly basis. This isn’t particularly surprising for the processor division with Nehalem regulating AMD to the sub-$200 market, but it is more surprising on the graphics side where AMD had not been able to sell a single-GPU video card for over $300 for years until now. It just goes to show you that the bulk of products really are sold at the low-end, where prices on older 4000-series products continue to slowly drop. Graphics revenue is a similar story: Up slightly on the year, but up significantly for the quarter compared both to last year and to Q3 of this year.
What is surprising is that considering AMD’s financial situation, their processor gross margin is pretty good. At 45% they’re no Intel (64.7%) but it’s the kind of margin the company needs to pay for things like R&D, particularly since they don’t move massive volumes of chips like Intel does.
Wrapping things up, the big thing for the company in 2010 is going to be that they’re finally going to escape the black hole that has been Global Foundries. ATIC – whose long-term plan has always been to completely buy-out GF from AMD – is expected to go through with that transaction soon now that Intel is no longer going to block the sale through the use of the x86 license. Since GF has been a losing proposition for AMD, in the short-term they stand to finally stop losing money on it, meaning they stand a good chance of turning at least a small profit overall since both processors and graphics are profit-generating. Of course it remains to be seen whether this is a great long-term strategy, but you can’t argue with the short-term effects on the balance sheet.
On the tech side, this quarter will see the launch of the rest of the Radeon 5000 series (Evergreen) chi p stack. 55nm products will continue to sell for quite some time, but it should be good for the ASP of the graphics division. Fuzion (CPU+GPU) products are still on-schedule for a launch late this year, so the CPU side of things should see a decent shakeup even though Bulldozer won’t make it this year. AMD mentioned that the first Fuzion products will be SOI-based, so it sounds like they’ll be making them at GF, with later products fabbed at additional foundries.
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Morbid666 - Sunday, February 21, 2010 - linkThe Future is Fusion
MJinZ - Saturday, January 23, 2010 - link"Nehalem regulating AMD to the sub-$200 market"..
I think you meant to use "relegate".
nilepez - Monday, January 25, 2010 - linkYou beat me by 2 days....too bad they don't read the comments. Most tech sites really need editors that catch this type of error, as well spelling and grammatical errors. I'd also welcome an end to the passive voice.
Sahrin - Friday, January 22, 2010 - linkWhile I haven't read the text of the settlement, I know that it doesn't include any admission of guilt on the part of Intel - making this sentence pretty misleading. I agree with it in principal, but using the word "official" lends the authors' opinion undue authority.
blowfish - Friday, January 22, 2010 - linkare you a lawyer or something?
One thing that really gets my goat is when people, say Ken Lay, for example, come up for trial, they have a lawyer who says to the TV cameras something to the effect "my client is innocent, and this will be proved in the forthcoming trial". Of course, the trial goes badly for Ken Lay, he's found guilty, and banged up to rights. At least he then did the decent thing and topped himself, so there is some justice. But the effing scumbag lawyer never comes back to the TV people to say "oh I'm sorry, I was wrong, my client was guilty all along, I'm sorry I tried to mislead you".
Well so it is with Intel. They are a dirty company, they used (and probably continue to use)dirty tricks to further their agenda, and just because they were able to settle without admitting liability doesn't mean they were innocent. I'm sure you know it yourself, why would an innocent party cough up $1.2B? It certainly wasn't because AMD had more money to spend on legal representation. At least the Justice Department might not have finished with Intel yet.
Sahrin - Saturday, January 23, 2010 - linkNot a lawyer, just someone with a healthy respect for the truth. The job of a journalist is not to report what the facts should be, it's what the facts are. It's fine to say, "guilty in everything but name" or "got off like OJ" or whatever. It's not OK to imply something is true that isn't - specifically, that Intel has officially admitted culpability.
Why is it important, you ask?
As you so rightly pointed, out, Intel hasn't had to say they were stealing yet - and while it may be a line in the sand for some, I believe it's very important for them to have to face their actions. By sticking our heads in the sand and ignoring their mistakes, we are allowing them to avoid confronting them.
Your animosity towards lawyers is grossly misplaced. A lawyer is REQUIRED to represent his client as the client sees fit - that's why attorney-client privledge exists. When a lawyer stands up to say, "my client is innocent" - he's operating a legal strategy that's in the best interest of his client. To not do so would be even more dishonorable. I think everyone would agree society would be a pretty terrible place if lawyers were allowed to ignore their responsibility to their clients if they thought their client was guilty.
And finally, it's the FTC that's investigating Intel at the moment, not Justice. Details matter, if only because if makes you sound like you don't know what you're talking about to those who do. (I DO NOT claim to be someone who does).
drunkenmaster - Friday, January 22, 2010 - linkGlobal foundries being fully bought out isn't actually fantastic for AMD's stock/long term value, but not bad either. Their losses are short term, they are spending HUGE right now to get up and running, when they are, frankly, they'll be a massive player, with higher quality than realistically any other foundry group out there. These are good things for AMD and their stock price, short term $100mil losses are nothing in a game this big, and the future stock sharing of profits for AMD specific shares would be far more beneficial than the short term losses. In the real world of owners though, the same guys who own AMD also part own Global, just under a separate name, so the split of the companies doesn't make a jot of difference to them, their pockets get filled when the companies do well, their cheque's just have a different name on them.
But the difference between last year and this year in losses, is also manufacturing. Foundry costs dwarf chip R&D costs, production R&D is far more intensive than chip design R&D. Look at the New York State fab, its costing about $7billion to build, only $1.5-2bil is construction the rest is equipment. Actually I guess I stated it wrongly, the R&D isn't more expensive(well it probably is) but the massive cost difference is the equipment, outfitting the $2billion building will cost them in the region of 4-5billion, of which every new process will require a new 2-3billion of equipment, which means every single 2 years you're chucking out 3-4billion on new equipment.
This is the difference between AMD of the past, whose profits are killed by spending 3-4billion every 18-24 months, and AMD of now/future, where Global Foundries takes all that cost over, and AMD also drop all the process R&D which is very costly, and they only have costs of their chips now. Meaning once they start selling chips, everything is pure profit for them, that money isn't being saved up to sink into buying new equipment. When you realise AMD has been spending the same on process R&D as intel for decades, and has been paying more for equipment per fab than Intel, that being only a few billion in debt, when they've been spending that every 2 years on new equipment is actually very well done.
The reason this works and Global Foundries can make a profit, is instead of spreading the R&D and equipment costs against a single company making a single chip stuck at 20% market share, they can now make chips for more people in more fabs, the same R&D and equipment will be used for longer, on more products, on far more chips. Intel has a better margin because its always been able to spread its costs over 4 times the amount of chips AMD sells. Now AMD/Global combo can do the same, or even dare say it, better.
Anyway, from this point on that sucking unavoidable spending of 3-4billion simply won't happen anymore. AMD will continue to have profitable quarters from now on, and with Global footing the bill for process's, and spending big to get them out on time we have several huge benefits for AMD.
If AMD can get a killer architecture again Global can afford to push into Intel's market share, at AMD's best they were stuck at 20-22% market share because, quite simply their fabs could not produce more chips, and you can't sell more than you make. if they had 50% more fab capacity, they could have pushed to 30% market share quite easily at that point. Global opens this possibility in the future. LIkewise Global is now fighting for business and has the cash to get new processes going fast and on time without delaying new processes till they can afford the equipment, this means within 1-2 process nodes, Intel will never be noticeably ahead on process technology anymore.
In other words, the future is very bright for AMD, and Intel finally has a competitor that has the financial/production capacity to hurt it if it gets behind on technology again.
Will Global ever hurt AMD and not give them preferential treatment? No because while AMD might not own any of Global soon, Global(and their owners and several Abu Dhabi investment groups) own a good 15-20% of AMD already, with a commitment to buy whats set to be over a billions worth of more shares in a year or two, so they'll move up to anything up to owning 30% of AMD. Global and AMD are a single company in everything other than name, in so much as they both heavily rely on each other, and Global will always favour AMD and do whatever it can and offer them fantastic pricing.
BSMonitor - Friday, January 22, 2010 - linkI totally agree! Missed your post by 2 minutes, I am above!
BernardP - Friday, January 22, 2010 - linkThis seems as good a place as another to post my Special Request to AMD:
Please give us an Athlon II X4 640 BE - 3 GHz, unlocked multiplier, 95W TDP, no heatsink.
Thanks in advance :-)
ambientmf - Friday, January 22, 2010 - linkIt's nice to see AMD finally getting out of their financial hole. They basically have no competition from Nvidia on the GPU front and their Phenom II quad's are a much better value than Intel's Lynnfield/Bloomfield chips.
Especially after the disaster of Phenom I...