In this article, I will discuss Monday's rumor from Digitimes, that some of AMD's new products would be delayed by a few months, and any potential effect upon AMD's bottom line. I will also take the other side of the comments by Ashraff Eassa, in Tuesday's Seeking Alpha article.
Comment from management
I had the pleasure of speaking with Alina Ostrovsky, Senior Analyst, Investor Relations at AMD. Ms. Ostrovsky said that they do not comment on rumors, and that they would be shipping the chip in question in Q4 this year.
Details about Kabini
As discussed by AnanadTech in this article, about Kabini:
" In total there are five new Kabini APUs launching: one 25W part, three 15W parts, and one 9W offering."
Is it possible Digitimes' source did not realize that some of the Kabini versions will launch a few months after the others?
AMD gained low end notebook market share with new APUs in Q2
In the Seeking Alpha transcript of the AMD Q2 conference call, the CFO made this statement:
"Now switching to the business segments, Computing Solutions segment revenue was $841 million up 12% sequentially due to significantly higher notebook and higher server and desktop unit shipments primarily driven by demand for our new Kabini and Temash offerings as well as our latest Opteron 6300 series of products."
While the AMD CEO made this statement:
" Looking more closely at our progress and the PC market, our strategy to gain share by introducing a new set of APUs and winning high volume notebook designs across key customers by region, price point and form factor help drive strong double-digit sequential increases in mobile processor unit shipments.
With our mobility APU launches last quarter we now offer the broadest range of mobile processors in our AMD history. Our new elite mobility APUs scale down below 4 watts, well more than doubling the performance per watt compared to our previous generation. We're seeing strong adoption of these new APUs. This is particularly true of our high volume Kabini which is powering a number of thin and light touch notebooks that will hit the $400 price point."
AMD is already demonstrating great success with the Kabini, therefore the rumor of a few month delay in the desktop version appears to be irrelevant, and/or fallacious.
AMD is the APU Leader
AMD is already gaining low end market share with their new APU's such as Kabini, so I believe that Digitimes article was a fallacious hit piece, planted by short sellers.
The key to AMDs' resurgence is their market leading abilities to integrate the Central Processing Unit, or CPU, with the Graphic Processing Unit, or GPU, together into what they call an Accelerated Processing Unit, or APU.
Even though AMD is already taking market share from Intel , because of superior APU architecture, most people continue to have a backward looking analysis. One of those people is Ashraf Eassa, who wrote the following in his Seeking Alpha article: AMD s Chip Delay Explained :
"AMD is a speculative play, and quite frankly, I have trouble understanding why bulls believe that AMD will succeed while Intel will simultaneously fail. It should be painfully obvious to anybody following this space that when Intel succeeds, it eases off trying to eat AMD's lunch at the very low end of the PC space, and that when Intel is in trouble, it looks out for numero uno and leaves AMD and its shareholders to bleed."
Mr. Eassa fails to appreciate the major shift in demand from CPU power alone, to PCs/ laptops that are powered by APUs.
While Intel (INTC) continues to hold a manufacturing lead over everyone in the chip industry, their market share in the fastest growing mobile segment is a pathetic 1%.
If Intel's manufacturing prowess is so important, why have they been totally shut out of the mobile sector?
If Intel's manufacturing prowess is so important, why do AMD and Nvidia (NVDA) dominate the high end GPU sector?
There is no evidence that AMD investors should be concerned about the Digitimes' rumor concerning a delay in AMDs' future products.
To the contrary, AMD's lead in APU architecture will accelerate its competitive positioning. The gaming console wins from Sony (SNE) and Microsoft (MSFT), are good examples of AMD's ability to shut out the competition in low cost APU area.
The low gross margin of approximately 25% on the console business is not important. What matters is net margin and profits. AMD has only about $25 million a quarter of additional costs on the console business. Which means 80% of the gross margin will fall directly to the bottom line of AMD. That means the console business will produce net margins of about 20%. Since AMD has $ billions in tax loss carry forwards, the console business will produce higher net percentage profits than what Intel currently earns after tax.
Investors should focus on AMD's forecasted 22% growth in revenues for Q3, and the return to profitability. Investors should also focus on the free cash flow generation, as I outlined in my last Seeking Alpha article.