AMD Promises a Better 2008; Market Skeptical

Microprocessor manufacturer Advanced Micro Devices (AMD) said Thursday at an analyst meeting that it will return to profitability in 2008 and promised not to repeat the errors of 2007. Investors, unimpressed by the lack of strategic detail in the presentation, sent the company's shares down 5% to a 52-week low in midday trading. They closed down 1.45% at $8.84. CEO Hector Ruiz conceded the company "blew it" by failing to stick to production schedules in 2007. Still, he described himself as "ticked off" by the battering AMD stock has taken. "How in the hell could anyone conclude that our company is worth 40% less than just a few weeks ago?" he asked.

AMD forecasts it will return to operating profitability in Q3 2008 and show positive operating income for full-year 2008, ahead of analyst expectations of an operating loss of $124.7 million in 2008. The company declined to estimate when it would post positive net income. It has lost $1.6 billion so far in 2007. AMD confirmed it is adopting a so-called "asset lite" strategy, which is believed to involve outsourcing more of its manufacturing to third parties -- a strategy that would cut costs but could result in inferior products. Ruiz refused to elaborate on it. "I don't think it's prudent, and I think it would be absolutely silly for us to talk about something that could potentially be harmful to our plan," he said. Third parties, or "foundries," who could benefit from asset lite include Taiwan Semiconductor Manufacturing (TSM), United Microelectronics (UMC), and Chartered Semiconductor Manufacturing (CHRT). AMD's main competitor is Intel (INTC), with whom it has been locked in debilitating price wars.

Sources: Press release, Wall Street Journal, Reuters, AP, MarketWatch, TheStreet.com
Additional Reading: AMD: The Deep Analyst Divide

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