AMD Management Has Serious Communication Problems

Kris Tuttle submits: Analysts stumbled over themselves to make punishing comments on AMD (AMD) post their analyst meeting.

We don’t normally take an interest in companies like AMD but you could cut through the analyst and investor frustration with a knife. Of course management didn’t paint a very encouraging picture. Imagine addressing the analyst community with the line "[we admit to a] lack of profits in all businesses, appallingly negative cash flow, poor distribution management and large market share declines." Yipes!

Part of the problem is that as hard as they tried, management demonstrated that they have a hard time understanding the investment community. The Chairman of the Board, Hector Ruiz, exclaimed that he doesn’t understand how the valuation of the company could be worth 40% less than it was just a short time ago. Well Hector, when you have a pile of debt and you are losing money in all your businesses, it can compress your equity valuation pretty fast!

Setting aside the angst for a moment, there is probably more potential in the name for 2008 than many might think. Historically, AMD was only an also-ran to Intel (INTC) which is how they are often looked at today, yet AMD has changed some things in the last 12 months that make the situation different.

For a little while they were ahead of Intel which helped shift their image a bit (and also took a chink out of the Intel brand). While Intel is now back in the driver's seat, AMD will lose share in servers and the core PC market. But AMD will maintain a steady if lower share nonetheless.

AMD may have overpaid for the ATI acquisition but it has given them a much better foothold and set of growth opportunities than they have ever had. While the Intel/AMD analysts panned AMD, there were a few who cover Nvidia (NVDA) and the graphics space who noted that due to a fresh product cycle and a number of design wins, AMD/ATI is poised to gain share in the graphics space during 2008 at the expense of Nvidia.

Beyond the two core markets there are some sideshow attractions in mobile and flat-panel TVs that may also help a little bit. If they can diversify their handset business to other manufacturers, it could be more than a little.

The key is still getting operations back in order and making the new plan work. Production has to ramp, promises have to be kept and numbers have to come in at or better than guidance, which is for break-even in Q2.

AMD will be CapEx constrained in 2008 and looking to turn some portion of their $600M in excess assets into cash which should provide some additional cushion for operations.

The last thing that is a little bothersome is the absurdly aggressive long-term targets the CFO put out there. The near-term 2008 plans are reasonable and call for excellent execution. Then the long-term plan jumps up to18% to 24% operating margins! What?! We’d say that 15% would be an admirable and almost miraculous result from here. How can management put these numbers out in this environment?

It only provides evidence that AMD management just doesn’t quite know how to talk with analysts, investors and the market. Taking it all in suggests that there probably is more value in the business than the current valuation accounts for. We don’t agree with the management plea that "the glass is half full" but if they can execute on the basics in the next few quarters there is more upside than if they were just the #2 CPU company in the market.

Comments

[greedywater...:]

If only the writer of this article cared enough about investors to warn them against what should be a Crisis day coming for Intel on their monopolistic activities.
But it seems to me they are on the side of big money, helping all they can to hurry the demise of a smaller competitor with their stream of vehement rantings. To increase even more the size of the monopolistic monster.
Why don't they notice that even our own gov. checks and balances have turned their head to the financial atrocities comitted by those in question, and this applies to more than one monopoly in these united states.
"But then again I guess thats the Republican way"

2007 Dec 16 03:55 PM

[greedywater...:]

f only the writer of this article cared enough about investors to warn them against what should be a Crisis day coming for Intel on their monopolistic activities.
But it seems to me they are on the side of big money, helping all they can to hurry the demise of a smaller competitor with their stream of vehement rantings. To increase even more the size of the monopolistic monster.
Why don't they notice that even our own gov. checks and balances have turned their head to the financial atrocities comited by those in question, and this applies to more than one monopoly in these united states.
"But then again I guess thats the Republican way"

2007 Dec 16 03:57 PM

[CPU watchtower:]

AMD management suffers from a credibility problem and a lack of detail in nearly all statements. When management says AMD’s 65 nm process is in excellent shape, they mean it works great up to 2.4 GHz and it has a low defect density. But how is 65 nm for 3.0 GHz chips and beyond? When Dirk Meyer says he knows how to fix the quad-core problem, is he referring to the TLB errata or the low clockspeed problem or the power dissipation problem at higher frequencies? AMD’s management makes ambiguous statements which are missing important details. Unless it is an obvious problem, they tend to hide the facts, and only later do you find out AMD has encountered limitations preventing it from producing higher-end products.

2007 Dec 21 11:11 PM