Over the past year, AMD has seen some pretty big ups in its business. The Sunnyvale, CA-based company signed a deal with long-time holdout Dell Computer to provide processors for notebooks, desktops and servers. In July, AMD announced that it was acquiring graphics chip and motherboard chipset maker ATI Technologies. Many industry analysts opinioned that with processors, chipsets and graphics under its belt, AMD would have a better chance of going up against chip giant Intel Corp.
Bolstered by the strength of the K8 architecture, AMD has been able to rise from 15.9% of the overall PC market in Q3 2004 to 23.3% in Q3 2006. In Q3 2006, AMD’s marketshare in the server, desktop and notebook sectors rose to 24.4%, 26.5% and 18.3% respectively.
But for all the good things that happened to AMD over the past year, Q4 was a particularly rough patch for the company. For all of the marketshare that AMD has been able to gain from Intel over the past few years, AMD’s quarter earnings quote that “significantly lower” average selling prices chipped away at earnings.
AMD is expecting for its Q4 2006 revenue to come in at $1.37 billion USD (excluding ATI operations), an increase of 3% from Q3 2006. Analysts were expecting earnings of 22 cents per share on $1.85 billion USD in sales from the company. After including the acquisition costs of ATI, the company is expected to post a loss of $0.91 per share.
While the pricing war hasn’t been very beneficial to AMD’s bottom line, AMD’s progress when it comes to new manufacturing process technology has also been a hindrance. AMD has been slow to move to 65nm designs, while Intel has been humming along with 65nm processors for a year. And just as AMD is getting its feet wet with 65nm processors, Intel has already begun sampling 45nm Penryn processors and is expected to bring production 45nm processors to market in the second half of 2007.
Intel’s Core-based processors have also taken away much if not all of the performance advantage that AMD processors once held and have been making the rounds in the notebook, desktop and server segments. “I think it came from Intel having very successfully come up with new processors and ramping production up much more quickly than anyone expected,” said JoAnne Feeney, managing director with FTN Midwest Securities.
In fact, Intel has already introduced quad-core desktop and server processors – AMD’s only response has been its Quad FX platform which pairs two dual-core processors onto a single motherboard.
The key for AMD is to get new products out to businesses and consumers to battle this drought. “Unfortunately, a lot of things don’t change for AMD until they get new products, just like how things didn’t change for Intel until they had new products,” Cody Acree, an analyst for Stifel Nicolaus. AMD does have a few tricks up its sleeve including native quad-core processor designs for the server market in mid-2007 and new notebook processors. But for the immediate future, AMD may simply have to rely on Windows Vista for a surge in its chip business.
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