AMD: Advanced Micro Devices Needs the Market Bartender to Cut them Off
Just a few short months ago it seemed that Advanced Micro Devices (AMD - Annual Report) was going to steal Intel’s (INTC) lunch money. Now that Intel has beaten up AMD with a price club and is eating it’s lunch, things are really getting ugly:
Advanced Micro Devices, embroiled in a brutal price war with Intel, will need to raise money within the next six months, according to Doug Freedman, an analyst with American Technology Research.
From taking market share to running out of cash in less than one year… amazing.
Perhaps not surprisingly, the industry mavens at Semiconductor Fabtech (whose customers really don’t want to believe semi capex will be cut) are more sanguine. Is a CapEx crunch at AMD brewing? - Semiconductor Fabtech:
I also noted Mike Splinter of Applied Materials, during a conference call yesterday, clearly state that he expects both AMD and Intel to meet current CapEx plans this year. This point shouldn’t be overlooked as Applied has spent a lot of time with both of these customers, checking on purchase requirements for this year.The vibes picked up over AMD’s spending plans indicate at the moment that orders for Fab 36 and Fab 38 are being placed, but also that AMD is getting very tough on prices and contract deals - even delayed payments!
That last point is a bit scary and adds to the cash problem rumours, but CapEx overall doesn’t seem to be affected….
If CapEx is cut, we would expect this to happen later in the year rather than now, and if AMD does go back to the market to raise more funds, then CapEx could be saved anyway.
Even before the price battle with Intel started and AMD forked out for ATI, it was going to be tough for AMD to fund this high level of CapEx this year. There seems little doubt that it’s tougher now but few real signs that CapEx will be cut.
Will somebody please stage an intervention?
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[…] We think investors are reading too much into this in the wake of the Linear-inspired giddiness. Linear actually had the cash to do half its buyback and tons of cash flow with which to finance the remainder. AMD, by contrast, is running out of cash - which is why it needs capital in the first place, public or private. Turning to the more mundane task of sifting through the mess that is AMD’s financial statements, inventories managed to grow 15% sequentially and have now nearly tripled on a year/year basis. They can cover 106 days worth of sales with what they now have on hand, but remember - the value of the inventory on hand declines almost daily. “Deferred income on shipments to distributors,” also known as “channel inventory,” would cover another 20 days. Forget “asset light” - AMD shouldn’t need to spend another dime on capacity for some time. […]
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