Friday, May 9, 2008

AMD: Financial Performance Should Not Depend on Products Performance

Despite of expectations, Advanced Micro Devices did not unveil any details regarding its “asset-smart” strategy or any concrete decisions that influence the future of the company at its annual meeting with shareholders. What the company indicated was that it wants to be profitable with current revenue level and that it plans to focus strictly on core businesses.

“The year 2007 was difficult transition year for AMD. I could not be more disappointed with our financial results. […]We will return to profitability. We are committed for sustainable profitability,” said Hector Ruiz, chairman of the board and chief executive officer at AMD.

Mr. Ruiz stressed that the management is currently re-organizing the company “so that to be profitable at our current revenue stream”. The issue that AMD ran into in the last two years was that its microprocessors and graphics processors cannot demonstrate performance as high as that of competing solutions, which eroded the company’s profit margins and forced to focus on lowering prices. But even with inexpensive products the company should be profitable, said the chief executive.

“While the short-term goal is to achieve operational profitability in the second half of this year, our long-term goal is to achieve consistent profitability in good times and bad times. We are re-architecting the business so that our financial success is not invariably dependent on continuous component performance leadership over our rich and dominant competitor,” said the head of AMD.

Unfortunately, nothing new was said about AMD’s “asset smart” strategy.

“We are progressing with our ‘asset-smart’ strategy [under which] we will deploy our manufacturing assets [in the most] cost-effective [way], but stay on the leading edge and deliver customer value,” said Mr. Ruiz and promised to reveal more details regarding “asset smart” in future.

According to CEO of AMD, the company plans to get rid of certain non-core businesses in case they do not bring profits. Regrettably, no businesses were named.

“We plan to make fewer things better. We are constantly scrutinizing our non-core businesses and revisiting their strategic fit in the company,” said Mr. Ruiz, adding that the company would exit businesses that do not bring profits to AMD, but stressed that central processing units and graphics processing units are the businesses that are the most important for the company.

Right after AMD acquired ATI Technologies, market share of the latter began to shrink and achieved its lowest point in many years – 18.3% – in Q4 2007. But Mr. Ruiz said that the future looks bright for next-generation ATI Radeon graphics chips and ATI will regain its positions on the market.

“The next-generation ATI Radeon graphics looks impressive. We believe in our potential for market share gain this quarter and beyond,” promised the chief executive of AMD.

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