AMD: Surviving Contact with the Plan
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Advanced Micro Designs (NYSE: AMD) is in a serious pickle. They have a long-term strategy and it is always better to have a clear goal than no goal. For example, it is hard to tell at this point what the plan is for Hewlett-Packard (NYSE: HPQ) except to trim fat and stop the in-fighting. For AMD they know what they want to do, what products they feel will be well-positioned in the markets they want to carve out their niche in. The question for them at this point is purely execution and rebuilding relationships with their channel partners to improve their design win rate.
It’s a badly kept secret that AMD’s main competitor, Intel (NASDAQ: INTC), exerts heavy pressure on OEMs to limit the choices available to consumers that use AMD processors. At the same time AMD has been its own worst enemy making it very easy for OEMs to give Intel whatever they wanted. The rollout of the Llano APUs was gone over at length in the latest earnings call with CEO Rory Read having to explain how the mismatch between motherboard manufacturers and AMD's supply of APUs resulted in lower sales and uncomfortable inventory rises.
Once that mismatch was worked through and the channel issues mitigated the entire industry ground to a halt in the latter portion of the quarter, hence driving down top line revenue. Guidance for Q3 was lowered on solid unit sales but potentially lower ASPs for Llano and Brazos 2 APUs to alleviate inventory overhang.
That said, however, AMD was still operationally profitable, has enough cash on hand to meet its near-term debt obligations in August and is seeing enough design wins with the Trinity APUs to match their production levels.
I said at the beginning that AMD has a plan and having a plan beats not having one. The strategy for AMD has been to position themselves as the bringers of usable value. Their value proposition is in providing computers that are useful, not necessarily powerful, and as we move more of our computing into the cloud and those tasks are moved off onto the GPU, the merger into one unit will be a huge design advantage.
AMD knows that the individual computing device is becoming cheaper in price. The tablet is proof of that. But they are also convinced that x86 processors have a 2-3 year window of performance advantage over those based on ARM’s (NASDAQ: ARMH) designs when all aspects of device design are factored in: speed, floating point calculations, 3-d rendering, power consumption, security, etc.
Intel is the undisputed speed king. AMD is the undisputed integrated graphics king while ARM is the power usage king. All three designers are attacking the problem from their area of expertise and all have their plusses and minuses. For AMD the goal is to rebuild the nuts and bolts of their business using Llano, Brazos and Trinity while they complete the initial stage of the roadmap to a fully integrated APU with Kaveri in 2013.
While not discussed by name in the earnings call, the 28nm desktop APU is on tap for early 2013. Kaveri will be the first APU with a fully shared memory space and will likely have an L3 cache to facilitate this. They firmly believe in the future of this kind of heterogeneous processing technology and by pushing this envelope have an upper hand in terms of the technology if it delivers.
The wild-card is Apple (NASDAQ: AAPL) who just recently hired a number of former AMD engineers who were instrumental in Llano’s development and who may be looking to replicate similar concepts into the next generations of Apple’s ARM-based A-series SoCs.
At this point AMD is definitely a work in progress. The key for them will be executing in these next six to nine months and pushing to grab market share and keep revenues afloat. The second half release of the 8000 series GPUs under the ATI brand will help with continuing to build trust with the OEMs over Trinity. This lays the groundwork for a potential renaissance in 2013.
There’s nothing sexy about AMD’s prospects and there are a ton of things that can go wrong, but this is a company that simply needs to roll up its sleeves, build the right relationships and survive for the possible disruption caused by Kaveri.
PeterPham8 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Intel. Motley Fool newsletter services recommend Apple and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.
