AMD Reports Q4 09 results – Intel to the rescue?
1/21/2010 by: Anshel Sag
As the tradition usually goes, today AMD [ticker - AMD] reported their fourth quarter 2009 [Q4 09] revenue two days after Intel. Just like Intel, this was the best quarter AMD had in years, reporting revenue of $1.646 billion, an increase of 18 percent compared to 3Q 09 and an increase of 42 percent compared to the same quarter last year [4Q 08]. Reporting a net income of $1.178 billion, or $1.52 EPS [Earnings Per Share] in Q4 09 - this is also AMD's record profit per quarter in company's history. They also reported operating income of $1.288 billion in the quarter, including a net favorable impact of $1.224 billion.
The net favorable impact is naturally, a direct result of the settlement that AMD had received from Intel. So, if you subtract the net favorable impact from the operating income… you’re only left with a real operating income of $64 million dollars on revenue of $1.646 Billion. But then you also have to subtract another $110 million to compensate for things like interest and taxes. This means that in 4Q 09 - AMD actually lost $46 Million. In which case, yet again, under GAAP AMD is not pulling in a profit. If you were to follow non-GAAP under AMD’s estimates they are pulling in a profit of $80 Million dollars… but that is insignificant.
For the year ending on Dec. 26, 2009, AMD reported revenues in total of $5.403 billion. AMD’s 2009 net income was $304 million - first positive year since the acquisition of ATI Technologies back in 2006. For comparison, AMD reported revenue of $5.808 billion and a net loss of $3.129 billion for 2008.
This illustrates the fact that AMD is slowly but surely recovering from the acquisition of ATi and beginning to finally achieve similar levels of revenue, but they still have room to grow. The only issue is that AMD is still holding approximately $5.27B in debt which is almost equal to their entire revenues reported in 2009. While we accept the fact that debt is important for AMD to incur in order to continue to grow, the interest on those debts can severely cut into their profit in the future if they do not begin to pay it down. A perfect example of this was the reported quarter - 4Q 09; they had to make an adjustment on their operating income of $110 million dollars in order to achieve their net income. There is also a possibility that they could default on those debts if they were to be hit by hard times either as a result of the economy or their own internal problems. Another aspect to look at is the fact that they do have a heavy investment from ATIC on Global Foundries and ATIC may help them out in times of need. AMD will receive another boatload of cash from ATIC in the next 2-3 quarters as a remaining payment for GlobalFoundries, and that money will be used to decrease the debt as well.
Although, AMD did note, they had redeemed the remaining amount outstanding of its 7.75 percent Senior Notes due 2012 [approximately $390 million], reduced the aggregate amount outstanding of its 5.75 percent Convertible Senior Notes due 2012 by approximately $1 billion and issued $500 million of 8.125 percent Senior Notes due 2017. In the fourth quarter, AMD decreased its debt due in 2012 by nearly $1.4 billion, to "only" $485 million.
While this does show a reduction of some of their debt, it also shows a re-financing of the debt owed in 2 years by an additional 2.5 percent while extending that debt an additional 5 years.
As of 1Q 2010 [this current quarter], AMD will report operating results for what was formerly referred to as AMD Product Company only and will no longer consolidate the financial results of GlobalFoundries. AMD's investment in GlobalFoundries will be accounted for using the equity method. This means that they will simply account for their income and losses in their shares of GlobalFoundries into their net income.
"AMD's quarter marks another milestone in our transformation and underscores our growing momentum," said Dirk Meyer, AMD president and CEO. "We enter 2010 having completed the transition to a fabless business model, reached a historic antitrust settlement, and made significant progress strengthening our balance sheet. Our innovative strategy for designing the world's most vivid digital experiences continues to generate demand."
This statement comes directly from the AMD PR release that they posted on their site. While this statement shows the optimism that AMD has towards their fabless business model, this also means that they have very little collateral to make new loans on. A big part of Intel’s collateral is their fabs, but at the same time it is also a depreciating asset because of the fact that everyone is always fighting to build a new Fab with newer tech.
While AMD appears to have great success in the discrete graphics sector having sold over two million DX11 graphics cards, they are still struggling to keep up with Intel. Their GPU side of business is kicking ass and taking names, but the CPU side, especially the inept Opteron team [read: cash cow] just isn't following Intel and is getting hammered by Xeons based on Nehalem architecture. Could this be a result of the fact that the Opteron PR team is operating in first gear compared to Intel's fifth gear? That is unfortunately, just one piece of the puzzle. AMD has excellent graphics team and still a not-so-excellent CPU team making the company operating on just one cylinder and as we all know, AMD now has multiple business units.
AMD had promised that we would see a Fusion product which would be a result of the combination of the AMD and ATi corporations, and we have yet to see the fruits of that acquisition. Intel released their Clarkdale processor which implements the Fusion concept of a CPU and a GPU on the same chip - at least a year ahead of AMD. Do bear in mind that according to AMD's own roadmaps, CPU+GPU product from them was due in April 2009. Truth to be told, Bulldozer architecture of 2011 has nothing to do with the original Bulldozer, as AMD threw the old planned architecture out the door and went for the "clean sheet" approach.
What this means for AMD is that they need to reduce their debt in order to be able to claim true profitability as well as deliver on their promises on time. Or else they will continue to get beaten by Intel in the CPU market. If Intel continues to beat AMD in the CPU performance category, there is little chance that AMD will be able to survive on the income that their graphics arm of business is providing. AMD needs to kick their both business units into the higher gear. Given that both GPU and CPU units didn't score a profit, one might be inclined to ask what is going on in AMD? The company has a clear lead on GPU performance and feature markets, but now we see the full extent of shortages that happened after the launch of 5000 Series. AMD GPU division did increase turnover by 42%, but still didn't score a profit.
In summation for AMD's quarterly results, we didn't think we'd say this but 4Q 2009 bears a mark "Intel to the rescue?"
AMD, Intel, Earnings, Report, Profit, Loss
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