After The Bell: AMD Reports Earnings, Gives Outlook for 2010

The last few months have been a whirlwind of activity for AMD. Since the beginning of the fourth quarter, the manufacturer has launched new ATI HD 5000 series parts in the high-end, enthusiast, and mainstream market segments, settled its antitrust lawsuit with Intel, renegotiated its x86 licensing agreement and charted a new course that will establish GlobalFoundries as a completely independent entity. Last week, the company announced its Q4 financial results and gave additional details on what it expects for 2010. This is the last time AMD will consolidate GlobalFoundries results into its own numbers; the company's renegotiated licensing agreement with Intel has allowed it to significantly accelerate the de-coupling process between itself and its former foundry.

As we previously covered, AMD posted revenue of $1.646 billion, up 18 percent from Q3 and 42 percent year-on-year. The company's net income was $1.178 billion, a figure which includes the impact of the Intel settlement. Year-wide, AMD's net income was $5.4 billion (down seven percent from 2008), but the Intel settlement dramatically reversed the company's fortunes. Sunnyvale reported a net income of $304 million for fiscal 2009, compared to a net loss of $3.1 billion in 2008—although the latter was inflated considerably by the non-cash impact of writing down ATI's goodwill.

The big picture results, in this case, are a tad inaccurate because of the impact of GlobalFoundries. If we exclude the foundry's impact (it lost $100 million in Q4) and examine the GPU and CPU segments individually, we get a much better picture of how well AMD is positioned for 2010. The news—particularly in GPUs—is pretty darn good. AMD's processor division reported net revenue of $1.21 billion for Q4 and an operating income of $158 million, while the company's GPU division posted net revenue of $454 million. That's a 40 percent jump compared to Q3 and a 68 percent rise year-on-year. Furthermore, comments by AMD's executives during the company's conference call indicate that sales of the HD 5000 series were "significantly" constrained by 40nm yield problems at TSMC.

Real Improvements, Murky Future

There's no question that AMD is starting 2010 in a much stronger position than 2009. The Radeon HD 5000 series is broadly perceived as unmatched (and could reign over the market for the entire first quarter), and 45nm processors are now in full production. The range of Phenom II/Athlon II parts currently on the market at all price points are significantly more attractive than their Phenom/Athlon X2 predecessors, and the company reported that it shipped a record number of notebook processors and chipsets over the same time period.

AMD's six-core Istanbul. The company will combine two of these on a single chip to create Magny-Cours.

These strengths, however, are pitted against myriad uncertainties. Intel's new Core i5/i3 processors will put pressure on AMD in every segment of the consumer market, while the upcoming Xeon product refresh we referred to in an earlier article will only stiffen the competition Opteron faces in the server space. AMD already plans to launch its twelve-core Magny-Cours processor and its accompanying quad-channel DDR3 Maranello platform in the first quarter, but Nehalem's clock-for-clock performance edge over the Shanghai architecture means AMD will face a tough fight in the server space. The manufacturer will presumably compensate by positioning its six-core and twelve-core chips against Intel's quad-core and octal-core Xeons.

Mobile is another area where AMD's relative offerings have improved significantly thanks to the 45nm shift and the Phenom II core, but again, the smaller manufacturer will have to contend with Intel's mobile Nehalem processors in both 45 and 32nm flavors. We already know that we won't see 32nm processors from Sunnyvale in 2010; the company's competitive positioning in all markets will be driven by its now-mature 45nm process. (As an aside, Bulldozer and Bobcat weren't discussed at all during the Q1 call—details on when these chips will ramp and whether or not the existing Phenom II architecture will transition to 32nm are still unclear.)

The last and most nebulous variable in the equation is the patent and cross-licensing agreement between AMD and Intel. During the company's November 12 conference call to discuss the details of that announcement, CEO Dirk Meyer described the agreement as ushering in a new era that would meaningfully change the shape of the industry. Meyer acknowledged the long combative history between the two companies, but characterized the mutual resolution as designed to address such grievances, saying: "We are going to be fierce competitors in a free and open marketplace, we are going to be mutually respectful of each other, we don't want pressures to build up."

Such talk might normally be dismissed as little more than polite verbiage, but Intel has agreed to abstain from a wide range of behaviors that AMD claimed were abusive in its original antitrust case. Long-term, the agreement (if mutually respected) could have an impact on AMD's ability to win OEM designs and establish itself as a player in new product segments. From where we stand today, AMD is unquestionably in a better position than they were 12 months ago but there are too many variables in play to predict the shape of things to come.