AMD Sinking Under Hurricane of Bad News
The decline in gross margin was driven by an inventory write-down on the value of the unsold hardware AMD was carrying at the end of Q2. Despite this, AMD's inventory levels remain worryingly high. The company is currently sitting on $744M of unsold hardware, down $89M from Q2, but up 56% from inventory levels at the end of 2011. Graphics sales were down somewhat in Q3, falling to $342M with an operating income of $18M. GPU revenue fell 15% year-on-year.
Finally, and worst of all, AMD has announced another round of layoffs. The company plans to fire about 15% of its workforce. Based on what we've heard from sources, those cuts are going to hit Canada hard -- Markham, where the old ATI division and Radeon engineers are located, is rumored to be in the crosshairs. It's not clear, yet, whether AMD plans to take the axe to chipset development or Radeon engineering, but those are the two divisions that primarily work out of the Great White North.
We've updated this story with results from the conference call. The PR released thus far is notable for what it doesn't mention. No word on Kaveri's tape-out,
Post Conference Call:
AMD's conference call ran nearly 90 minutes and offered precious little optimism. Revenue for Q4 is expected to be down a further 10%. Read point-blank admitted that AMD has no chance of competing with Intel and stated that he'll be accelerating AMD's transition to other product categories.
- Kabini (Brazos' follow-up) is expected to launch in the first half of the year.
- Embedded APUs (consoles) are expected to be a much higher percentage of AMD's revenue by this time next year; up to 20% from 5% currently.
- AMD is building "Third party cores" (read: ARM chips) into Seamicro boxes to target the dense server space. These efforts won't hit market until 2014.
- No mention of Kaveri, Steamroller, or any future Opteron parts.
- Graphics is performing "at expectations," but Read offered no information on how GPU development will be impacted by these layoffs or when we'll see the HD 8000 family launch.
- Much talk of "re-using IP blocks." The problem with this argument is that while it makes sense from a cost perspective, every other company is falling all over itself to design custom IP blocks to differentiate products and achieve minimal power consumption.
- Read predicted no relief from the beating AMD is taking from Intel.
I've got some more thoughts to share on this topic, but I'm waiting to see exactly how the axe swings before I say more. This is an exceptionally bad situation for the company.