Intel Profits Hit, AMD Books a Loss in Recent Quarters

Published: April 29, 2008

by Timothy Prickett Morgan

Competition is a very tough thing, particularly when vendors get pinched by each other and a tightening economy at the same time. But so it is in the market for X64 microprocessors sold by Intel and Advanced Micro Devices. While both companies are under pressure, dominant chip maker Intel is still making profits and ramping up acceptable quad-core products, while AMD is just now getting quad-core chips out the door and facing a resurgent Intel as it slashes 10 percent of its workforce to balance its books.

In the first quarter ended March 29, Intel booked sales of $9.7 billion, up 9 percent year-over-year, and had an operating income of $2.1 billion, up 23 percent. This made Wall Street pretty happy, as you might expect. But restructuring costs and assets write-downs, having mostly to do with its recently divested flash memory business, pushed net income down 12 percent to $1.4 billion, or 25 cents per share. This made an already jumpy Wall Street unhappy, but it could be worse: Intel could be a bank. Or AMD, for that matter.

In the quarter, Intel's Digital Enterprise Group, which makes chips, chipsets, and motherboards for servers and desktop PCs, sold $4.12 billion in processors, up 15.8 percent, while chipset and motherboards were down a smidgen to $1.18 billion, for a total of $5.3 billion in sales, up 11.4 percent. The company's Mobility Group, which makes processors and chipsets for various portable machinery, had $2.73 billion in sales, up 11.7 percent, and chipset sales of $943 million, up 8.9 percent; total sales for the Mobility Group were $3.67 billion, up 10.9 percent. Intel's other businesses had sales of $706 million (down 10.7 percent) and posted an operating loss of $845 million. The company exited the quarter with $10.9 billion in cash and short term investments, but had 15 percent more dough in its war chest at the end of 2007. Part of the reason the cash disappeared is that the company spent $2.5 billion buying back 122 million shares of its own stock, which gave Wall Street the engineering on net earnings per share it has come to expect from all major corporations with cash and businesses under pressure.

Paul Otelini, Intel's president and chief executive officer, said in a conference call with Wall Street that the company was getting good traction on its latest generation of 45 nanometer chips, and noted that the high-end, multicore chips used in its Caneland MP platform (that would be the quad-core Tigerton Xeon 7300s) were selling well, and in the United States in particular, and that quad-core Xeon DP processors (code-named Clovertown and Harpertown) are now the volume products in the Xeon DP line. The shift from desktop to mobile computing in the PC area continued apace, and the Mobility Group accounted for more than a third of Intel's sales in Q1. In sum, Intel's top brass said that the quarter turned out pretty much as expected, with record server product sales, and added that the company was projecting second quarter sales in the range of $9 billion to $9.6 billion.

Otelini took a bunch of questions on the macroeconomic climate, and the fact that he did not issue a bearish outlook was seen as very good news. "Just to remind you, 75 percent of our revenues are not in the U.S. now and much of the concern on macroeconomic debate has to do with the U.S., and particularly the Manhattan portion of the U.S.," he explained, referring to the housing crunch, the banking crisis, and other credit issues. "So we don’t see this really impacting our business at this time and haven’t seen it so far in the last couple of quarters. In my experience, when there are more difficult economic times, people do two things: They turn to information technology for productivity gains for their enterprises and they tend to buy the best-of-breed products that are out there. As that happens, if it happens, Intel is in a pretty good position."

Over at AMD, the boardroom is a bit less happy, and so presumably are the company's investors, since AMD booked a loss for the quarter thanks in part to delays in getting the "Barcelona" and "Budapest" quad-core Opteron processors to market, ongoing restructuring charges related to the ATI acquisition, and intense competition from Intel.

AMD had sales of $1.5 billion, up 22 percent, with a net loss of $358 million. Of course, that loss was better than the $611 million loss AMD had in the year-ago quarter, so this is improvement, and it is a lot better than the $1.77 billion loss AMD had in the fourth quarter of 2007 as it wrote down a lot of the assets relating to the ATI acquisition. In the first quarter, AMD had $50 million in restructuring charges relating to the ATI takeover, and the remaining $308 million in losses were earned the old-fashioned way of spending more money than you take in. As AMD announced two weeks ago, there is another whopper of a charge coming in the second quarter of this year, when AMD books restructuring charges related to its already-announced plan to eliminate 10 percent of its 17,000-strong workforce by the end of the third quarter.

In the first quarter, AMD had $1.19 billion in microprocessor and computing solutions sales, up 30 percent, while graphics chip sales rose by 17 percent to $230 million. The company also had $81 million in consumer electronics sales, down 31 percent. AMD said that microprocessor unit shipments were up in the quarter, and that average selling prices remained flat. As AMD exited the quarter, the Barcelona chips accounted for about a quarter of its mix, and will soon hit the 50 percent level, according to the company.

The difficulties that AMD has faced have hammered the company's stock price, which peaked at above $40 a share in early 2006 when it looked like Intel was on the ropes and AMD was the 64-bit, multicore X64 chip winner. As Intel has woken back up and gotten acceptable X64 technology to market, effectively negating AMD's technological lead, at the same time as AMD has tripped up with its dual-core and quad-core Rev F Opteron chip launches, the company's stock has slid pretty much straight down to $6 a share, giving AMD a market capitalization of $3.7 billion and vaporizing over $26 billion in value. That is a very big tumble, and it would not be surprising to see someone acquire AMD after all the layoffs and writeoffs are done if its market cap doesn't improve. One thing is for sure: It won't be Intel doing the acquiring, if this should come to pass. Such a deal would never pass muster with the antitrust authorities in the United States or in Europe. Imagine if someone in China, India, or the Middle East, with big bags of money, thinks about doing such a deal? Watch the politicians squirm. . . .

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