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Volume 6, Number 28 -- July 23, 2008

Intel Has a Great Q2, and AMD Has a Poor One and Taps a New CEO

Published: July 23, 2008

by Timothy Prickett Morgan

If chip maker Intel were an economic barometer for the various economies of the world--and particularly the skittish economy of the United States--no one would be talking about a recession, but rather a slight slowdown that had occurred in the past and a situation that is clearly on the mend. Unfortunately for those of us in the developed economies of the world, Intel is not much of a barometer of the economies at large, even if it is a big player in many economies. And hopefully, rival Advanced Micro Devices, which is struggling to right itself, isn't either.

Intel finished its second quarter on June 28, and raked in $9.47 billion in sales, up 10.9 percent over the second quarter in 2007. Net income rose by 25.3 percent to $1.6 billion, and earnings per share came to 28 cents, up 27.3 percent from the year ago period. The company ended the quarter with $4.08 billion in cash (down more than $3.2 billion from the end of 2007) and $4.3 billion in short-term investments (down from $5.5 billion six months ago). Intel spent the dough on stock repurchases to boost per-share earnings comparisons and on capital investments.

Intel's flagship Digital Enterprise Group, which makes chips, chipsets, and motherboards for PCs and servers, accounted for $5.37 billion in sales, up 7.6 percent, with microprocessor sales accounting for $4.11 billion (up 9.8 percent) and chipsets and motherboards accounting for $1.26 billion (up only 9/10ths of a percent). The Digital Enterprise Group had an operating income of $1.71 billion, and it should be noted that this quarter, Intel folded its Digital Home Group into the Digital Enterprise Group and recast all of the numbers back through 2006. Intel's Mobility Group had just under $3.8 billion in sales, up 14.8 percent, with microprocessors bringing in $2.74 billion (up 12.3 percent) and chipsets and other components bringing in $1.05 billion (up 21.8 percent). Intel sold $300 million in other stuff in the quarter. The company said that mobile chip and chipset shipments set new records for the firm in Q2 2008, and that total microprocessor shipments were up sequentially from Q1 2008 and higher than seasonally expected.

By geographic region, Intel sold $4.8 billion in products in the Asia/Pacific region, up 7.8 percent, with the Americas region accounting for just under $2 billion (up 8.9 percent), Europe buying $1.74 billion (up 17.2 percent), and Japan at $939 million (up 2.6 percent).

Looking ahead to the third quarter, Intel said that it expected sales to be between $10 billion and $10.6 billion; the company had $10.1 billion in sales in the third quarter of 2007 and brought $1.9 billion to the bottom line. So Intel expects to do about the same on the revenue front, and as usual, it does not talk about potential earnings for a future quarter and leaves that to the Wall Street mathematicians. Paul Otellini, the hero of the Intel turnaround and the company's chief executive officer, said in a conference call with Wall Street analysts that demand for its products in the second half of the year were expected to be strong across product segments and geographies. Still, the news on Monday that the antitrust regulators in the European Union would be levying new antitrust charges against Intel in its ongoing antitrust lawsuit with AMD put a bit of a buzzkill on the financial results, which were clearly good.

The news that the EU was looking more closely into allegations that Intel has been using monopoly power to thwart the advances of AMD in the X86 and X64 processor markets didn't really help AMD's top brass all that much. In fact, in the wake of its second quarter financial results, Hector Ruiz, now AMD's executive chairman, lost the chief executive post, which was passed on to Dirk Meyer, who came to AMD in 1995 after designing DEC's line of 64-bit Alpha processors. Meyer has been president and chief operating officer at AMD for the past two years and was the most probably successor to Ruiz for the CEO post. And if AMD doesn't shape up its financial situation, maybe for the chairman post, too.

AMD's sales in the second quarter ended June 28 came to $1.35 billion, up 3.1 percent. The company had an operating loss of $143 million and a net loss of $1.19 billion, which was a lot worse than the $600,000 loss it had in Q2 2007 against essentially the same revenues. Most of that loss--$920 million of that--was for discontinued flash memory and other minor businesses, so in the core microprocessor business, AMD's financials have actually improved a little at the bottom line, with a loss of $269 million versus a loss of $531 million a year ago. By segment, Computing Solutions segment accounted for $1.1 billion in sales, up a smidgen from last year's Q2, while the Graphics segment contributed $248 million to the quarter, up 17.5 percent.

"While we had a disappointing quarter financially, customer adoption of our recently introduced microprocessor and graphics products and platform offerings is strong, and we see increasing momentum across our businesses," explained Robert Rivet, AMD's chief financial officer, in a statement accompanying the financial results. "In the face of challenging macroeconomic conditions, we remain committed to achieving operating profitability in the second half of the year based on the continued ramp of new products, increased market penetration of our differentiated solutions, and continued actions designed to reduce our breakeven point."

There was some chatter earlier this year about IBM possibly buying AMD, and at its current $2.8 billion market capitalization, Big Blue can actually afford to do it. And quite possibly shut down AMD's chip fabs and move production to its top-of-the-line plants in Upstate New York. A year ago, AMD's value was nearly four times higher, and it was far too expensive for anyone to acquire--at least considering that it is in the risky X64 processor business and going up against juggernaut Intel, anyway.


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