Whenever a company makes a financial announcement to the press over a week ahead of its scheduled quarterly report, the news probably isn't that good. So just the fact that AMD had a statement this morning was a bad portent; the follow-up wasn't much better. Its revenue for the fiscal first quarter of this year looks worse than earlier guidance suggested: down to $1.225 billion.
Exactly how bad is this? AMD's fiscal first quarter revenue last year was $1.33 billion. But before you get out your calculator and do simple subtraction, realize that the AMD of 2006 is not the AMD of 2007. There was supposed to be an extra company welded into the mix, called ATI. In the previous quarter, the absorption of ATI added $400 million of revenue to the company. If the new AMD was growing as it should, revenue for the combined corporation should have come closer to $2 billion.
It doesn't take an analyst to tell you what the problem is, because AMD has said so up front today: Though lower margins remains a problem, "significantly lower unit sales, especially in the resale channel" appears to be the principal trouble. Simply put, AMD CPUs aren't selling like they did.
But the company appears willing to shave margins even further if it means capturing back market share lost to Intel since last July. A price reduction AMD announced last month has since triggered a street price drop even at the higher performance levels, with the Athlon 64 X2 6000+ selling for as low as $249 - almost 45% lower than its street price three weeks ago.
Prices for individual Athlon 64 FX-74 processors have dropped 11% from last month, to as little as $444.99 according to Pricewatch CPU (though you need two FX-74s to make a system). Individual FX-72 prices have dropped about 21.6% since last month, to $326 (again, you need two).
Meanwhile, Intel keeps introducing quad-core models, with the QX6800 announced just yesterday at the $1,200 price point. While that price represents the upper crust of what enthusiasts will pay for power, such introductions typically push other price points down, and may in fact be responsible for a price drop of about 4% in existing top-of-the-line Intel processors.
With Intel not appearing to let up, AMD now has to respond with a restructuring plan of its own. The company announced this morning it is looking to cut half a billion in capital expenditures, yet in such a way that manufacturing capacity for the year isn't affected. In proportion with its size, this could be a more difficult task for AMD than Intel's restructuring, which began in spring 2006 and is nearing its completion.
Details of AMD's plans are expected to be announced a week from Thursday.
[BetaNews]
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