April 9, 2007 – A protracted months-long pricing war with Intel is clearly taking its tool on AMD, as the company now says revenue will be around $1.23 billion (instead of $1.6-$1.7B) — down 31% from 4Q06 — primarily due to lower ASPs, as well as lower unit sales particularly in the channel.
The company is taking steps to counter the slow business, including restructuring its business model “to increase operational efficiencies,” including reduction of discretionary expenses, and limited workforce additions. AMD also says it will chop about $500 million off its planned $2.0 billion 2007 capex.
The moves may not be enough, according to analysts. “Our checks pick[ed] up about 2 million units of excess AMD inventory that the company had been unable to move despite two price cuts. We think this inventory problem is more than a one-quarter issue and suggests further downside for 2Q,” said FBR Research analysts Chris Caso and Elizabeth Pate, in a research note.
“Despite its planned capex and opex reductions, our revised estimates suggest that AMD will lose $1.5 billion in cash in 2007, vs. our $1.2 billion estimate before the preannouncement, from its current cash position of $1.5 billion,” the analysts wrote. “While we think AMD will be able to raise the cash, we think the need now becomes urgent, and we expect another $0.05-$0.10 annual dilution associated with a capital raise.”
The FBR analysts have reduced their FY07 revenue/EPS estimates for AMD to $5.348 billion/($1.50), vs. earlier expectations of $6.66 billion/($0.39).