SAN JOSE, Calif. Following a horrible quarter and market share losses, Advanced Micro Devices Inc. (AMD) is within two quarters of running out of cash, according to an analyst.
''While the company's two preannouncements took away any surprise on the revenue line, margins and profitability were still materially worse than expected,'' said Chris Caso, an analyst with FBR, in a report. ''In addition, AMD lost approximately $883 million in free cash flow in the quarter, worse than expected, and putting the company within two quarters of running out of cash.''
As reported, AMD posted sales of $1.233 billion in Q1, slightly above its pre-announced $1.225 billion guidance. The company lost $1.01 per share, compared to American Technology Research Inc.'s $0.82 loss estimate.
AMD dropped hints about moving towards an ''asset lite'' model to cut fab costs, but the analyst was not impressed. ''We did not hear anything on the call that provided evidence of a reversal of this trend, particularly in the face of what we believe will be very significant price cuts on server products by Intel in early 3Q,'' he said ''Yet, we think betting on fundamental improvement requires a substantial leap of faith, one which we do not recommend investors make.''
It gets even worse for AMD. After losing significant market share in 2006, Intel Corp. struck back in the first quarter of 2007, gaining 4.5 percentage points in the microprocessor market, according to iSuppli Corp.
Intel controlled 80.2 percent of global microprocessor revenue during the period, up 4.5 percentage points from 75.7 percent in the fourth quarter of 2006. AMD lost a corresponding amount of share of share, with its portion of microprocessor revenue falling to 11.1 percent in the first quarter, down 4.6 percentage points from 15.7 percent in the fourth quarter, according to iSuppli.
''We knew Intel had gained share compared to AMD in the first quarter, but the sales gap between the companies widened to a much greater degree than we had expected,'' said Dale Ford, vice president, market intelligence services for iSuppli, in a report.
''An analysis of Intel's results show the company's sales gains came in its strategic line of Core 2 Duo products, its mainstream family of dual-core PC microprocessors,'' observed Matthew Wilkins, principal analyst, compute platforms for iSuppli. ''This represents a major reversal of fortune compared to 2006, when AMD had the advantage with its popular dual-core microprocessors and gained share from Intel.''
Can AMD dig itself out of a hole? ''AMD will look to lessen the capital needs of its models by outsourcing production and partnering up, though we believe this could take much longer than investors anticipate,'' said analyst Doug Freedman of American Technology Research.
''It took Intel 4 years to catch AMD, as management noted on the call, but how long will it take AMD to catch Intel? We believe AMD will not have a product that can match Intel's 45-nm parts for at least 12 months, and even then we expect it will take AMD considerable time to regain lost market share,'' he said.
Based on AMD's conference call, it gets worse. ''AMD expects to regain share in Q2. This is as much a function of increasing wins with ATI as it is a function of massive share loss in Q1,'' he said.
''We expect share gains to remain limited to the low-end of the market until Barcelona launches, with its server products picking up some share in the back half of the year. We note, however, that ASPs on server parts are considerably lower than when Opteron launched and server unit growth is close to stagnant due to virtualization initiatives designed to increase utilization rates,'' he said, referring to AMD's next-generation processor, dubbed Barcelona.
''Barcelona and R600 are shipping later this quarter, which is a 'better late than never' type of scenario. We expect ATI to get a boost on the high-end from this launch, which will help offset business it is winding down with Intel,'' he said.