Anxious AMD

On January 22, Advanced Micro Devices Inc. (NYSE: AMD) reported disappointing Q4 and fiscal year 2008 results, with a ninth straight quarterly loss that was wider than expected. Already reeling under internal problems, the economic crisis is not just the straw, but rather a rock that is breaking the camel’s back.

As we saw with Intel, demand has been weak in a quarter that usually sees strong sales, and AMD has also been experiencing the effects of the economic slowdown. Revenue in the fourth quarter declined 33% y-o-y and 28% q-o-q to $1.16 billion versus analyst estimates of $1.23 billion. Net loss was $1.42 billion or $2.34 per share versus loss of $127 million or $0.21 per share last quarter and $1.77 billion or $3.06 per share last year. Non-GAAP net loss was $0.69 per share versus analyst estimates of $0.54 per share. For the full fiscal year 2008, revenue was $5.8 billion, just about flat with last year.

By segment, Computing Solutions revenue declined 38% y-o-y and 37% q-o-q to $873 million. There was a 50% q-o-q increase in quad-core shipments. Graphics revenue declined 8% y-o-y and 30% q-o-q to $270 million.

Contrary to improvement in gross margin last quarter, gross margin in Q4 has dropped from 51% to 23% q-o-q due to a $227 million incremental inventory writedown.

The cash and marketable securities balance at the end of the quarter was $1.1 billion, down $245 million from last quarter. Capital expenditures were $112 million in Q4 and $621 million for the full year. AMD’s capex guidance for 2008 was $800 million. The company announced that to cut costs, it will eliminate 1,100 jobs, about 9% of its headcount. It also announced a suspension of its 401(k) match for employees and salary cuts across the company – executive chairman Hector Ruiz and CEO Dirk Meyer have taken 20% cuts to their base salaries.

AMD is also focusing on its core business of making x86 processors and high-end graphics chips. It recently completed the sale of its DTV business to Broadcom for $142 million and certain handheld division assets to Qualcomm for $65 million.

AMD’s Abu Dhabi-based joint venture, The Foundry, is expected to be completed in February. However, Intel has raised objections about the JV’s using Intel’s patented x86 processor technology. AMD has a licensing agreement, but Intel says The Foundry is not a subsidiary.

For the first quarter, AMD expects revenue to decline further. It has reduced its breakeven target to $1.3 billion. It continues to target a gross margin of 40%, but this could be affected if its joint venture fails to materialize. The stock is currently trading around $2 with a market cap of about $1.2 billion. It hit a 52-week low of $2.11 on November 19.