AMD: Wanted Dead or Alive

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AMD: Wanted Dead or Alive

After the world's largest news organisation reports a possible takeover, we set the flux-capacitor to full and scry the future.

Atomic, over the years *sniff, sniff* has followed the course of  Advanced Micro Devices very closely. From plucky upstart, to a company that deserved to outsell Intel ten-to-one for many years, to the ATI purchased and eventually the mixture of bad luck and decisions that saw it never quite recover from the Phenom I / Core 2 mismatch. As such we felt it logical to take a look right here and now at where it stands.

After many earlier rumours of a takeover, it is looking like AMD could finally end up as someone else’s property. Reuters reported earlier this month that AMD hired US bank JPMorgan Chase & Co to ‘explore options’, which may include a sale. After investigation, a source inside the chipmaker confirmed that “an outright sale of the company is not a priority”’ (emphasis ours) and that other possible options include the sale of assets including patents to aid cashflow. At this point exact details are typically murky, but basic figures imply there is a threat to AMD here. After buying some appropriate qualifications at a prestigious online university and thumbing through a copy of Superfreakonomics, we took a gander at the situation.

Publicly available financial statements give a clear picture of an organisation that has been on the ropes for a while. With the glory days of the FX-60 and first Opertons gone, and without significant mobile presence, AMD is bleeding money fast and has been the last five years - losing well over a half a billion US dollars in the last 18 months, $US 130m of it in the last three months. What is more shocking to see is the scale of effect on the company's value. This has plummeted from $US 16bn just prior to the launch of Intel’s Core 2, to just $US 1.34bn today. We all know from a hardware point of view that AMD has lacked a truly killer CPU product of late but its continuing relevance for enthusiasts - I mean what idiot hasn’t bought one of its GPUs over the last few years? - hides an utter financial catastrophe. Such repeated massive negative earnings (bear in mind the last three month's losses amount to a tenth of the company's entire value) just can't go on for much longer.

Basic laws of finance say that if another organisation feels they can get more out of AMD than the current management can, they can and should offer more money for AMD than it is valued and that will likely be an offer the shareholders will accept. Just as telling, as the price of AMD drops lower and lower the number of companies that can offer that increases. In fact even without a planned sale, the fact that anyone can mount a hostile takeover then break the organisation into parts, such as a profitable GPU division and CPU design house (with its very rare rights to make x86 processors) makes AMD an attractive target. This side of things is ultimately not directly in the hands of management or engineers; as a publicly traded company, it’s down to the shareholders. That is why financial underperformance is so important: it could spell a quick end to what we still consider a technology giant . We hardly need to spell out the implications for the enthusiast world, but would invite you to look at the Blue Team's alleged anti-enthusiast heading.

                               The last six years in a rather sad nutshell (Source: Yahoo Finance)

There are still many reasons to suspect that AMD will eventually prosper and deserves to have current shareholders stick with it. For one Piledriver processors are already starting to cut the mustard - both in enthusiast ‘FX’ and the popular ‘A-Series’ (Trinity) APU variants, we are starting to see those who said Bulldozer had growth potential proven right. Performance still lags behind Intel, but AMD has steadily closed the gap after a disappointing debut of its all new architecture, while pricing has dropped enough to make it the new chips real competitors. So far the projections and technical details we've seen for the next two generations of Bulldozer chips, Excavator (2013) and Steamroller (2014-2015) indicate AMD will keep performance relative to Intel about steady.

Probably the best home for these Bulldozer successors is in the lucrative, massively multithreaded server world, and there Piledriver-based Opterons have started making a bigger and much needed impact. For the first time in a long time, AMD's offerings can be best value for money all up and contrary to the less threaded, maximum power computing enthusiast world, they can truly outperform Intel's servers chips. Further into the future there are plans for a completely different server type, using recently acquired SeaMicro tech and ARM-derived cores. There is a horizon to head for; the question is whether there is time to reach it.

In the final analysis, AMD’s technological destiny and its financial one obviously intertwine. As of late 2012 though, the pressure from the financial side is becoming overwhelming. In the current tentative climate, the company will probably shake off takeover threats but that will be the last time it's likely to do so. AMD has one last shot at making itself a truly viable technological enterprise again with the next-gen 'Excavator' and 'Steamroller' processors - otherwise the numbers say it faces sale or ruin within the next two years.

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