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AMD to face tough questions at analyst meeting
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Written by Daniel   
Thursday, 13 December 2007 12:10

Quad-core chip delays, goodwill charge for ATI, darken chipmaker's financial outlook

By Sumner Lemon, IDG News Service
December 13, 2007
InforWorld

Amid further delays of AMD's quad-core server chip and plans to write off goodwill from the acquisition of ATI, AMD executives are going to face tough questions when they meet financial analysts in New York Thursday. AMD preempted the analyst meeting with the announcement Wednesday that it plans to take a material charge for impaired goodwill from its US$5.4 billion acquisition of graphics chip maker ATI. But AMD didn't say how big that charge will be, promising to announce the amount within four days -- a span of time that implies details of the charge will be revealed after the analyst meeting.

Goodwill is a financial term that describes the difference between the price that one company paid to acquire another and the net value of the assets that it acquires. This difference, or goodwill, reflects the intangibles that a company acquires, such as the reputation and intellectual property of the acquired company.

AMD initially recorded goodwill of $3.22 billion from the acquisition of ATI. That was reduced to $3.17 billion at the end of September, primarily due to changes in income-tax liabilities recorded by the company. AMD's decision to write off a significant portion of this goodwill is a recognition that ATI is no longer worth the price it paid last year.

The expected charge further dims AMD's gloomy financial outlook. The company has so far lost $1.6 billion this year on sales of $4.2 billion. By comparison, AMD recorded a $410 million profit on sales of $3.9 billion during the first nine months of 2006. At the same time, AMD borrowed heavily this year to keep its operations moving, issuing $3.7 billion in notes that are convertible into company shares.

AMD received a further boost last month with a $608 million investment from a company owned by the Abu Dhabi government, but the company still faces significant challenges.

Those challenges are reflected in the decline of AMD's gross margin since last year, partly as a result of the ATI acquisition, which brought lower-margin products into AMD's lineup, but also because server chips represented a lower percentage of the company's microprocessor sales. Server chips are generally more expensive and have higher margins than processors used in desktops and notebooks, and strong sales of server chips would give a badly needed boost to AMD's financial situation....Much More    Comments in the Forums
 

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