Update on July 24, 5:50 p.m. PDT with additional information and corrections.
UPDATE: According to Kirk Ladendorf, the author of The Austin American-Statesman article, the Statesman will issue an update, likely sometime during the week of July 28. In short, it appears that AMD's contention that Dirk Meyer was misquoted is true.
Advanced Micro Devices will split into separate companies as it spins off its manufacturing operations, according to a report.
The Austin American-Statesman had one of the most unambiguous statements to date when it interviewed AMD's new CEO, Dirk Meyer, last week: "Meyer says the company is just months away from a major restructuring that will spin the manufacturing operations off into a separate company, with new ownership," the report said.
AMD spokesperson Drew Prairie says Meyer was misquoted, but did not give details on the company's future plans. He did say that "it's fundamentally important to AMD to transform how we manufacture our wafers."
One thing is clear: AMD has been laboring for months over the details of the restructuring. "We have made enormous progress. Certainly have an incredibly high level of expectation we will be able to do that before the end of the year," said AMD chairman Hector Ruiz--who stepped down as CEO last week--during the second quarter earnings conference call on July 17.
What may happen before the end of the year is a partial reorganization of the company rather than a clean spin-off of all manufacturing assets. But the basic import of the Statesman comment isn't necessarily inaccurate. AMD Chief Financial Officer Bob Rivet said during AMD's second-quarter earnings conference call that Asset Smart "will be a major reformation of the company." Asset Smart is AMD's terminology for the restructuring of its manufacturing operations.
"Part of the reason for the timing of the CEO transition...(is) we're just about at the goal line on Asset Smart," Prairie said. "It's at a point where it requires 100 percent of Hector's time and focus to see it through."
One of the biggest pieces of news that emerged from AMD's earnings announcement last week was that Meyer would become CEO and Ruiz would remain as chairman to oversee AMD's transition to Asset Smart. This arrangement has led to speculation that AMD would spin off the manufacturing part of the business. The question seems to be: How much of this would AMD retain?
AMD already has an Asset Smart relationship with IBM, Prairie said. "We have a very good relationship with IBM on the process technology side. That's one of the examples we have held out where we have gone Asset Smart in the past. Not having to have a 300 millimeter test facility on our books because we use their facilities."
However, Ashok Kumar, senior vice president at CRT Capital Group, said that one of the likeliest partners for AMD when it restructures manufacturing operations is Singapore-based Chartered Semiconductor Manufacturing. Taiwan Semiconductor Manufacturing Company (TSMC), which currently makes AMD's graphics processors, has also been cited as possibly playing a role in AMD's restructuring.
Advanced Micro Devices has its eye on the ultra-low-cost notebook market. Dirk Meyer--the company's new CEO--and other executives discussed this and ways to make the company profitable during the company's earnings conference call Thursday.
HP 2133 Mini-Note is a low-cost ultramobile notebook--a market AMD is eying.
(Credit: Hewlett-Packard)Meyer--promoted to CEO on Thursday--made it clear that AMD is serious about the so-called Netbook market, where Intel's Atom processor has been the most successful so far. (Though Intel CEO Paul Otellini made a perplexing comment Tuesday about the Atom processor.)
Netbooks have two hallmarks: they are typically under $400 and are extremely small and light. The Asus Eee PC is the most popular Netbook currently.
In response to a question from an analyst, Meyer implied that while AMD is not interested in the mobile Internet device market (think: iPhone), it is serious about low-cost notebooks.
"We're a much smaller company with not nearly the scale that our competitor has," Meyer said. "We don't intend to try to do absolutely everything they do in the marketplace. (But) slightly smaller form factor notebooks and inexpensive notebooks. That is a market segment that we're interested in."
AMD is already taking concrete steps to get into this market.
"It's actually a segment that we're starting to offer products to our customers in support of now," Meyer said. "We actually haven't talked in public about that, but I expect we'll be talking about that roadmap when we get together in November at our analyst conference."
Meyer and other executives also addressed upcoming 45-nanometer processors, new graphics chips, and the so-called "asset-lite" strategy as ways to bring the company back to profitability.
Chief Financial Officer Bob Rivet said upcoming 45-nanometer processors and the eventual outsourcing of more production to companies like Taiwan Semiconductor Manufacturing Company (TSMC) will be the keys to long-term sustained profitability.
"Our strategy to continue to execute on 45 nanometer improves our cost structure," Rivet said. He added that improving profitability also "does incorporate asset-smart (and) execution by Hector (Ruiz) to bring it to conclusion." Analysts refer to the outsourcing strategy as asset-lite, AMD refers to it also as "asset-smart." Outgoing CEO Hector Ruiz will stay on to execute the asset-lite strategy.
Rivet later added that asset-lite "will be a major reformation of the company."
On upcoming 45-nanometer production, Meyer said: "We're well on track with the 45-nanometer plan. We actually started production late last quarter and on track to begin volume shipment early in Q4." AMD currently uses a 65-nanometer manufacturing process for most of its silicon. Intel, on the other hand, has been shipping 45-nanometer processors since last year and its newest Centrino 2 processors are made on a 45-nanometer process.
New graphics chips will also help, according to Rivet. "The new 4800 series will be the best products in the marketplace. (This) will definitely contribute to gross margin," he said. AMD is struggling to get the all-important financial benchmark of gross margin to above 40 percent. It is now at 37 percent. By comparison, Intel's gross margin was just below 56 percent in the second quarter.
About profitability in general, Rivet said: "Since we're so far away from profitability. The first order of magnitude is operating profit at the operating income level not at the net income level. First get to that level then we'll work to get the net," he said. Rivet said AMD will show an operating profit in the second half.
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